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Newsletter

Daily Newsletter, Saturday, 3/18/2017

Table of Contents

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

Market Wrap

Rotation

by Jim Brown

Click here to email Jim Brown

After weeks of big cap stocks leading the charge higher and small caps declining, that reversed last week.

Weekly Statistics

Friday Statistics

The small cap indexes were sharply higher on Friday after three days of gains and they posted the best performance of the week. If this continues, it will be bullish for the overall market. The S&P-600 gained 5 points and closed over short-term resistance after testing support three times over the last two weeks. The small cap index gained 2.3% for the week. This is very bullish if it continues but there is solid resistance at 860 so it will not be an easy task. The Russell 2000 also gained 5 points on Friday and 1.9% for the week.


For a quadruple witching option expiration, Friday was positively boring. Over 9.6 billion shares traded and the major indexes closed basically flat. Typically, the fireworks are seen earlier in the week but the Fed decision probably kept trading in check. Monday after an expiration is normally lackluster as well because of option settlements.

The economic reports did not generate any market excitement with traders focused on the option expiration. The Consumer Sentiment for March rebounded from 96.3 to 97.6. The February number had declined from the 98.5 high in January.

The present conditions component rose from 111.5 to 114.5 and the highest level since the year 2000. The expectations component rose only slightly from 86.5 to 86.7. The rising jobs numbers and decade lows on the weekly jobless claims are helping to support sentiment.


Industrial Production for February was flat at zero after a -0.1% decline in January and +0.6% gain in December. Durable goods rose +0.6% thanks to a +0.8% surge in motor vehicles and parts. Production of high tech equipment rose only +0.2%. Nondurable goods rose +0.4%. Mining/energy rose 2.7% as the oil fields go back to work. The report was ignored.

Now that the Fed is behind us until early May, the talk is turning to the GDP. The real time estimates from the Atlanta Fed have declined to +0.9% growth for Q1, down from the 3.4% forecast at the beginning of February. This is not a good sign but it should keep the Fed on a "gradual" path of rate hikes for the rest of 2017.


The Fed is expected to hike rates twice more in 2017 and the next hike will not be at the May meeting unless something changes quickly. The Fed futures are only predicting a 6% chance of a rate hike at that meeting. The June meeting is the next target for a hike and already has a 54% chance according to the futures.

You may remember that three weeks ago, the outlook for a hike in March was only about 20%. Through Fedspeak by the various Fed officials and even Yellen herself, that expectation rapidly advanced to 94% just before the meeting. They managed the expectations in the direction they wanted. That means we can never completely discount a meeting as "not a live meeting." The outlook can change very quickly.



We have a very light economic calendar for next week. The most important event will be Yellen's speech on Thursday. Now that the March hike is behind them, she will need to begin posturing for the next hike, but the clues will be miniscule. With 10 other Fed speeches next week there will be plenty of Fedspeak to decipher.

The home sales on Wed/Thr will be a highlight since the warmer than normal weather probably got consumers off the couch and out into the market. With interest rates rising there will be some incentive to make a move soon before the next Fed hike.

The event I am looking forward to the most is the Vernal Equinox otherwise known as the arrival of spring at 4:30 PM EDT on Monday. I am ready for the cold weather, what little we had, to change into springtime temperatures.


In stock news, Tiffany (TIF) reported earnings of $1.45 that beat estimates for $1.37. Revenue of $1.23 billion just barely beat estimates for $1.22 billion. The company guided for revenue to increase by low single digit percentage for 2017. They opened 11 stores in fiscal 2016 to bring their total to 313 stores. Sales were boosted in Japan by brand exposure on a popular TV show and a strong yen. Sales also rose in China. Sales of items under $500 were stronger than normal and the company is going to increase offerings in that range. They said disruptions around Trump tower in Q4 caused sales at that store to decline 7%. Shares rallied 3% to a 20-month high on the news.


Valeant Pharmaceuticals (VRX) found a friend in activist hedge fund ValueAct Capital. How much of a friend remains to be seen. The company boosted its stake in VRX from 4.4% to 5.2%, an addition of 3 million shares making it the second largest shareholder. Paulson & Co owns 5.68% and is the largest shareholder now that Bill Ackman's Pershing Square fund has dumped their holdings. Shares rallied at the open but closed fractionally lower. I wonder how many investors are waiting until they see a rebound appear, thinking there is a double here easy if the company makes the right moves? The problem for me is the ton of legal issues, probes by regulators, class action suits and $30 billion in debt when the company's market cap is only $4 billion.


Bernstein initiated coverage on Netflix (NFLX) with a buy rating and $178 price target. The analyst, Todd Juenger, said "Netflix is a polarizing stock. You either believe in the ten-year story or you don't. We believe." Juenger said subscription video on demand or SVOD will become the dominant business model for delivering premium content and Netflix is the "anchor" service. Because of the extremely large global market, he expects Netflix subscribers to triple from the 99 million they have today. He said the current enterprise value of $62 billion is "absurdly low compared to future value." They are using the Amazon model of foregoing profits now to build a massive subscriber base. He said rival services like Amazon Prime Video are growing the SVOD market rather than taking market share.

Netflix just added a new button that will allow you to skip the opening credits. Also, after the widely ridiculed Amy Schumer profanity driven "Leather Special" comedy show, Netflix is changing its ratings method. After the show received so many one star ratings, the company is changing the system to either a "thumbs up or thumbs down" system. They claim they have been considering this for some time but the Schumer special must have triggered the change. Netflix said the old system was flawed. Say you watched a show like Sharknado you may have given it a two star rating for its lack of redeemable content but you still enjoyed watching the show for some light entertainment. A bunch of two star ratings would tell everyone else the show was worthless whereas a thumbs up or down would tell them if it was worth watching. If 65% gave it a thumbs up then you might consider watching it. If 65% gave it a two star rating you probably would not watch. Netflix said in a study, users gave 200% more ratings when presented the up/down option rather than a 5 star system.


Citibank (C) warned of a phishing email with the sender address of alert@citibank.com and a hyperlink appearing to go to Citibank but actually a phishing website overseas. Citi warned that the emails were fraudulent and would steal your personal information if you clicked the link and acted on the confirmation page. With more than 200 million customers, you can bet several thousand clicked on the link and gave their information to a bogus webpage.

These emails happen daily. Because of all the "open" email addresses we had on the website in the past, I get more than 10,000 spam emails a week. Fortunately, we have a couple of good spam/virus filters but a few always seem to sneak through. You have to be very vigilant about what you click regardless of how valid it appears. Always go to the actual website by typing in the webpage address rather than clicking on a link.

In a recent study of 19,000 individuals by Intel Security, they showed each person 10 different emails and asked them to identify the real ones and the fake ones. Only 3% identified all ten correctly. That means 18,430 would have clicked on a phishing email. Clearly, everyone needs a security program to protect us from ourselves.

The financial sector was down sharply on Friday despite the Fed rate hike. The sector lost -1.3% and has been weak for the last 11 days. The rate hike was already priced in two weeks ago.



Goldman Sachs (GS) was the biggest loser in the financials. CEO Lloyd Blankfein saw his compensation cut by 27% in 2016 to "only" $22 million. He received $16 million in stock and a $4 million cash bonus in addition to his $2 million in salary. I just do not understand how he can live on only $22 million.

