Option Investor
Newsletter

Daily Newsletter, Tuesday, 3/21/2017

Table of Contents

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

Market Wrap

End of the Trend?

by Jim Brown

Click here to email Jim Brown

The trend is your friend until it ends and Tuesday was definitely a change in that direction.

Market Statistics

The change in direction was blamed on at least a dozen different things but it may have just been time for a pause. I wrote several times recently that the three weeks after March option expiration were typically rocky. The Q1 option cycle is over, Q4 earnings are over and the tax payment deadline is only three weeks away. Traders have to look at their portfolio, cash on hand and anticipated tax due and make decisions on how to handle that problem. This is the perfect time for changes since the Q1 earnings cycle does not start for three more weeks. The Fed is behind us and there are no catalysts in the market that require an urgent investment. This is why this three-week period is typically rocky.

This year there are other problems for equities. The Trump honeymoon is coming to a rapid end with the healthcare train wreck in the House. After several weeks of haggling and arm-twisting, the bill is all but dead. In the republican side of the House, there are 136 supporters, 52 undecided and 48 opposed or seriously concerned according to one survey. Late in the afternoon the Conservative Caucus reportedly had 25 hard line no votes and 2 leaning to a hard no. That is the death knell for the bill because the republicans can only afford to lose 21 votes and still get it passed. The odds are nearly 100% that the bill will be pulled rather than go up for a vote on Thursday. There is no chance for passage in the Senate regardless of the outcome in the House.

This is rapidly being seen as the wheels falling off the Trump train. If the republicans are too fractured to get a healthcare bill passed then they will have no chance getting a major tax overhaul completed, major deregulation accomplished and almost anything else on the agenda. This is a political disaster for the Trump policy plans.

Adding to the problem were comments from House Ways and Means committee Chairman, Rep Kevin Brady, that a border tax is a given. That happened just before the open and that caused a significant ripple when the markets began trading. Retailers of all types sold off hard because of the significant hike in prices they would face.

The small cap stocks sold off hard because they would benefit the most from the Trump policies and with those policies suddenly in serious doubt, the small cap stocks imploded. The Russell 2000 lost -2.7% or a whopping -37 points to close just over critical support at 1,340. The S&P-600 closed at a 4-month low at 822 and just under support at 825. This is a major breakdown and any further declines could trigger a broader market selloff.


There were no economic reports to move the market. The Current Account Deficit was nearly unchanged from the last update at -$112.4 billion for Q4. This was old news and ignored by the market. State and local tax revenues increased slightly from 1.4% to 1.6% in Q4. This was also ignored since we already at the end of Q3.

The only material report on the calendar for Wednesday is the Existing Home Sales for February. Expectations are for a slight decline to 5.59 million. On Wednesday, Yellen speaks again but she is not expected to move the markets. If anything, she will just repeat the key points from the press conference last week.

There are plenty of other Fed speakers over the next two days and they will spin their own views of the economy and rates.


Two other indicators have been suggesting for the last week there was trouble ahead for equities. The bond yields began to fall despite the Fed's rate hike. Investors seeing the train wreck in Washington began to hedge their equity bets last week by increasing bond positions.

The dollar began to decline after the Fed meeting and Dutch election outcome. When the anti-EU candidate lost, the Euro strengthened. When the anti-EU candidate did poorly in the French debate, the Euro eased up slightly once again.



The rising Euro will be beneficial for Europe but it will make it tougher for U.S. companies to sell goods overseas.


The falling dollar should be lifting crude prices but oil fell another $1 to a four month closing low on worries about demand, inventories and over production. This break of support at $48.50 suggests there could be lower lows ahead. This caused energy equities to decline again and helped to weaken the overall market.


The border tax comments from Rep Brady crushed retailers and Under Armour (UA) was the biggest decliner on the S&P with a 4% drop. This was a new historic low close. Macy's (M) closed at a five-year low. Target (TGT) also closed at a five year low.

This is not going to be a temporary dip. If the border tax is a done deal, we are going to see a lot of disruption in the retail market on nearly every item from shoes, clothes, food, auto parts, gasoline prices, sporting goods, etc. This will change the entire scope of the retail sector and there will be many stores that go out of business because they cannot compete with the scope of a store like Walmart.




