Option Investor
Newsletter

Daily Newsletter, Tuesday, 5/9/2017

Table of Contents

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

Market Wrap

Nasdaq to the Rescue

by Jim Brown

Click here to email Jim Brown

The Nasdaq big caps kept the broader market from collapsing intraday.

Market Statistics

All of the indexes opened higher with the Dow rising to 21,046 and the S&P 2,404. Those two indexes rolled over and headed back into negative territory but the Nasdaq toughed it out and managed to remain positive and then regain the highs. The Dow declined -75 points intraday and the S&P -9 points after their early gains. The rebound in the Nasdaq helped to lift those indexes again and the markets ended the day neutral.

The computers are keeping the markets from making any major moves. Everyone has heard about the move from active to passive investing and the surge in ETF trading by computers. With more than 60% of our daily volume done by computers, they have learned how to range trade. Rips are sold and dips are bought. Buying and selling millions of shares of ETFs causes those stocks represented by the ETFs to also rise and fall fractionally. We are in the midst of a computer war but we cannot see it other than the flat charts.

The Dow and S&P have traded in lock step for the last three weeks. Prior to today, the Dow traded in a .02% intraday range or less on 8 of the last 9 days. Today makes it 9 out of 10 days.


The sharp afternoon drop was caused by the North Korean ambassador to the UK. He said "We are ready to turn into ashes any available strategic assets of the US." He also said North Korea was prepared for their sixth nuclear test as soon as Kim Jong Un gave the order.

After the close, President Trump fired FBI Director James Comey on the recommendation of Attorney General Jeff Sessions and Deputy Attorney General Rod Rosenstein. In Trump's letter to Comey he said it was time to find somebody that could restore public trust in the agency. Shortly thereafter Senate Democratic leader Chuck Schumer called for a special prosecutor in the investigation between Trump's campaign and Russia. Schumer said the pattern of dismissals of people critical of the Trump administration was troubling. Acting Attorney General Sally Yates was terminated and former super star U.S. attorney Preet Bharara was also dismissed. According to Schumer, the Comey termination suggests the administration is trying to cripple the Russian investigation. S&P futures crashed -5 points almost immediately after the two headlines.

In the economic news, the NFIB Small Business Optimism Index declined fractionally from 104.5 to 104.5. That remains at multiyear highs despite the -1.4 point decline over the last three months. The index average in 2016 was 95.3. However, the percentage of small businesses that expect the economy to improve over the next six months fell from 46% to 38%. The current job-opening component rose from 30 to 33. A net of 16% of companies plan to increase employment but 33% said they had jobs that were hard to fill. The uncertainty over Obamacare and the AHCA and what will eventually be passed is causing business owners to tone down their post election expectations. The promise was to repeal Obamacare and that has not yet happened and it is looking more likely every day that some portions will remain in force in some form.

Moody's Chart

The Job Openings and Labor Turnover Survey (JOLTS) showed that job openings remain steady at a 3.8% rate in March. There were 5.743 job openings, 5.260 million hires and 5.088 million separations. There were 3.116 million quits and 1.615 million layoffs. The hiring rate was unchanged at 3.6%. Because this was a lagging report for March, it was ignored.

The Atlanta Fed real time GDPNow forecast opened the quarter forecasting 4.3% GDP growth for Q2. After a week of soft economic reports, that has declined to 3.6%. This morning's Wholesale Trade report for March showed inventories rose +0.2% with durable goods rising +0.6% and nondurable falling -0.5%. Sales were flat. The weak inventory build caused the GDP forecast to weaken.


The calendar for the rest of the week is led by the Retail Sales on Friday and the price indexes on Thr/Fri. Unless there is a dramatic miss of the estimates, none of those should move the market.


After the bell the API inventory report for crude oil showed a decline of -5.789 million barrels compared to estimates for a -1.8 million barrel decline. The API report showed a -4.158 million barrel decline last week but the EIA report only showed a drop of 900,000 barrels. If the EIA report tomorrow were to catch up with the API numbers and show something well over a 5 million barrel drop, we should see prices begin to recover from the multi-week decline.

Over the weekend Saudi's oil minister, Khalid al-Falih, said "after conversations with participants, I am confident the production cut agreement will be extended for another six months and possibly beyond." The OPEC meeting is May 25th and we should be getting almost daily headlines ahead of that event.