JP Morgan's CEO, Jamie Dimon, received $28 million, Morgan Stanley's CEO James Gorman $22.5 million, Bank of America's Brian Moynihan $20 million, Citigroup's Mike Corbat $15.5 million and Wells Fargo's Tim Sloan $12.8 million. Sloan is the new kid on the block having only become CEO in October.

Goldman was the biggest drag on the Dow on Friday with a $4 decline that knocked 29 points off the Dow.


Boeing (BA) was the second biggest gainer on the Dow after the company said it signed a $3.4 billion contract with the Army and an unidentified international customer. The Army will get 244 remanufactured Apache helicopters and the customer will get 24 new helicopters of the latest Apache AH-64E variant. The 64E first began deliveries in October 2011 and seven countries in addition to the U.S. currently operate this version. Fifteen other countries operate older variants of the Apache.

Boeing also said it won a $371 million contract for support of the F-15 fighter. The F-15 is undefeated in aerial combat in more than 100 air-to-air clashes. A couple months ago Boeing was also awarded a $4 billion contract to upgrade the radar in the F-15 with the Eagle Passive Active Warning Survivability System. That suggests those planes will be flying for a long time. There are more than 1,600 in service in six countries. They are still being produced with 15 delivered in 2016.


Thursday after the close, Adobe (ADBE) reported earnings of 94 cents that beat estimates of 87 cents. Revenue increased 21.6% to $1.68 billion and beat estimates for $1.65 billion. They guided for the current quarter to revenue of $1.73 billion and earnings of 94 cents. Analysts were expecting $1.72 billion and 91 cents. The company said the shift to a subscription model with the Creative Cloud package was the main driver. Annualized recurring revenue was $4.25 billion, an increase of $265 million for the quarter. Adobe Marketing Cloud revenue was a record at $477 million. Shares spiked 4% on the news.


Jabil Circuit (JBL) reported earnings of 48 cents compared to estimates for 45 cents. Revenue of $4.45 billion beat estimates for $4.36 billion. They guided for 19-39 cents for the current quarter. Analyst said the strong earnings in Jabil and other Apple suppliers meant the weakness in Apple should be over. Multiple analysts have recommended buying the suppliers in the Apple food chain ahead of the iPhone 8.


Apple (AAPL) shares stalled over the last two weeks on concerns over the 3D motion sensor manufactured by ST Microelectronics (STM). I wrote about it in the past. There was a fire at a STM facility and there were concerns the sensor would be delayed. Multiple analysts are now claiming there is no material problem and there will be a delay of a week or two at the most. Shares of STM have recovered and are at new highs. Shares of Apple opened at a new high intraday on Friday at $141. One trader sold 9.24 million shares at $141 in a single trade at the open. That is $1.3 billion. Since it was quadruple witching day, analysts believe this was an adjustment of some kind rather than somebody dumping the stock. That dented the opening surge but shares rallied back almost to $141 at 2:00 before sellers appeared and shares plunged in the afternoon as another 4.5 million shares sold in the last few minutes of trading.



Amgen (AMGN) released the results of a landmark study of 27,564 patients taking Repatha to manage LDL cholesterol levels. The study proved that reducing LDL levels below what is currently achievable with statins, leads to a further reduction in major cardiovascular events including heart attacks and strokes. The study found that adding Rapatha to existing statin therapies reduced the number of adverse cardiac events by 20% with no significant increase in side effects. The longer the patient was on the treatment the better the results. In the first year, events declined 16%, second year 20% and third year 25%. This would seem to be an outstanding new drug for at risk patients.

However, it was not as good as analysts had hoped. The drug is expensive at $14,000 a year. Amgen said it would offer a 30% discount to pharmacy benefit managers and they offered a novel money back guarantee, with some qualifications, if you have a cardiac event while you are taking the drug. Based on the mortality profile insurers would have to pay for the drug for 25 patients to prevent one cardiac event. That is according to research at the American College of Cardiology. This suggests insurers are not going to be willing to pay $250,000 a year for 25 patients just to save one hospital visit that would cost them significantly less. Shares of Amgen crashed 6.4% and took other companies with cholesterol drugs down with them. REGN lost $12 (-3%), ESPR -$6 (-20%) and MDCO -$4 (-8%).


While the number of earnings reports declines significantly for next week there are three companies worth watching. These are FedEx, Nike and Finish Line. FedEx will be important for guidance for the post holiday quarter. Nike and Finish Line are important to the retail outlook. They sell high dollar products and their guidance could help or sink the retail sector. Under Armour is not reporting but it will get either a boost or a hit on those earnings.


Crude prices were actually relatively flat for the week after bottoming at $47.09 on Tuesday. With futures expiring on Monday there was little activity on Friday. Volume was very low.


Traders are confused after Saudi Arabia increased production in February. The "we are storing it" excuse did not fly with most traders. While they may be storing it for the summer electrical generation demand, they could also be storing it just until a tanker can load it. We have learned in the past to listen to what they say but watch what they do.


Active rigs exploded higher with a gain of 21 last week. Oil rigs rose by 14 and gas rigs gained 6. One more strong weekly gain and active rigs will have risen 100% over the lows last May. However, if oil declines any further it could slow those reactivations. Any rigs restarted last week had been in the moving and setup category for several weeks before they actually went to work.



Markets

There was a whirlwind of headline activity last week and traders had a lot to worry about. The markets climbed the wall of worry into Janet Yellen's news conference Wednesday afternoon. After the conference everyone exhaled with a big sigh of relief. The excitement was gone and the pending option expiration became the focus as traders waited for their option positions to expire.

The big caps saw some cash drain as the small caps suddenly found favor. Whether that will last into next week is the big question. If the small cap stocks are going to assume their leadership role after three months of consolidation, I would be thrilled. They have been holding the broader market back.

Hurting the Nasdaq on Friday was the decline in healthcare stocks. The sector lost 1% after the huge run since the end of January. The Health Care ETF (XLV) made a new high at $76.75 on Wednesday. That was an $8 gain since the $69 low on January 31st. The drop was powered by the decline in the cholesterol stocks and weighed on the Nasdaq.


The prior closing high on the Nasdaq Composite was 5,904 on March 1st. The index has now closed at 5,899 for three consecutive days. Clearly, this is solid resistance. I just hope it is not a double top.

The Nasdaq big caps have been leading the market higher with FB, AMZN, NFLX, GOOGL, ORCL and ADBE all at new highs. Amazon and Netflix are struggling with new high resistance while the rest are setting new highs.

The semiconductor sector is also setting new highs and the biotech sector set a new 52-week high on Wednesday.

A lot of these supporters need to rest. The biotechs declined the last two days to cause a drag on the Nasdaq. The crash in the drug stocks on Friday also pulled it lower. If the Nasdaq Composite can shake off this weakness and set a new high while the small caps are still positive it would be a big lift to bullish sentiment.




The Dow has been the weakest big cap index. It is barely holding over support at 20,850 and the end of week trading was lackluster. Now that the Fed decision is behind us, we should not expect any help from Goldman or JP Morgan. Caterpillar is in trouble with the government raiding their offices and we should not expect any big gains there. Crude prices should remain volatile for a couple more weeks and that means Chevron and Exxon should be flat. Intel is being attacked from all sides on the technology front and is setting lower lows.

The middle of the Dow, stocks like Verizon, McDonalds, Coke, Procter & Gamble, etc are likely to remain choppy without a discernible trend.