Before the bell homebuilder Lennar Corp (LEN) reported earnings of 59 cents compared to estimates for 56 cents. Revenue of $2.34 billion also beat estimates for $2.17 billion. The company said it was riding a wave of economic optimism and buyer confidence. The company said the supply of previously own homes was the tightest they had ever seen.

New orders rose 12% and beat estimates for 7.7%. They delivered 5,452 homes in the quarter, up 13% with gross margins of 21.1%. That was below the estimates for 22.3% and shares declined after the report despite the outstanding quarter.


After the bell Dow component Nike (NKE) reported earnings of 68 cents that beat estimates for 53 cents. Revenue of $8.43 billion missed estimates for $8.47 billion. Gross margin fell 140 basis points to 44.5% due to higher selling costs and strong dollar issues. Nike brand revenues rose 7% to $7.9 billion on a constant dollar basis thanks to double-digit growth in Western Europe, Greater China and emerging markets. Revenues for Converse rose 3% to $498 million.

They repurchased $475 million in shares as part of their 4-year $12 billion program of which $8.4 billion remains open. They ended the quarter with $6.2 billion in cash. Inventory levels rose 7% after a similar gain in Q3. This suggests the sell through is not working as well as expected.

Nike is facing a lot of competition from Adidas and Under Armour. Shorts on Nike are over $2 billion for the first time ever. Shares fell -4% in afterhours.


FedEx (FDX) reported earnings of $2.35 that missed estimates for $2.62. Revenue of $15 billion matched estimates. They shipped a record number of packages in Q4. Operating profit margin was 7.5%, down from 9.2%. Margin on the ground segment fell from 12.6% to 11%. The company reaffirmed full year guidance for earnings of $10.80 to $11.30.

FedEx said a major increase in fuel prices in Q4 depressed profits. FedEx Freight saw a drop of 27% in operating income and the company was targeting double digit growth. Shares fell -$7 in afterhours.


Disney (DIS) shares were upgraded after the monster $170 million opening weekend take by Beauty and the Beast. Multiple analysts reiterated buys saying this is why you always want to own Disney. They are capable of producing blockbuster movies one after the other. Nomura raised estimates to $125 and Instinet matched that move as well. With the success of the live action Beast, they still have 11 other classics in the process of being remade into live action movies or in the case of Mary Poppins, a live action sequel. Those are Mulan, Aladdin, Lion King, 101 Dalmatians, Little Mermaid, Pinocchio, Sword in the Stone, Peter Pan, Snow White and the Seven Dwarfs, Dumbo and the sequel to Marry Poppins.


Facebook was upgraded by BTIG to a buy with a $175 price target. The analyst said he was wrong when he downgraded them last year after they warned they would spend more money. Now he is upgrading because they are revolutionizing their business and the decline in profits never appeared. He said the new Instagram Stories feature had taken off and was extremely popular. Also, their new handling of video is also compelling. He thinks ad revenue will rise sharply.


Apple (AAPL) announced the new iPhone 7 and 7+ in the (PRODUCT)RED Special Edition in recognition of the more than 10 years of partnership between Apple and (RED). This is the Global Fund working to eliminate AIDS. Apple has contributed more than $130 million to date. Since it's founding in 2006 (RED) has generated more than $465 million for the Global Fund. The Special Edition iPhone 7 and 7+ with 128gb or 256gb start at $749. The models will be available worldwide on March 24th.

Apple also introduced a new iPad with 9.7-inch retinal display. The 32gb memory with WiFi will start at $329 while the WiFi and cellular model starts at $459. This is cheaper than prior versions of the iPad, reflecting the increased competition.

Bernstein raised their target price for Apple shares to $160 from $140 saying the iPhone 8 upgrade cycle will be very strong. The analyst also noted that any tax change or change to the repatriation rules would provide a significant opportunity for buybacks and dividends along with stronger earnings.