That tease about "possibly beyond" is their attempt to start building some excitement over a potential production cut extension that is not limited to six months. Crude prices are still lingering in the $46 range and they did not rebound after the API numbers.


Valeant Pharmaceutical (VRX) reported earnings of $1.79 compared to estimates for $1.08. However, that includes a onetime tax benefit. Revenue of $2.11 billion missed estimates for $2.18 billion. The company blamed lower volumes in U.S. diversified products and branded products as the cause. They also blamed "challenging market dynamics." They did raise their forecast for adjusted earnings to a range of $3.60-$3.75 billion, up from $3.55-$3.70 billion. Shares spiked 24% on the news.


Allergan (AGN) reported earnings of $3.35 that beat estimates for $3.31. Revenue of $3.57 billion also beat estimates for $3.53 billion. The company said revenue from facial aesthetics, Botox, eye care and other products were responsible for the revenue growth. They guided for full year revenue of $15.8-$16.0 billion with adjusted earnings of $15.85 to $16.35 per share. Analysts were expecting $15.9 billion and $16.03 per share. Shares declined $3.50 on the news.


Online retailer Wayfair (W) reported a loss of 48 cents that beat estimates for 56 cents. Revenue of $960.8 million rose 29% and beat estimates for $939.2 million. The company said the number of direct retail customers had risen 45%. In the home shopping category that is hard to do. They hired 1,800 new people in 2016 and formed them into teams to attack various categories in their addressable market where they were smaller relative to perceived potential. Apparently it worked. Selling furniture is not going to be something Amazon charges into in the near future because of the shipping problems. However, Amazon could do it through a third party marketplace where the manufacturers are responsible for the shipping. Wayfair is attempting to capitalize on their narrow lead in this area. Shares exploded higher for a 21% gain.


Apple (AAPL) shares continued to hit new highs and lift the Nasdaq and the Dow after an SEC filing showed that Warren Buffett nearly tripled his holdings in the company. Buffett disclosed he owned $19.2 billion in Apple shares, up from $7.1 billion on March 31st. That makes Berkshire Hathaway the 4th largest owner of Apple shares at roughly 133.65 million shares. Apple currently has 5.1 billion shares in circulation. The stock rose to close over $803 billion in market cap and definitely on their way to become a trillion dollar company if everything continues to work in their favor.

Also helping Apple shares was a report in DigiTimes that the iPhone 8 production is "on schedule" which is contrary to multiple supplier and press reports over the last month. Taiwan semiconductor is reportedly ready to ramp up production of the A11 chip that powers the phone starting in June. Circuit board manufacturers Zhen Din Technology and Kinsus Interconnect Technology have reportedly "managed to improve their yields of the board" enough to move into volume production in June. Lastly, Foxconn, Wistron and Pegatron, the actual assemblers of the phones, are ramping up recruitment and training of new workers in China in preparation of the new phone.

However, there was no word on the delay in the 3D sensors or whether Apple had resolved the overheating problem from the wireless charging process. There is also worry that Samsung will not be able to produce enough OLED screens to satisfy both Apple and the other manufacturers using the same screens. There are still risks that final manufacturing concerns could mean certain rumored features could be scrapped and that would be negative for sentiment. There are rumors the fingerprint sensor may have to be moved to the back of the phone and that would be a mistake.

Given all the moving parts that have to come together perfectly to sell 80 million iPhones in Q4, there is always the potential for some specific part to spoil the party. So far, Apple has been very fortunate in the past models that they have escaped this challenge. We saw a similar event with the cordless ear buds, which were delayed significantly. If that were to happen to the iPhone 8 it would be a disaster for the stock.


After the bell, my favorite company, Nvidia (NVDA), reported earnings of 79 cents that rose +126% and easily beat estimates for 66 cents. Revenue of $1.94 billion rose 48% and even beat optimistic analyst estimates for $1.91 billion. In one fell swoop all the recent critics of Nvidia were left standing on the sidelines while the stock spiked $15 immediately after the release.

Analysts had said Nvidia's gaming revenue was on the decline because PC games were not selling as well so high dollar graphics cards were fading. The company said gaming graphics revenue rose $687 million to $1.03 billion. The only thing fading is analyst credibility. Datacenter revenue rose +186% from $143 million to $409 million. Automotive revenue rose from $113 million to $140 million.

The CEO said demand for AI chips was exploding and Nvidia GPUs were by far the choice for those leading the charge into the AI future.