This means the Dow is not likely to be the market leader but could follow the S&P and Nasdaq in whatever direction they choose.



The Russell 2000 was bullish on Friday with its third day of gains and a close over the 1385-1388 resistance. If the gains continue this could rekindle market sentiment. A break down here making a lower high and lower low below 1,350 would be the kiss of death to any future market rally.


We have a light economic calendar with almost no earnings and plenty of Fedspeak to confuse the outlook. The Monday after a quadruple witching expiration is not normally a strongly directional market. Option settlements are being handled and traders are trying to decide what to do next.

We are still in a bullish uptrend. Dips are shallow and still being bought. Follow the trend.



Random Thoughts


The weekly sentiment survey becomes more confusing every week. The high bearish sentiment from last week declined by 7.8% but those traders moved to neutral rather than bullish. We are still looking at nearly 70% of respondents not in the bullish category. That is a large majority not expecting further gains. That should suggest there is plenty of money on the sidelines ready to go to work if sentiment improves.

Last week results


The S&P has now gone 108 days without a 1% single day decline. That is the 9th longest streak since 1950. If it can go another 7 days, it will be the sixth longest streak at 115 days. This will eventually end but there are no clues that it will be this week.



Volatility has not been this low for this long since the period from Oct-1st 2006 through Feb 26th 2007 when it traded below 10 numerous times and rarely reached 12 on temporary spikes. The historic low of 8.60 was made in this period. We know how that period of low volatility ended and there were no real clues in the equity market that the crash was coming.



The Shakespeare of Rock and Roll passed away this weekend. Chuck Berry was 90 and is survived by Toddy, his wife of 68 years. Chuck made rock and roll famous as he combined rhythm & blues with country and western. His big hits included Maybellene, Johnny B Goode, Roll Over Beethoven and Brown Eyed Handsome Man. He was called the "father of rock and roll." Leonard Cohen said, "All of us are footnotes to the words of Chuck Berry." He spent three terms in prison for armed robbery, tax evasion and violation of the Mann Act for driving an underage girl across state lines from Texas to his home in Missouri. Before becoming famous, he worked on an assembly line and studied cosmetology. Chuck had already announced the release of his first album in 38 years, scheduled for release this year and dedicated it to his wife. He will not be forgotten until long after all of us in his generation cease to exist.



 

Enter passively and exit aggressively!

Jim Brown

Send Jim an email

 

"In general, the art of government consists of taking as much money as possible from one party of the citizens to give to the other."

Voltaire (1764)


 

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Index Wrap

Market Internals Still Bullish

by Jim Brown

Click here to email Jim Brown
The broad market indexes posted minimal gains last week despite the post Fed bounce.

The Dow gained only 11 points for the week and the S&P-500 gained only 5 points. Despite the lackluster performance, there are no real signs of negativity. The market internals are steady and the oscillators on the weakest section of the market reversed higher. Unfortunately, the oscillators on the big caps are still pointing lower but there is some bullish divergence between those oscillators and the actual price.

The prior week saw the indexes touch multi-week lows. It was not a big drop and in each case, support held. We should be encouraged since many analysts and traders have been looking for a material decline.

I said there was a lack of negativity. That is not exactly true on the Dow chart but I will back up my claim later in this commentary. The Dow chart remains the weakest of the big cap indexes. The decline to support at 20,800 held but was penetrated on both days only to rebound back above that level at the close. That is ok. It is the close that counts. However, the lackluster performance for the week and the lack of a material rebound from that support suggests the Dow is still at risk for at least a temporary dip. The MACD and the RSI are both in full decline but these are somewhat lagging indicators since they are using the recent history as source data.


The S&P chart is slightly better than the Dow with a decent rebound from support and the uptrend support has not been breached. That test could come this week. The RSI is neutral and the MACD has turned slightly negative. Again, that is a lagging indicator.


The Nasdaq Composite consolidated for three weeks and burned off all the overbought conditions and is now threatening to breakout to a new high. The prior high was 5,904 on March 1st and the index has closed at 5,899 for the last three days. There is a major battle underway at that 5,900 level. If the Nasdaq is successful in breakout out to a new high it will help change the sentiment for the entire market. The MACD is about to turn positive again after that consolidation period saw it turn negative.


The most positive development in the market was the reversal of the small cap indexes. The S&P-600 tested initial support at 825 three times and finally rebounded strongly. The index along with the Russell 2000 has now been up for three consecutive days. They were up sharply on Friday when the big cap indexes were lower.

If the small caps can continue their rebound and the Nasdaq Composite breakout to a new high, the Dow and S&P should also turn around and follow them higher.


To prove my case on the lack of negativity I am going to go rapid fire through a bunch of charts without a lot of explanation. They should be obvious and while there has been some deterioration at the very tops this is normal market fluctuation.

The bullish percent index on the S&P is still at 76.6% and that is very bullish and only about 3% below the highs from April and February. No negativity here.


The percent of S&P-500 stocks over their 200-day average actually rose last week to 80%. That is only down about 4% from March 1st and 2% from the prior high in August. A market with 80% of the stocks over their long-term average and rising is a bullish market.


The market weakness the prior week caused a slight decline in the percentage of stocks over their short-term 50-day average but at 69% that is still just below the levels seen since the initial post election bounce.


The cumulative advance/decline line on the Nasdaq is rising sharply after a sharp drop in early March. The tech stocks are alive and well. The small cap A/D line is also rising. If you combine the Russell 2000 and the Nasdaq Composite and eliminate the duplicates, you are going to have more than 3,000 stocks with a short-term positive trend.



I defy you to look at the A/D chart for the S&P and tell me that is a negative trend. We saw a minor hiccup the prior week ahead of the Fed and then a rebound last week. Given the February rally, we should have seen a pause.


The semiconductor sector always leads the Nasdaq. Jeff Bailey used to call the $SOX the head of the snake. Wherever the $SOX went the Nasdaq followed. With the Apple upgrade cycle ahead, the chip stocks are in rally mode with the Semiconductor Index setting new highs.



The Dow is the weakest index because of its narrow composition. If one sector is down, there will be a pull on the Dow. On a day when oil is up and financials are catching a bid, the index will be up strongly. A one-point gain/loss in an individual stock is equal to about 7 Dow points. No other index has that much reliance on any one stock or group of stocks.

While the charts listed above suggest the underlying market is still healthy, we have gone a long time without a material decline. The S&P has now gone 108 days without a 1% decline. That is the 9th longest streak since 1950. Nothing says the streak has to end soon but we should always be ready.

There are a large percentage of traders that expect a decline. The AAII Sentiment Survey for last week showed nearly 70% of respondents do not believe the market is going higher. On a contrarian basis that is bullish because it means they are either out of the market or betting against it. Any sharp uptick could cause short covering and price chasing from those that do not want to be left out.

If a dip were to appear, I believe it would be buyable. However, the turmoil in Washington appears to be pushing the tax reform plan farther into the future and should that become common knowledge, Citigroup said we could see a 10% decline. For that reason, I would expect the administration to try and create some additional tax cut headlines to keep the market on track.

Lastly, markets do not need a reason to decline. They are a living entity with a mind of their own, driven by the whims of millions of investors. If a particular headline were to sour investor sentiment, the tide could turn. Also, the next three weeks will see investors pulling money out of the market to pay their taxes. In some years when profits have been large, that can be a material drag.