Well after the close Sears (SHLD) filed its annual report with the SEC and warned that it may cease to be a "going concern" at some point in 2017. This is a red flag warning and they waited until after the afterhours session was over before they filed the report. Last week the lenders for Sears hired a bankruptcy attorney so they knew there was trouble ahead.



Markets

The streak is dead. All those various streaks on the indexes where they went X days without an intraday move of 1% or a closing move of 1% or more are dead. All those watching and waiting for "the correction" have finally got something to point to and say we knew it was coming. However, it may not be over. Very rarely does the market just drop unexpectedly -1.5% or more on one day and suddenly reverse to the upside.

Critical support has been broken on the major indexes and now it is time to see if the sellers have any conviction. It is one thing to drop sharply on several headlines but an entirely different event if that decline continues for several more days.

At this point, I would not be surprised if we continue lower because the healthcare train wreck could be the gift that keeps on giving. Remember, the bigger picture. If the healthcare bill is delayed, it pushes everything else including the tax cut proposals, well into the future. That tax cut proposal is the pot of gold at the end of the rainbow. If the rainbow begins to fade, the tax cut benefits already priced into the market will begin to fade with it. I have written several times that Citigroup believes the market will decline 10% if it appears the tax cuts are going to be postponed until 2018. That is not the case, yet, but every day they do move farther into the future.

The S&P broke through support at 2,360 and closed on light uptrend support at 2,345. Any further decline would target the 2,250 level according to multiple analysts. That would be about a 6% correction. The 2275-2300 level could produce a pause but that support is light.


The four largest decliners on the Dow accounted for more than 120 Dow points. Goldman was the biggest loser at -$9 which erased 62 points from the Dow. The financial sector was crushed. The SPDR Bank ETF (KBE) lost nearly 5% while the Financial Select SPDR (XLF) declined -2.88%. The XLF has other components like insurance companies.



The Dow has been the weakest large cap index and it blew through support at 20,800 to close at 20,668. There is some converging light uptrend support at 20,500 and that could easily be hit on Wednesday. The Dow is unsupported at today's close so the most likely path is lower.



The Nasdaq lost -108 points or -1.8% to close 5 points below critical support at 5,800. That is close enough to claim it honored that support, if it rebounds on Wednesday. The Nasdaq had its props knocked out with the biotech sector falling -4%. The Biotech Index lost a whopping -149 points. This is a result of the failing healthcare bill. Analysts are worried there will be drug price restrictions to help get the bill passed. Uncertainty is a killer in the markets.


It was a big cap disaster with all the major stocks except for Facebook and Apple, clustered at the top of the biggest loser's list. The majority of the others are biotechs.


The Nasdaq needs to hold that closing level to have a chance at a rebound. Unfortunately, the Nasdaq futures are down -15 as I type this commentary. The next chance of decent support is in the 5525-5575 range.


Despite the big cap slaughter, the Nasdaq 100 only broke initial support at 5,340. The 5,300 level still has a chance to contain the decline.


The Russell 2000 stopped short of critical support at 1,340 so there is still hope for a recovery. However, with the S&P-600 closing at a 4-month low, the Russell may be only a day behind in the plunge.


Tomorrow is not looking good. The S&P futures are down -7 as I type this and continuing to decline. Sometimes these events become self fulfilling as selling begets selling and investors panic as they race for the exits. Everyone has been so complacent for the last four months that a sudden reversal of fortune has caught most investors by surprise.

Investors forgot that a 1% down day is not unusual. Having 110 consecutive days without a 1% down day is unusual.

I would still buy a rebound. I would not buy the dip. When it appears a bottom has formed, I would take a chance with some prior winners. They will be the first stocks to rebound because traders have a short memory. What worked before should work again or at least that is the idea.

Remember, the three-week period after March option expiration is typically choppy with bouts of selling as investors restructure their portfolios for the Q1 earnings cycle and extract cash for the taxman.

Enter passively, exit aggressively!

Jim Brown

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New Option Plays

Standing Aside

by Jim Brown

Click here to email Jim Brown

Editors Note:

The sudden change in direction may not be over. The S&P futures are down -7 and the Nasdaq futures -17 as I type this. There is no reason to try and guess market direction for Wednesday's open. Those numbers could reverse overnight or they could become worse. In times of uncertainty it is better to watch and wait and be ready to strike when the time is right.