Nvidia will hold its GPU Technology Conference next Wednesday and it is expected they will unveil more details about its next generation architecture, called Volta, which will be another giant leap for mankind. Sorry Intel.


Dow component Disney (DIS) reported earnings of $1.50 compared to estimates for $1.41. Revenue of $13.34 billion missed estimates for $13.41 billion. Cable network revenue rose 3% to $4.1 billion but operating income fell -3% to $1.8 billion because of lower revenue from ESPN. The determining factor was higher programming costs. There was also a shift in the college playoff game schedule that skewed revenue. Disney also suffered from the pre-release costs for Beauty and the Beast but none of the revenue, which is in Q2. Comparisons were also difficult because of Star Wars and Zootopia in the year ago quarter. CEO Bob Iger continued to claim that the worry over ESPN cord cutting is "highly exaggerated" saying the company has taken numerous steps to prevent any material decline in revenues. Shares fell $3 in afterhours.


Shares of TripAdvisor (TRIP) rose $3 in afterhours after reporting earnings of 24 cents that missed estimates for 28 cents. Revenue of $372 million rose 5.7% but missed estimates for $378.7 million. They announced an agreement with GrubHub (GRUB) to integrate the service into the TripAdvisor websites to allow customers to order from more than 4.2 million restaurants in more than 1,100 cities.


Yelp (YELP) needs some help after reporting earnings of 19 cents that beat estimates for 16 cents. Revenue rose 24% to $197.3 million and just below estimates for $198 million. The problem came from lowered guidance. The company said it now expects full year revenue of $850-$865 million and analysts were expecting $889 million. Yelp said it was facing an advertiser revolt as smaller businesses failed to compete well with larger corporate advertisers. Small emerging businesses were getting lost in the advertising shuffle. Shares imploded on the news.


Priceline (PCLN) reported earnings of $9.88 compared to estimates for $8.83. However, given Priceline's history of big beats, that was almost considered a miss. Revenue of $2.42 billion missed estimates for $2.43 billion. They guided for the current quarter to earnings of $13.90-$14.00 and analysts were expecting $15.49. Shares fell $60 on the news.


Earnings highlights for Wednesday are SnapChat, Symantec, Whole Foods, Mylan Labs and Netease. SNAP will probably get the most headlines since this is their first public earnings report.


Markets

The S&P futures have recovered slightly from the -5.50 low to trade at -3.50. There is still a lot of darkness before the dawn and anything can happen. The market is suffering from erectile dysfunction and we need the equivalent of a stock Viagra to pump it up. With the earnings cycle slowing the lack of more than 2-3 high profile companies per day with good earnings, is not enough to keep the optimism going.

While Nvidia soared tonight, their gains are easily offset by the drop in Priceline shares. Nasdaq futures are negative as well. The Nasdaq big caps have been supporting the market for the last three weeks or longer. The top ten Nasdaq stocks are also in the S&P and three in the Dow so while they were leading the Nasdaq higher they were also providing support for the other big cap indexes. Eventually Apple is going to fall from its tree and waken the bears sleeping below. One or two of the FAANG stocks cannot support the market. It has to be a group effort. Google and Facebook were negative today and Apple, Amazon, Netflix were only barely positive relative to their dollar value.

Since the Nasdaq has supported the market, it is the Nasdaq that will eventually crash the market when profit taking finally appears. The Composite Index closed at a new high at 6,120 after finally breaking over initial resistance at 6,100. Unfortunately, it is still battling uptrend resistance at the 6,130 level.

The Nasdaq 100 has broken out to a new high over that same uptrend resistance mostly thanks to Apple's recent spike. I showed the Apple chart earlier and it is extremely over-extended. The September iPhone announcement is a long way off and anything can happen over the next four months.

The $NDX has support at 5,610 should it decide to rest.




The small caps did not decline and that is a positive. They did not rally either so the overall impact is neutral. The S&P-600 has solid resistance at 850 but it is not declining from that battle.


The Dow rebounded from the -75 intraday low but could not make it back to resistance at 21,000. With Disney down after the close, it could start out negative on Wednesday. The Dow futures are only down 40 points so there is no real decline. There are no other Dow components reporting this week so the Dow stocks will have to get their energy from some other source. Support is 20,900.