Enter passively and exit aggressively!

Jim Brown

Send Jim an email




New Option Plays

Breakout Imminent

by Jim Brown

Click here to email Jim Brown

Editors Note:

The job market is improving daily with more openings and more hiring. Every new employee hired by an ADP client is more money for ADP. That requires more money on deposit for payrolls, higher interest earned and higher servicing fees.


NEW DIRECTIONAL CALL PLAYS

ADP - Automatic Data Processing - Company Profile

Automatic Data Processing, Inc., together with its subsidiaries, provides business process outsourcing services worldwide. The company operates through two segments, Employer Services and Professional Employer Organization (PEO) Services. The Employer Services segment offers a range of business outsourcing and technology-enabled human capital management (HCM) solutions, including payroll services, benefits administration services, talent management, human resources management solutions, time and attendance management solutions, insurance services, retirement services, and tax and compliance solutions. This segment's integrated HCM solutions include RUN Powered by ADP, ADP Workforce Now, ADP Vantage HCM, and ADP GlobalView, which assist employers of all sizes in all stages of the employment cycle from recruitment to retirement; and ADP SmartCompliance and ADP Health Compliance. The PEO Services segment provides a human resources (HR) outsourcing solution through a co-employment model to small and mid-sized businesses. This segment offers ADP TotalSource that provides various HR management services and employee benefits functions, such as HR administration, employee benefits, and employer liability management into a single-source solution. Company description from FinViz.com.

ADP reported earnings of 87 cents that rose 57% and beat estimates for 81 cents. Revenue of $2.99 billion rose 6.4% but missed estimates for $3.01 billion. They surprised analysts with revenue growth guidance for 2017 at 6%, down from prior forecasts of 7% to 8%. They blamed the revenue miss and lowered guidance on uncertainty over the elections and the impact of the Trump election. They also see a 1% revenue hit from the sale of their CHSA and COBRA businesses in 2016. They guided for earnings growth of 15% to 17% for the full year. They currently serve 637,000 clients in 125 nations. The number of employees serviced rose 2.3%. PEO Services employees rose 12% to 452,000. These are "co-owned" employees managed by ADP for clients.

They repurchased 4.6 million shares at a cost of $422 million. They expect to repurchase $1.2-$1.4 billion in shares in 2017.

Earnings May 3rd.

ADP holds a dominant position in the payroll processing sector. With employment expected to rise again in 2017 this could be an attractive investment for funds that are tired of chasing industrials and bank stocks in the current rally.

ADP rallied nearly $1 on Friday in a weak market and closed at $105.12 and a new high. It was also just over the $105 strike. I am recommending we reach out to the $110 strike since it appears ADP is about to move higher after three weeks of consolidation. This option price is very cheap and there will be no initial stop loss.

Buy May $110 call, currently 85 cents, no initial stop loss.


NEW DIRECTIONAL PUT PLAYS

No New Bearish Plays



In Play Updates and Reviews

No Stimulant

by Jim Brown

Click here to email Jim Brown

Editors Note:

Markets were flat on Friday because they ran out of stimulus. After a week of headline overload the markets were left without any material headlines to power them higher. When the biggest news for the day was a joint presser between Trump and Merkel, you know it was a boring day.

It was a quadruple witching option expiration and normally the moves from that event occur earlier in the week. Volume was 9.6 billion shares as positions were closed. Monday after an expiration is normally flat as well.



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


SYMC - Symantec

The long call position was entered at the open.

AZPN - Aspen Technology

The long call position was stopped at $57.85.



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

ATVI - Activision Blizzard - Company Profile

Comments:

No specific news. Still consolidating. The Call of Duty World League Dallas Open (CWL) began in Dallas on Friday. More than 130 Call of Duty teams from around the world will compete for $200,000. This is the last competition to earn points that allow winners to compete in the CWL Global Pro League competition in Columbus Ohio in late April. Only 16 teams from around the world will compete for $1.4 million in prizes, which is part of the $4 million price pool. Millions of gamers from around the world will watch these games live online. This is going to be a major profit center for Activision in the future.

Original Trade Description: March 11th

Activision Blizzard, Inc. develops and publishes online, personal computer (PC), video game console, handheld, mobile, and tablet games. The company operates through two segments, Activision Publishing, Inc. and Blizzard Entertainment, Inc. The company develops, publishes, and sells interactive software products and content through retail channels or digital downloads; and downloadable content to a range of gamers. It also publishes subscription-based massively multiplayer online role-playing games; and strategy and role-playing games. In addition, the company maintains a proprietary online gaming service, Battle.net that facilitates the creation of user generated content, digital distribution, and online social connectivity in its games. Further, it engages in creating original film and television content; and provides warehousing, logistical, and sales distribution services to third-party publishers of interactive entertainment software, as well as manufacturers of interactive entertainment hardware products. The company serves retailers and distributors, including mass-market retailers, consumer electronics stores, discount warehouses, game specialty stores, and consumers through third-party distribution, licensing arrangements, and direct digital purchases in the United States, Canada, Canada, the United Kingdom, France, Germany, Ireland, Italy, Sweden, Spain, the Netherlands, Australia, South Korea, China, and internationally. Company description from FinViz.com

Activision reported Q4 earnings of 92 cents that beat estimates for 73 cents. Revenue of $2.45 billion beat estimates for $2.35 billion.

The new Overwatch game was the fastest Blizzard title to hit 25 million registered players. Monthly active users (MAU) rose 5 million at Activision to reach 51 million. Bllizzard's MAU fell 1 million to 41 million but set a record for Q4. Kind Digital users fell from 394 million to 355 million. Since King Digital is phone games the numbers tend to be volatile. Users spent 43 billion hours playing ATVI's suite of games in Q4 compared to the 45 billion hours peopls spent watching Netflix.

Shares spiked despite weak guidance. They guided for Q1 for $1.05 billion and earnings of 18 cents. The street was looking for $1.2 billion and 31 cents. For the ful lyear they guided for $6.3 billion and $1.85 in earnings. That missed street estimates for $6.68 billion and $2.03. Fortunately, ATVI normally guides low and then crushes the estimates when they report.

Earnings May 11th.

Activision has not just one or two but seven game franchises worth more than $1 billion each. It is hard to argue with success. Also, the gamers currently playing those games are always waiting for the next version or the next big game that takes technology a step further. The gaming business is one of massively recurring revenue. They not only sell new game but expansion packs to existing games, maps, tools, and other game content that helps users better enjoy the experience.

Call of Duty, Overwatch, World of Warcraft and Destiny are cash cows that generate steady streams of recurring revenue. More than 74% of ATVI's $6.6 billion in 2016 revenue was from subscriptions, in-game purchases and other digital items where the ongoing costs are next to zero. Five years ago that number was 34%.

With $2.2 billion in annual free cash flow the company can continue to develop new content and look for other acquisitions to broaden the brand.

The company is now branching out into E-sports with an Overwatch League. There are tens of thousands of gamers that will pay just to watch a pro play their favorite games. Having those pros compete with other pros is even better.

Activision is making new highs but with everything they have going for them, I believe they will keep making new highs. The options are cheap so we do not have much to lose if the stock or market suddenly takes a turn for the worst.