NEW DIRECTIONAL CALL PLAYS

No New Bullish Plays


NEW DIRECTIONAL PUT PLAYS

No New Bearish Plays



In Play Updates and Reviews

Not a Fun Day

by Jim Brown

Click here to email Jim Brown

Editors Note:

We knew it was going to happen eventually but that does not make the pain any easier to bear. Waiting for a selloff to occur is like dreading your dentist appointment for weeks in advance. When it finally occurs the anxiety and pain last for a couple hours but once it is over, there is a sense of relief and your personal cloud is lifted.

The biggest market declines are the ones nobody expects. Today was definitely unexpected and there were multiple reasons to blame. However, it is what it is. The market tanked and ended its streak of days without a 1% drop at 110 and now all the nervous Nellie's are running for cover. Small caps fell twice as much as big caps and caused serious damage to sentiment.

The key now is what to expect for the rest of the week. This is typically a tough three weeks for the market and we could definitely see lower lows. However, the dip will be bought. It is just a matter of time.

I adjusted some of the stop losses to be slightly lower in hopes of escaping another big single day decline. I believe our remaining positions are strong enough to survive several days of weak declines but another -250 point drop on the Dow could spark panic selling.



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


FNSR - Finisar Corp

The long call position was entered at the open.

ATVI - Activision

The long call position was stopped in the market crash.

BMY - Bristol Myers

The long call position was stopped in the market crash.

PAYC - Paycom

The long call position was stopped in the market crash.

YELP - Yelp Inc

The long put position was stopped at the open.



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

Credit spreads and naked puts = OptionWriter

Long term option investments = LEAPS Investor

3-6 month Option Trades = Ultimate Investor

Iron Condors = Couch Potato Trader

Long and short equity trades = Premier Investor



BULLISH Play Updates

ADP - Automatic Data Processing - Company Profile

Comments:

No specific news. Big pullback with the market.

Original Trade Description: March 17th.

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.

Position 3/20/17:

Long May $110 call @ 75 cents, see portfolio graphic for stop loss.


ATVI - Activision Blizzard - Company Profile

Comments:

No specific news. Shares lost -1.5% because of the weak market. The drop was not stock related but we were still stopped out.

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.

Update 3/17/17: The Call of Duty World League Dallas Open (CWL) began in Dallas on 3/17. 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.

Position 3/13/17:

Closed 3/21/17: Long May $50 call @ $1.99, exit 1.33, -.66 loss.


AZN - AstraZenaca - Company Profile

Comments:

No specific news. Only a minor decline in a weak market.

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.

Update 3/17/17: 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.

Update 3/20/17: AZN released the results of a study for type 2 diabetes showing that treatment with SGLT-2 inhibitors reduced the rate of hospitalization for heart problems by 39% and death by any cause by 51%. This was a study with a population of 300,000 across six countries. This could mean that AZN could apply to sell the drug under more than one diagnosis for different types of treatment.

Position 3/3/17:

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


BMY - Bristol Myers - Company Profile

Comments:

No specific news but the weak market added to the prior decline combined to stop us out.

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.

Update 3/20/17: BMY and CytomX Therapeutics (CTMX) signed a deal to extend their 2014 cancer drug partnership to develop treatments that will include eight additional targets using CytomX's proprietary Probody platform. CytomX will receive $200 million up front and BMY will receive exclusive global marketing rights including six oncology targets and two targets in other areas. CytomX Probody therapeutics selectively bind to cancerous tumors and not to healthy tissues. This lowers toxicity, improves delivery and creates highly effective treatments for cancer.

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:

Closed 3/21/17: Long June $57.50 call @ $2.78, exit $1.79, -.99 loss.


DIS - Walt Disney - Company Profile

Comments:

Disney is still in Beast mode and posted only a minor decline.

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.

Update 3/20/17: Beauty & the Beast took in $170 million in ticket sales on its opening weekend. That was a record high for a family film. Disney has 11 other animated classics that it is planning to remake with human actors. The success of Beauty & the Beast will make theses 11 films a reality.