The S&P traded over 2,400 to 2,404 but fell back to 2,390 intraday. The index is trying to move higher thanks to the Nasdaq big caps but it may face some headwinds on Wednesday. Support is well back at 2,380.


I am worried the Nasdaq bullish streak could be due for a rest. Apple is due for some profit taking and most of the big cap tech stocks have already reported earnings. We are moving into the "sell in May and go away" cycle and once the MACD on the S&P gives a sell signal, we will see whether this cycle will be material in 2017. Given the strong earnings for Q1, the impact could be negligible.

The termination of FBI Director Comey and the call for a special prosecutor by Chuck Schumer, could be the events that finally spoil the market sentiment. Only time will tell but I would be cautious about adding new positions until the market actually picks a direction other than sideways.

Enter passively, exit aggressively!

Jim Brown

Send Jim an email

 

If you like the market commentary you have been receiving and you are on a free trial then now is the time to subscribe. Don't wait until you miss a newsletter to decide you want to take the plunge.

subscribe now

 


New Option Plays

Wait for Direction

by Jim Brown

Click here to email Jim Brown

Editors Note:

The market is passing time waiting for a catalyst to give it a vertical direction. The mixed earnings after the bell along with the termination of FBI Director Comey and Schumer's call for a special prosecutor for Trump's staff, has tanked the futures and could spoil sentiment for Wednesday. There is no reason to jump into the market with a new position just because it is open.



NEW DIRECTIONAL CALL PLAYS

No New Bullish Plays


NEW DIRECTIONAL PUT PLAYS

No New Bearish Plays



In Play Updates and Reviews

Nasdaq Still Leading

by Jim Brown

Click here to email Jim Brown

Editors Note:

The Dow and S&P tried to sell off but the Nasdaq jerked them back from the afternoon decline. If it were not for the Nasdaq big caps over the last three weeks we would have an entirely different market. The Dow hit 21,046 early in the morning but then crashed back to a -75 point decline in the afternoon. The S&P traded up ot nearly 2,404 in the morning but fell back to 2,390 just before the close. A burst of buying in the Nasdaq helped lift both of those indexes back from the lows.

The Russell was also fractionally positive today and continues to hold over critical support at 1,388. The biotech index came roaring back after the monster 100-point drop on Monday. That helped to support the Nasdaq and Russell.



Current Portfolio


Stop Loss Updates

Check the graphic below for any new stop losses in bright yellow. We need to always be prepared for an unexpected decline.


Profit Targets

Check the graphic below for any profit stops in green. We need to always be prepared for a profit exit at resistance.





Current Position Changes


FFIV - F5 Networks
The long call position was entered 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

ADBE - Adobe Systems - Company Profile

Comments:

No specific news. Still holding the recent gains. New high today. I raised the stop loss again because we need to exit soon. This is a May position.

Original Trade Description: March 23rd.

Adobe Systems Incorporated operates as a diversified software company worldwide. Its Digital Media segment provides tools and solutions that enable individuals, small and medium businesses, and enterprises to create, publish, promote, and monetize their digital content. This segment's flagship product is Creative Cloud, a subscription service that allows customers to download and install the latest versions of its creative products. This segment serves traditional content creators, Web application developers, and digital media professionals, as well as their management in marketing departments and agencies, companies, and publishers. The company's Digital Marketing segment offers solutions for how digital advertising and marketing are created, managed, executed, measured, and optimized. This segment provides analytics, social marketing, targeting, advertising and media optimization, digital experience management, cross-channel campaign management, and audience management solutions, as well as video delivery and monetization to digital marketers, advertisers, publishers, merchandisers, Web analysts, chief marketing officers, chief information officers, and chief revenue officers. Its Print and Publishing segment offers products and services, such as eLearning solutions, technical document publishing, Web application development, and high-end printing, as well as publishing needs of technical and business, and original equipment manufacturers (OEMs) printing businesses. The company markets and licenses its products and services directly to enterprise customers through its sales force, as well as to end-users through app stores and through its Website at adobe.com. It also distributes products and services through a network of distributors, value-added resellers, systems integrators, independent software vendors, retailers, and OEMs. Company description from FinViz.com.

Everybody knows Adobe or at least they did 20 years ago. Photoshop and Illustrator were the key pieces of software everyone needed to create content for magazines and print media. What would Sports Illustrated have done without Photoshop for their Swimsuit Edition?