Position 3/13/17:

Long May $50 call @ $1.99, see portfolio graphic for stop loss.


AZN - AstraZenaca - Company Profile

Comments:

New 5-month high. AZN received its second rejection letter from the FDA on the ZS-9 drug intended to treat high potassium levels in the blood. The letter does not require any new trials. The first rejection was due to some manufacturing issues. There are no details on the second letter but analysts believe it is still related to manufacturing controls since there is no requirement for new drugs trials or data. AZN will resubmit a new application when the issues are corrected. Shares still posted a gain even with the rejection.

Original Trade Description: March 2nd

AstraZeneca PLC engages in the discovery, development, and commercialization of prescription medicines for the treatment of respiratory, inflammation, autoimmune, cardiovascular, metabolic, oncology, infection, neuroscience, and gastrointestinal diseases worldwide. Its marketed products comprise Accolate, Bricanyl Respules, Bricanyl Turbuhaler, Daliresp, Duaklir Genuair, Eklira Genuair/Tudorza/Bretaris, Oxis Turbuhaler, Pulmicort Turbuhaler/Pulmicort Flexhaler, Pulmicort Respules, Rhinocort, Symbicort pMDI, and Symbicort Turbuhaler for respiratory, inflammation, and autoimmunity diseases; Atacand1/Atacand HCT/Atacand Plus, Brilinta/Brilique, Crestor2, Plendil, Seloken/Toprol-XL, Tenormin3, and Zestril4 for cardiovascular disease; and Bydureon, Byetta, Farxiga/Forxiga, Kombiglyze XR, Komboglyze, Onglyza, Symlin, Xigduo, and Xigduo XR for metabolic disease. The company's marketed products also include Arimidex, Faslodex, Iressa, Lynparza, Nolvadex, Tagrisso, and Zoladex, as well as Casodex, Cosudex for oncology disease; Fluenz/FluMist, Fluenz Tetra/FluMist Quadrivalent1, Merrem/Meronem2, Synagis3, and Zinforo4 for infection disease; Diprivan, EMLA, Movantik/Moventig, Naropin, Seroquel IR, Seroquel XR, Vimovo1, Xylocaine, and Zomig for neuroscience disease; and Losec/Prilosec and Nexium for gastrointestinal disease. It serves primary care and specialty care physicians through distributors and local representative offices. The company's pipeline includes 146 projects, of which 125 are in the clinical phase of development. It has collaboration agreements with Celgene Corporation; Immunocore Limited; Heptares Ltd.; Foundation Medicine, Inc., French National Institute of Health and Medical Research (Inserm); and FibroGen and Astellas, as well as a research agreement with Eli Lilly. Company description from FinViz.com.

In their recent earnings AZN reported $1.21 compared to estimates for $1.14. Revenue of $5.585 billion was in line with estimates.

Shares fell after the CEO warned that generic sales of Crestor were crushing sales of the original drug. Sales of Crestor were down 53% in the quarter. The company said because of the Crestor decline there would be low to mid single-digit declines in revenue in 2017 and low to mid-teens percentage decline in core EPS.

However, the company has a lot of drugs coming to market and several are "life changing" for cancer, respiratory and metabolic diseases. He said AZN was at an inflection point for the anticipated return to long-term growth built on a solid pipeline.

Earnings May 4th.

AZN just received approval from the FDA on a type-2 diabetes drug called Qtern, a once daily tablet for a disease that affects 29 million Americans. They also said Lynparza, a breast cancer treatment, proved to be more effective than chemotherapy in treating metastic breast cancer.

Investors are buying AZN for the pipeline and ignoring the decline in Crestor. They have had years for that decline to appear and now it is old news.

AZN is a slow mover and the options are cheap. If the market rolls over we will not have much at risk. If the market rebounds we should be in the money in a couple days.

Update 3/3/17: AZN entered into a deal with Sanofi to market MEDI8897 for the prevention of resipiratory synctial virus (RSV) in newborns and infants. AZN will get 120 million euros up front and 495 million upon the achievement of sales related milestones. All costs will be shared equally.

Update 3/13/17: Good article in the WSJ about AZN helped to power the stock through resistance. Read it here.

Update 3/14/17: AZN released results of a study where the ovarian cancer drug Lynparza sharply slowed disease progression. Women with the disease lived an average of 19.1 months on the drug compared to 5.5 months for those on a placebo. Another report by the Society of Gynecologic Oncology said the number was 30.2 months. This is a new class of PARP drug that blocks enzymes involved in repairing damaged DNA and thereby helping to kill cancer cells. This is the first drug of its class to be approved by the FDA and reach the market.

Position 3/3/17:

Long May $30 Call @ $1.10, see portfolio graphic for stop loss.


AZPN - Aspen Technology - Company Profile

Comments:

No specific news. Shares dropped at the open when somebody sold 200,000 shares. The drop stopped us out at $57.85, which was the exact low of the day. Immediately after the dip somebody bought 900,000 shares and the stock rebounded to close at a new high. VERY frustrating.

Original Trade Description: March 1st

Aspen Technology, Inc., together with its subsidiaries, provides software and services to the process industries in the United States, Europe, and internationally. It operates through two segments, Subscription and Software, and Services. The company licenses integrated process optimization software solutions and associated support services designed to manage and optimize plant and process design, operational performance, and supply chain planning. Its software suites include aspenONE Engineering, and aspenONE Manufacturing and Supply Chain, which are integrated applications that allow end users to design process manufacturing environments, forecast and simulate potential actions, monitor operational performance, and manage planning and scheduling activities, as well as collaborate across these functions and activities. The company also provides software maintenance and support, professional, and training services. Its customers consist of companies, which are engaged in process industries, such as energy, chemicals, engineering, and construction, as well as consumer packaged goods, power, metals and mining, pulp and paper, pharmaceuticals, and biofuels. Aspen Technology, Inc. was founded in 1981 and is headquartered in Bedford, Massachusetts. Company description from FinViz.com.

Aspen reported Q4 earnings of 52 cents on revenue of $119.9 million. Estimates were for 43 cents and $117.6 million. Annualized revenue rose 4.5% to $450 million at the end of the quarter. Operating margins were 50.8%. The company repurchased 1.3 million shares in the quarter for $70 million. They ended the quarter with $140 million in cash and generated $27 million in free cash flow.

Earnings April 27th.

They are a small but growing company that provides software for manufactures to optimize plant operations. They acquired a new product in the quarter called Mtell, which offers machine learning based technology.

Shares have doubled over the last 12 months and they closed at a new high on Wednesday.

Position 3/2/17:

Closed 3/17/17: Long Apr $60 call @ $1.60, exit .50, -1.10 loss.


BMY - Bristol Myers - Company Profile

Comments:

No specific news. The health care sector declined -1% and the biotech sector 0.5%. Shares of BMY gave back $1.

Original Trade Description: February 21st

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.

Multiple analysts have now called BMY an acquisition target. Icahn said that was one of his reasons for opening the position.

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.

I am choosing a $60 June option with earnings in April. The option is cheap enough that we can hold over that earnings report if we decide to do that in April. If by chance there is a big gap higher on Wednesday, switch to the $60 strike.

Position 2/22/17:

Long June $57.50 call @ $2.78, see portfolio graphic for stop loss.