Mulan, Aladdin, Lion King, 101 Dalmatians, Little Mermaid, Pinocchio, Sword in the Stone, Peter Pan, Snow White and the Seven Dwarfs, Dumbo and a sequel to Marry Poppins.

Earnings May 9th.

Position 3/14/17:

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


FNSR - Finisar Corp - Company Profile

Comments:

No specific news. Only a minor decline in a weak market.

Original Trade Description: March 20th.

Finisar Corporation provides optical subsystems and components for data communication and telecommunication applications in the United States, Malaysia, China, and internationally. Its optical subsystems primarily consist of transmitters, receivers, transceivers, transponders, and active optical cables that provide the fundamental optical-electrical or optoelectronic interface for interconnecting the electronic equipment used in communication networks, including the switches, routers, and servers used in wireline networks, as well as the antennas and base stations used in wireless networks. The company also offers wavelength selective switches, which are used to switch network traffic from one optical fiber to multiple other fibers without converting to an electronic signal. In addition, it provides optical components comprising packaged lasers, receivers, and photodetectors for data communication and telecommunication applications; and passive optical components for telecommunication applications. Finisar Corporation markets its products through its direct sales force, as well as through a network of distributors and manufacturers' representatives to the original equipment manufacturers of storage systems, networking equipment, and telecommunication equipment, as well as to their contract manufacturers. Company description from FinViz.com.

Finisar reported earnings of 59 cents that rose 136% but missed estimates for 62 cents. Revenue rose 23% to $380.6 million but also missed estimates for $389.5 million. They guided for Q1 earnings of 53 cents and revenue of $370 million. Analysts were expecting 58 cents and $393 million.

Despite the enormous improvement in sales and earnings the stock was crushed for a 25% decline from $35 to $26. The damage was worse because competitor Ciena (CIEN) had also reported a weaker quarter the day before. Panic gripped traders that optical networking was somehow slowing down. The pace of sales "growth" in China slowed slightly and that sent investors running for cover. China is building out its 100 gigabit network technology in metropolitan areas and they are consuming enormous amounts of networking equipment.

Earnings June 9th.

Finisar is not a one trick pony. They are also pushing into the smartphone market and will be competing on the 3D sensor components in the next version of smartphones. They are also building out massive networks in the cloud computing datacenters that require miles of fiber and very fast connections.

After the drop, multiple analysts reiterated buys and outperforms on FNSR saying this was just a hiccup and there are far greater earnings in the future. Raymond James upgraded them from outperform to strong buy. Jefferies upgraded from hold to buy. MKM reiterated a buy rating and $41 price target. Needham reiterated a strong buy and $44 target. Stifel, Raymond James and William Blair all reiterated a buy rating.

Shares have rebounded $2 off the lows from last week and should begin to accelerate higher in the days ahead.

Position 3/21/17:

Long June $30 call @ $1.50, see portfolio graphic for stop loss.


HLF - Herbalife - Company Profile

Comments:

No specific news. Only a minor decline in a weak market despite the strong rebound over the last week.

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. Drop back to support after four days at a new 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. Shares fell -3% to break below support and stop us out at $55.15 for a minor loss.

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:

Closed 3/21/17: Long May $57.50 call @ $2.69, exit 2.30, -.39 loss.


SLCA - U.S. Silica Holdings - Company Profile

Comments:

No specific news. Crude prices fell another dollar and the equity market crashed. SLCA did decline but held over support.

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. Major decline to break the short term trend but the longer term trend is still intact.

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. Minor decline despite the very strong gains over the last two months.

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:

Surprise, surprise! A sell off finally appeared and the VIX jumped 10% in one day. However, we have been here before in late February. We have not been over this level since late December.

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:

Target shares fell to another new low with a loss of $1. The border tax is going to cause retailers a significant problem and it was confirmed again today by Rep. Brady.

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 spiked just enough at the open to stop us out before prices collapsed.

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:

Closed 3/21/17: Long APR $33 put @ $1.55, exit .45, -1.10 loss.




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