Fast forward to 2017 and Adobe has so many different pieces and partners that you cannot even describe them all. With annual revenue at $7 billion and growing they are rapidly outpacing everyone's earnings expectations.

Adobe is hosting its annual Digital Marketing Summit. At that event they announced several new partnerships and the integration of multiple "cloud" entities into one platform.

This description is from a Real Money article.

Headlining these moves is the creation of a common platform, known as the Experience Cloud for all of the products that to date had been grouped within Adobe's "Marketing Cloud." Going forward, Marketing Cloud will comprise one of three parts of Experience Cloud, and feature products such as Experience Manager (used to create and manage marketing content across platforms), Target (lets marketers personalize user experiences) and Social (used to run social media marketing campaigns).

Another part of Experience Cloud, known as Advertising Cloud, lets companies run and optimize search, display and video ad campaigns. It pairs Adobe's Media Optimizer search and display ad-buying tools with recently-acquired TubeMogul's video ad-buying platform. The third part, known as Analytics Cloud, combines the popular Adobe Analytics tool for uncovering insights from customer data with Audience Manager, a platform for creating customer/audience profiles.

Advertising Cloud has gotten a lot of attention, since it more firmly makes Adobe a player in an ad tech space where Alphabet/Google (GOOGL) and Facebook (FB) loom large, and where independent players such as The Trade Desk (TTD) and The Rubicon Project (RUBI) are also present. Adobe is pitching itself as an independent alternative to Google and Facebook, which of course are also giant sellers of ad inventory, while arguing that integrations between the three parts of Experience Cloud set it apart from both independent ad tech players and marketing software rivals such as Salesforce.com (CRM) and Oracle (ORCL).

In their earnings last week, they reported a 21.6% rise in revenue to $1.68 billion and the 12th consecutive increase in revenue from the Creative Cloud graphics software. Earnings were 94 cents and analysts had been expecting 87 cents and $1.645 billion in revenue. Adobe said annualized recurring revenue rose by $265 million to $4.25 billion. That is based on continuing subscription growth.

Update 5/2/17: Barclay's initiated coverage with a buy rating and $155 price target on growing traction in the cloud. They expect revenue from the Creative Cloud to rise 20% per year.

Earnings June 15th.

Shares spiked after earnings from $122 to $130 and then faded back to $125 over the next week. They have started to rebound again because finding 20% revenue growth in the market is hard to do.

Position 3/24/17 with an ADBE trade at $127.50
Long May $130 call @ $2.61, see portfolio graphic for stop loss.


APC - Anadarko Petroleum - Company Profile

Comments:

No specific news. Back to support on weak oil prices.

Original Trade Description: May 6th.

Anadarko Petroleum Corporation engages in the exploration, development, production, and marketing of oil and gas properties. It operates through three segments: Oil and Gas Exploration and Production, Midstream, and Marketing. The Oil and Gas Exploration and Production segment explores for and produces oil, natural gas, and natural gas liquids (NGLs). The Midstream segment engages in gathering, processing, treating, and transporting Anadarko and third-party oil, natural-gas, and NGLs production, as well as the gathering and disposal of produced water. The Marketing segment sells oil, natural gas, and NGLs in the United States; oil and NGLs internationally; and anticipated liquefied natural gas production from Mozambique. The company's oil and natural gas properties are located in the U.S. onshore, deepwater Gulf of Mexico, and Alaska; and in Colombia, Cote d'Ivoire, Mozambique, and other countries As of December 31, 2016, it had approximately 1.7 billion barrels of oil equivalent of proved reserves. Florida. Company description from FinViz.com.

Anadarko shares were hammered over the last several weeks by multiple events. The $10 drop in crude prices was the major cause of the first dip. Prices will rebound as we enter the summer driving season that begins on Memorial Day.

The second problem was a house explosion in Firestone Colorado. When the house was built the contractors cut into an abandoned flow line that used to run through the pasture that became a housing development. The line had been abandoned and the tanks removed long ago. However, when the well was shutdown in early 2016 the valve on the abandoned line was never closed. A new valve, new line to new storage tanks elsewhere was installed after Anadarko acquired the lease and the well was restarted in February. Unknown to Anadarko, the well was actually flowing gas into both lines. The gas from the line that had been cut saturated the ground around the house and entered the basement through a sump pump. The non-odorized gas built up in the basement until the owner tried to install a new water heater and the house blew up. Two men were killed and the wife was badly burned.