DIS - Walt Disney - Company Profile

Comments:

Disney posted a minor gain on the expectations for the Beauty & Beast opening in the U.S. this weekend. In other news the company agreed to pay $3.8 million in back wages to employees in two units that may have worked extra overtime hours or hours/pay did not meet minimum wage guidelines for their position.

Original Trade Description: March 13th.

The Walt Disney Company, together with its subsidiaries, operates as an entertainment company worldwide. The company's Media Networks segment operates cable programming services, including the ESPN, Disney channels, and Freeform networks; broadcast businesses, which include the ABC TV Network and eight owned television stations; radio businesses consisting of the ESPN Radio Network; and the Radio Disney network. It also produces and sells original live-action and animated television programming to first-run syndication and other television markets, as well as subscription video on demand services and in home entertainment formats, such as DVD, Blu-Ray, and iTunes. Its Parks and Resorts segment owns and operates the Walt Disney World Resort in Florida and the Disneyland Resort in California. This segment also operates Disney Resort & Spa in Hawaii, Disney Vacation Club, Disney Cruise Line, and Adventures by Disney; and manages Disneyland Paris, Hong Kong Disneyland Resort, and Shanghai Disney Resort, as well as licenses its intellectual property to a third party for the operations of the Tokyo Disney Resort in Japan. The company's Studio Entertainment segment produces and acquires live-action and animated motion pictures for distribution in the theatrical, home entertainment, and television markets primarily under the Walt Disney Pictures, Pixar, Marvel, Lucasfilm, and Touchstone banners. This segment also produces stage plays and musical recordings; licenses and produces live entertainment events; and provides visual and audio effects, and other post-production services. Its Consumer Products & Interactive Media segment licenses its trade names, characters, and visual and literary properties; develops and publishes games for mobile platforms; and sells its products through The Disney Store, DisneyStore.com, and MarvelStore.com, as well as directly to retailers. Company description from FinViz.com

Disney reported earnings of $1.55 on revenue of $14.78 billion. Analysts were expecting $1.49 and $15.26 billion. The comparisons to the year ago quarter were tough because of Frozen and Star Wars, The Force Awakens in that period. Star Wars was the first billion dollar film for the current fiscal year. The studio segment generated $2.52 billion in revenue. In January, after the December quarter ended, the company said it had more than $7.6 billion in global box office gross thanks to Star Wars: Rogue One, Captain America: Civil War and Finding Dory. CEO Bob Iger downplayed the concerns over ESPN saying they were very overblown because ESPN was still in demand by consumers, networks and advertisers.

Shares have recovered from the post earnings depression and are poised to continue making new highs, market permitting.

Update 3/15/17: Disney has upped its ownership to 85.7% and said it was going to buy out the rest of the investors and offered them a premium to the current value of their shares. Some investors are complaining. Euro Disney has significant debt and Disney said it would recapitalize 1.5 billion euros once it had full control. The actual park management loves the plan because it would put Disney back into control and provide it solid financial backing. This is just a temporary hiccup in the stock.

Earnings May 9th.

Position 3/14/17:

Long May $115 call @ $1.83, see portfolio graphic for stop loss.


HLF - Herbalife - Company Profile

Comments:

No specific news. Shares posted a minor gain in a weak market.

Original Trade Description: March 15th.

Herbalife Ltd., a nutrition company, develops and sells weight management, healthy meals and snacks, sports and fitness, energy and targeted nutritional products, and personal care products. It offers science-based products in four principal categories, including weight management; targeted nutrition; energy, sports, and fitness; and outer nutrition. The company's weight management product portfolio includes meal replacement products, protein shakes, drink mixes, weight loss enhancers, and healthy snacks; targeted nutrition products comprise dietary and nutritional supplements containing herbs, vitamins, minerals, and other natural ingredients; and outer nutrition products consist of facial skin, body, and hair care products. It also provides literature, promotional, and other materials, including start-up kits, sales tools, and educational materials. The company offers its products through retail stores, sales representatives, sales officers, and independent service providers. It operates in North America, Mexico, South and Central America, Europe, the Middle East, Africa, the Asia Pacific, and China. Company description from FinViz.com.

It is well known that Bill Ackman has a $1.5 billion short on Herbalife. He has had it for a couple years. It is also well known that Carl Icahn does not like Ackman.

Ackman took a major hit in Valeant when he announced on Monday he had closed his 27.2 million share position for a loss of more than a $3 billion. Ackman is hurting because several of his recent high profile positions have gone against him and investors are pulling out their money or at least sending him hate mail suggesting he get his act together. He is also holding a massive long position in Chipotle and the stock is moving lower.

On Monday, Ackman announced he closed the Valeant position. Immediately, Carl Icahn announced he was buying 372,000 more Herbalife shares and had asked the SEC for permission to acquire up to 50% of the company. He already owns 24.6%. This is killing the short position held by Ackman. Shares are rising on the Icahn news.

While this seems like the perfect long position where Icahn is going to force Ackman to cover, there is one big problem. On March 17th a movie called "Betting on Zero" which profiles Ackman's short thesis, will open in a national release. Remember, everyone has known about this movie for a year. It played in a few single venues and the stock did not decline. When it was picked up for national release about 6 months ago, everyone thought this would be the end of the company. However, in late 2016 the company settled with the FTC for $200 million on a probe into their marketing practices. They dodged another large bullet since the probe was also based on Ackman's short thesis.

Shares collapsed in late February on a guidance miss and bottomed last Friday. They have been rebounding since Icahn made his recent announcement.

I am recommending a short term strangle. The odds are good that the stock is going to be directional after the film begins showing on the 17th. Everyone will either say OMG and dump the stock or they will say, "so what is the big deal" and buy the stock. Since Icahn has $1.5 billion invested, you know he is going to be very vocal about it and will probably publicize any further purchases if the stock declines. We do not care which way the stock moves. We just need it to move significantly.

Position 3/16/17:

Long April $57.50 call @ $1.11, no stop loss.
Long April $52.50 put @ $1.36, no stop loss.


ITW - Illinois Tool Works - Company Description

Comments:

No specific news. New closing high.

Original Trade Description: March 6th.

Illinois Tool Works Inc. manufactures and sells industrial products and equipment worldwide. It operates through seven segments: Automotive OEM; Test & Measurement and Electronics; Food Equipment; Polymers & Fluids; Welding; Construction Products; and Specialty Products. The Automotive OEM segment produces components and fasteners for automotive-related applications. The Test & Measurement and Electronics segment provides equipment, consumables, and related software for testing and measuring of materials and structures. This segment also offers equipment and consumables used in the production of electronic subassemblies and microelectronics. The Food Equipment segment provides commercial food equipment and related services. The Polymers & Fluids segment produces adhesives, sealants, lubrication and cutting fluids, and fluids and polymers for auto aftermarket maintenance and appearance. The Welding segment produces arc welding equipment, consumables, and accessories for various industrial and commercial applications. The Construction Products segment produces engineered fastening systems and solutions. The Specialty Products segment provides beverage packaging equipment and consumables, product coding and marking equipment and consumables, and appliance components and fasteners. Company description from FinViz.com.

ITW reported earnings of $1.39 compared to estimates for $1.37. Revenue of $3.4 billion matched estimates. Earnings were impacted by a 2% hit from the strong dollar.

The company reaffirmed their 2017 guidance for organic revenue growth of up to 3.5% and revenue from $13.8 to $14.1 billion. Operating margin is expected to rise 100 basis points to 23.5%. Free cash flow is expected to be $2 billion and $1 billion will be used in 2017 for stock buybacks. Q1 earnings guidance was $1.39 to $1.49. They ended the quarter with $2.472 billion in cash.

Earnings April 26th.

The commentary was positive and stock spiked sharply after earnings. Over the next four weeks, traders took profits and shares traded sideways. On the February 13th they declared a quarterly dividend of 65 cents payable April 11th to holders on March 31st. Shares ticked higher and began to make new highs.

I believe the economy is accelerating. The Philly Fed Manufacturing Survey last week was the highest since 1984 after three months of rapid growth. The new president is doing everything he can to spur growth in the USA and this is going to be contagious throughout America. Tool demand is going to rise.

Shares spiked to a new high after the president's speech and have held those gains.

Earnings are late April and I am reaching out to June for the option (no May strikes) and because of the market weakness I am putting an entry trigger on the position. We want to make sure the stock and market are moving higher before we enter the play.

Position 3/15/17 with an ITW trade at $135.25

Long June $140 call @ $2.25, see portfolio graphic for stop loss.


PAYC - Paycom - Company Profile

Comments:

No specific news. Still stuck at the $56.50 resistance.

Original Trade Description: February 27th

Paycom Software, Inc. provides cloud-based human capital management (HCM) software solution that is delivered as software-as-a-service for small to mid-sized companies in the United States. It provides functionality and data analytics that businesses need to manage the employment life cycle from recruitment to retirement. The company's HCM solution offers a suite of applications in the areas of talent acquisition, including applicant tracking, candidate tracker, background checks, on-boarding, E-Verify, and tax credit service applications; and time and labor management, such as time and attendance, scheduling/schedule exchange, time-off requests, labor allocation, labor management reports/push reporting, and geofencing/geotracking applications. Its HCM solution also provides payroll applications comprising payroll and tax management, Paycom Pay, expense management, garnishment management, and GL Concierge applications; and talent management applications that include employee self-service, compensation budgeting, performance management, executive dashboard, and Paycom learning applications. In addition, the company's HCM solution offers HR management applications, which comprise document and task management, government and compliance, benefits administration/benefits to carrier, COBRA administration, personnel action forms, surveys, and affordable care act applications. Company description from FinViz.com.

Paycom targets companies in the 50-2000 employee range in order to provide HR and payroll processing. Companies do not have the time or the manpower to keep up with the impact of Obamacare on employees and the company. As the new administration moves away from Obamacare and into some other form of health service, there will be significant uncertainty along the way as old rules change and new rules are implemented. Paycom provides their Affordable Care Act (ACA) dashboard application that tracks everything Obamacare related. This is giving Paycom a boost. The company guided for a 28% increase in revenue in 2017.

Q4 earnings of 15 cents easily beat estimates for 9 cents and nearly double the year ago quarter. Revenue of $87.8 million also beat estimates for $86 million. Recurring revenues rose 35.7%. Adjusted gross margin was 82.4%. During the quarter they repurchases 634,506 shares.

For Q1 they guided for revenues of $114.5 to $116.5 million. Analysts were expecting $114 million. For the full year, the company guided for $422 to $424 million in revenue compared to estimates for $417 million.

Shares spiked to $52 after the Feb-9th earnings and have moved up steadily to $55 and a new high. There is nothing to keep the shares from moving higher given the raised guidance and strong performance. The Obamacare uncertainty will continue to be a tailwind for the company.

Position 2/28/17:

Long May $57.50 call @ $2.69, see portfolio graphic for stop loss.


SLCA - U.S. Silica Holdings - Company Profile

Comments:

No specific news. Minor decline as crude prices fluctuated.

Original Trade Description: March 9th

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. Company description from FinViz.com.

Silica sells sand to drillers. The drilling activity has increased 50% since the low in May. The active rig count declined to 404 on May 27th and has rebounded to 756 as of last week. Many of these reactivated rigs are completing previously drilled wells that were never fracked and put in production. The IEA said there were more than 5,000 of these wells at the end of December. It only takes a few days to reopen a well and prepare it for fracturing and then move to the next. The sand demand to fracture these wells is off the charts.

Since the drilling boom in 2014 the amount of sand used in fracturing a well has risen about 400% because of two years of additional data and refinement of the process. A current well with a two-mile lateral requires as much sand as a 100 rail car train, called a unit train.

Sand providers claim they have drillers trying to lock in sand prices for a year in advance but there is not enough sand available to fill the demand. Prices are expected to rise 40% in the first half of 2017. Multiple analysts predict a sand shortage in 2018 with another 50% or more rise in prices.

U.S. Silica was crushed in late February when they missed on earnings. They spent a lot of money in the quarter acquiring additional sand reserves and merging in acquisitions from earlier in the year. They spent 2016 acquiring other sand companies and operations around the country so they would be ready when the drilling boom returned.

They were crushed again this week when oil prices fell 7% in just two days to the lows for the year.

Oil prices are down on record inventory levels. Inventories rose by 8.2 million barrels to 528.4 million barrels on Wednesday. However, this ALWAYS happens in Feb/Mar. Refiners go offline for spring maintenance in this slow demand period. For two months, inventories build until they restart at the end of March and begin consuming huge amounts of oil to make summer blend gasoline. The price of crude always declines in this period.

If I could, I would buy a longer dated call and hold on to this position until fall. However, this newsletter is not a buy and hold strategy. I am going to recommend the June calls and we will exit before the May earnings.

Earnings May 24th.

The decline over the last two days knocked the stock back to the 200-day and support from November.

Position 3/10/17:

Long June $50 call @ $3.20, see portfolio graphic for stop loss.


SYMC - Symantec - Company Profile

Comments:

No specific news. Minor decline of 3 cents in a weak market.

Original Trade Description: March 16th

Symantec Corporation, together with its subsidiaries, provides cybersecurity solutions worldwide. It operates through two segments, Consumer Security and Enterprise Security. The Consumer Security segment offers Norton-branded services that provide multi-layer security and identity protection on desktop and mobile operating systems to defend against online threats to individuals, families, and small businesses. Its Norton Security products help customers protect against complex threats and address the need for identity protection, while also managing mobile and digital data, such as personal financial records, photos, music, and videos. The Enterprise Security segment provides threat protection products, information protection products, cyber security services, and Website security offerings. Its products protect customer data from threats, such as advanced protection threats, malicious spam and phishing attacks, malware, drive-by Website infections, hackers, and cyber criminals; prevent the loss of confidential data by insiders; and help customers achieve and maintain compliance with laws and regulations. This segment delivers its solutions through various methods, such as software, appliance, software-as-a-service, and managed services. The company serves individuals, households, and small businesses; small, medium, and large enterprises; and government and public sector customers. It markets and sells its products and related services through direct sales force, e-commerce platforms, distributors, direct marketers, Internet-based resellers, system builders, Internet service providers, wireless carriers, retailers, original equipment manufacturers, and retail and online stores. Company description from FinViz.com.

You cannot even turn on your phone or PC without being subjected to dozens if not hundreds of potential attackers. Worse than stealing your ID and maybe being able to cause you grief down the road, the biggest attacks today are the ransom ware attacks. If you click on an email link or leave your PC unguarded by a security program, the hacker encrypts all your files and charges you a fee to get them back. All of your documents, pictures, bank account info, Quickbooks, etc, all disappear in a heartbeat. Even if you pay the blackmail, you still may not get them back.