Anadarko shutdown more than 3,000 wells in the area to make sure they do not have any other problems. The well was drilled in 1993 and was last inspected in 2014. The well initially belonged to Gerrity Oil. Gerrity became a subsidiary of Patina Oil and Gas. Patina had 3,550 producing wells in the Wattenberg field within a 40 mile radius. Noble Energy bought Patina in 2005. How/when the well ownership moved from Noble to Anadarko is not clear.

I am sure there will be a settlement. However, Anadarko has insurance. If Somebody other than Anadarko was responsible for shutting down the well in early 2016 then they will be liable as well. That could have been any number of oil field service providers like Baker Hughes, Schlumberger or others. There is also the contractor that cut the line while they were building the house. If they did not report it, they could be liable.

Anadarko is a $30 billion company. Any fine, judgment or settlement that comes out of this event will be expensive but on a relative basis it will probably be less than the cost of drilling a single well and will probably be shared by several companies. I do not want to be uncaring but we are talking about a business reality that is important to this investment.

Earnings August 1st.

The double whammy of the oil price drop and the high profile house explosion crushed APC shares. The headlines on the explosion are already fading. Once oil prices begin to rebound ahead of Memorial Day the energy company shares will also begin to rise. Options are cheap because of the disaster. This is a buying opportunity.

Position 5/8/17:

Long Aug $55 call @ $2.14. See portfolio graphic for stop loss.


CCL - Carnival Cruises - Company Profile

Comments:

New high close. Carnival announced their Red, White and Blue 6 to 60 day cruise promotion for the summer with cruises starting at $795.

Original Trade Description: May 6th.

Carnival Corporation operates as a leisure travel and cruise company. It offers cruises under the Carnival Cruise Line, Princess Cruises, Holland America Line, and Seabourn brands in North America; and Costa, AIDA, P&O Cruises (UK), Cunard, and P&O Cruises (Australia) brands in Europe, Australia, and Asia. The company operates approximately 100 cruise ships. It also owns Holland America Princess Alaska Tours, a tour company in Alaska and the Canadian Yukon, which owns and operates hotels, lodges, glass-domed railcars, and motor coaches. In addition, the company is involved in the leasing of cruise ships. It sells its cruises primarily through travel agents and tour operators. The company was incorporated in 1972 and is headquartered in Miami, Florida. Company description from FinViz.com.

Carnival shares are at a record high after the company reported earnings of 38 cents that beat estimates for 35 cents. Revenue rose 3.8% to $3.79 billion and beating estimates. Onboard spending rose 6% as the company added more casinos and IMAX theaters to its ships. They raised full year guidance from $3.30-$3.60 to $3.50-$3.70.

The company said "At this time, cumulative advance bookings for the remainder of 2017 are well ahead of the prior year at considerably higher prices." More than 25.3 million people are expected to cruise this year compared to the 15.8 million a decade ago.

The company also raised the dividend by 14% to 40 cents payable on June 16th to holders on May 26th. They also approved a $1 billion stock buyback program.

Earnings June 27th.

Shares rallied to a new high at $63 and have held there for a week with no attempt to sell off. I believe they will move higher and the options are cheap.

Position 5/8/17:

Long July $65 call @ $1.10, see portfolio graphic for stop loss.


CNC - Centene Corp - Company Profile

Comments:

No specific news. Minor 6 cent decline.

Original Trade Description: April 28th.

Centene Corporation operates as a diversified and multi-national healthcare enterprise that provides programs and services to under-insured and uninsured individuals in the United States. It operates through two segments, Managed Care and Specialty Services. The Managed Care segment offers Medicaid and Medicaid-related health plan coverage to individuals through government subsidized programs, including Medicaid, the State children's health insurance program, long-term care, foster care, and dual-eligible individual, as well as aged, blind, or disabled programs. Its health plans include primary and specialty physician care, inpatient and outpatient hospital care, emergency and urgent care, prenatal care, laboratory and X-ray services, home health and durable medical equipment, behavioral health and substance abuse, 24-hour nurse advice line, transportation assistance, vision care, dental care, immunizations, prescriptions and limited over-the-counter drugs, specialty pharmacy, therapies, social work services, and care coordination. The Specialty Services segment provides pharmacy benefits management services; health, triage, wellness, and disease management services; vision services; dental services; correctional healthcare services; in-home health services; and integrated long-term care services, as well as care management software that automate the clinical, administrative, and technical components of care management programs. This segment offers its services and products to state programs, healthcare organizations, employer groups, and other commercial organizations. The company provides its services through primary and specialty care physicians, hospitals, and ancillary providers. Company description from FinViz.com.