Symantec is the leading cybersecurity vendor for personal computers and small business servers. Enterprise class operations will normally go with higher fee organizations like Fire Eye, Palo Alto Networks, etc. Symantec has the entire personal computer space to themselves. There are some competitors like PC Magic and McAfee but they are distant competitors. Since Intel partnered with McAfee an TPG in September, they are improving but Symantec has a big head start.

Because of the daily headlines on cyberattacks, more and more consumers are reaching out and deploying more sophisticated antivirus programs. It is not just for the closet geeks anymore. Everyone needs a real security program.

Strangely, the biggest risk is still the individual. In a recent study of 19,000 individuals by Intel Security they showed each person 10 different emails and asked them to identify the real ones and the fake ones. Only 3% identified all ten correctly. That means 18,430 would have clicked on a phishing email. Clearly, everyone needs a security program to protect us from ourselves.

Symantec should continue to emerge as the big winner in personal computer security.

Earnings May 3rd.

Position 3/17/17:

Long July $32 call @ $1.29, see portfolio graphic for stop loss.


VAR - Varian Medical systems - Company Profile

Comments:

No specific news. Nice rebound to another new high.

Original Trade Description: February 18th

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 announced the sale of its advanced linear accelerators to Hungary's National Institute of Oncology.

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.

Position 2/21/17:

Long May $85 call @ $2.75, see portfolio graphic for stop loss.


$VIX - Volatility Index - Index Description

Comments:

Volatility was flat along with the markets. I am going to retain the position, until Monday evening and then make an exit decision. You never know when a sell the news event will occur.

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 2/22/17:

Long Apr $13 call @ $2.30, no stop loss, profit target $17.

Previously Closed 2/1/17: Long March $12 call @ $2.60, exit $2.50, -.10 loss.
Previously Closed 2/22/17: Long March $12 call @ $1.75 adj, exit $1.65, -.10 loss.



BEARISH Play Updates (Alpha by Symbol)

TGT - Target Corp - Company Profile

Comments:

No specific news. New 5-year low.

Original Trade Description: March 7th

Target Corporation operates as a general merchandise retailer. It offers household essentials, including pharmacy, beauty, personal care, baby care, cleaning, and paper products; music, movies, books, computer software, sporting goods, and toys, as well as electronics, such as video game hardware and software; and apparel for women, men, boys, girls, toddlers, infants, and newborns, as well as intimate apparel, jewelry, accessories, and shoes. The company also provides food and pet supplies comprising dry grocery, dairy, frozen food, beverages, candy, snacks, deli, bakery, meat, produce, and pet supplies; and home furnishings and decor, including furniture, lighting, kitchenware, small appliances, home decor, bed and bath, home improvement, and automotive products, as well as seasonal merchandise, such as patio furniture and holiday decor. In addition, it offers in-store amenities, including Target Cafe, Target Photo, Target Optical, Portrait Studio, Starbucks, and other food service offerings. Target Corporation sells products through its stores; and digital channels, including Target.com. Company description from FinViz.com.

Target reported earnings of $1.46 compared with $2.31 in the year ago quarter. Analysts estimates were $1.50. Full year earnings of $4.58 was also below the 2015 total of $5.25. Sales for the holiday quarter declined -4.3% to $20.7 billion and also missed estimates. The company guided for 2017 same store sales to decline in low single digits with earnings at a mid range of $4.00, also below the 2016 total. Q4 same store sales fell -1.5%. For Q1 they guided for earnings of 80 cents to $1, below the year ago $1.29 and analyst estimates for $1.31. For the same period, Walmart saw same store sales rise 11.8%.

Update 3/14/17: German chain Aldi said it was adding $1.6 billion to its already announced $3 billion U.S. expansion. They are remodeling 1,300 existing stores and plan to have 2,000 stores by the end of 2018. Aldi is a sharp discount grocer and this is going to be a major challenge to stores like Target, Walmart and Whole foods. The chain has caused a massive disruption in Britain and was the fastest growing supermarket for the last 12 weeks. They have more than 100,000 stores in 27 European countries with sales of $68.7 billion.

Earnings May 30th.

Shares are crashing because investors are worried Target will turn into Sears with the monster stores becoming ghost towns similar to the deserted stores operated by Sears. With guidance moving lower, analyst estimates moving lower and the biggest shopping quarter of the year behind them, it could be a long hot summer for Target's share price. Shares closed at a five-year low on Tuesday after breaking support at $56.

Position 3/8/17:

Long May $52.50 put @ $1.38, see portfolio graphic for stop loss.


YELP - Yelp Inc - Company Profile

Comments:

No specific news. Shares declined slightly. It was just enough to convince me to keep it at least one more day. I am lowering the stop loss.

Original Trade Description: February 22nd

Yelp Inc. operates a platform that connects people with local businesses primarily in the United States. Its platform covers various local business categories, including restaurants, shopping, beauty and fitness, arts, entertainment and events, home and local services, health, nightlife, travel and hotel, auto, and others categories. The company provides free and paid business listing services to businesses of various sizes, as well as enables businesses to deliver targeted search advertising to large local audiences through its Website and mobile app. It also provides other services, including Yelp platform, which allows consumers to transact directly on Yelp; Yelp deals that allow local business owners to create promotional discounted deals for their products and services; and gift certificates products for local business owners to sell full-price gift certificates directly to customers. The company's Yelp platform enables consumers to complete food delivery transactions, book spa and salon appointments, order flowers, make winery reservations, and others. It also serves customers in Argentina, Australia, Austria, Belgium, Brazil, Canada, Chile, the Czech Republic, Denmark, Finland, France, Germany, Hong Kong, Ireland, Italy, Japan, Mexico, the Netherlands, New Zealand, Norway, the Philippines Poland, Portugal, Singapore, Spain, Sweden, Switzerland, Turkey, and the United Kingdom. Company description from FinViz.com.

Yelp reported earnings on February 9th of 27 cents that easily beat estimates for 25 cents. Revenue of $194.8 million barely beat estimates for $194.3 million. With an earnings beat you would have expected the stock to rally strongly. That was not the case.

The company guided to revenue of $195-$199 million and analysts were looking for $204.4 million. Full year guidance was $880-$900 million.

The challenge was slowing growth. In Q2 they added 7,400 accounts. In Q3 6,600 accounts and in Q4 only 2,800 accounts. Yelp says its addressable universe is more than 20 million local businesses but they only have 138,000 active advertisers. It is far too soon for growth to be slowing at that fast a pace.

They are also seeing a decline in website traffic and app usage.

The problem is competition. Amazon, Google and Facebook are breaking into the market with new offerings. Other copycat sites like Munch Ado are stealing their customers.

Yelp pulled back from its focus on national brands and is concentrating on local business advertising, which is the bulk of their business. They are aggressively cutting costs as evidenced by the earnings beat but that only works so long if the new advertiser growth is slowing and consumer usage is fading.

Piper Jaffray called the guidance lackluster and said a "confluence of factors" will cause further decline in Yelp traffic in the future.

Earnings May 11th.

Shares have been declining steadily since earnings and have now moved under support at $35.

Position 2/23/17:

Long APR $33 put @ $1.55, see portfolio graphic for stop loss.




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