Centene reported earnings of $1.12 compared to estimates for $1.05. Revenue jumped 69% to $11.72 billion to beat estimates for $11.42 billion. The big spike in revenue came from the $6.3 billion acquisition of Health Net last year.

The insurer said it had 12.15 million members on March 31st, an increase of 605,000. They raised guidance for the full year from $4.40-$4.85 to $4.50-$4.90. The health benefits ratio or HBR, the amount it spends on claims compared to the premiums received declined from 88.7% to 87.6%. The lower HBR is due to a greater mix of commercial businesses and the growth of its Obamacare businesses.

Earnings July 25th.

Shares had resistance at $73, which was broken last week. The next resistance is the 52-week high at $75.50 and the stock closed at $74.41 on Friday. There was a sell the news drop on Wednesday after the earnings but shares have already recovered $3 of that decline.

If the stock moves to a new 52-week high is should continue on to make a new high over $80.

Position 5/1/17:

Long June $77.50 call @ $1.57, see portfolio graphic for stop loss.


CVX - Chevron - Company Profile

Comments:

No specific news. The uptick in oil was short lived.

Original Trade Description: April 16th.

Chevron Corporation, through its subsidiaries, engages in integrated energy, chemicals, and petroleum operations worldwide. The company operates in two segments, Upstream and Downstream. The Upstream segment is involved in the exploration, development, and production of crude oil and natural gas; processing, liquefaction, transportation, and regasification associated with liquefied natural gas; transportation of crude oil through pipelines; and transportation, storage, and marketing of natural gas, as well as operates a gas-to-liquids plant. The Downstream segment engages in refining crude oil into petroleum products; marketing crude oil and refined products; transporting crude oil and refined products through pipeline, marine vessel, motor equipment, and rail car; and manufacturing and marketing commodity petrochemicals, and fuel and lubricant additives, as well as plastics for industrial uses. It is also involved in the cash management and debt financing activities; insurance operations; real estate activities; and technology businesses. Further, the company holds interests in power plants, as well as operates geothermal plants; and engages in the transportation of refined products primarily in the coastal waters of the United States. The company was formerly known as ChevronTexaco Corporation and changed its name to Chevron Corporation in 2005. Company description from FinViz.com.

Chevron is one of the U.S. energy majors with billions of barrels of reserves. The company pays an annual dividend of $4.32 or 4.07% yield. They are totally committed to preserving and raising the dividend. This makes them a top pick by nearly every major analyst.

Chevron is coming out of a major project cycle where they spent over $25 billion a year on capex building out monster projects. Now that the projects are nearly complete and ramping up production, the company can reduce its capex significantly and still increase production as those projects come online.

Chevron has amassed a two million acre position in the Permian Basin with 9 billion barrels of reserves. The company is currently operating 11 rigs in the Permian and will be adding 9 more in the coming months. They plan on ramping up their Permian production from the current 80,000 bpd to 700,000 bpd over the next few years. Chevron's Permian acreage is said to be worth more than $43 billion. It was acquired in pieces at much lower prices by predecessor companies over the last several decades. The Permian was never a big focus for Chevron as they concentrated on megaprojects elsewhere. They are increasing spending in the Permian by $2.5 billion in 2017. They are not hedging their oil production because they believe prices will rise.

Earnings on April 28th are expected to be a miss because of the sharp decline in oil prices in March. This is expected to lower earnings and force misses for the major producers. Since this is a well-known fact, I suspect it it being priced into the stock ahead of the report.

Thursday's decline of 3% put the stock right at light support at $106. If this level fails, there is strong support at $100.

Oil prices should begin to rally any day now. Refinery utilization of back over 90% and it is time to begin pushing summer blend fuels into the distribution system. We should begin to see inventory declines every week and that should last through July. August is normally when crude prices top out. OPEC should extend the production cuts because they are right on the edge of a reduction in inventories and an extension would guarantee it.

Chevron shares should rebound with crude prices. If they were to surprise with earnings, shares should rebound quickly.

The option is cheap and we are going to hold over the earnings report.

If the market tanks at the open on Monday, please do not enter this position until the S&P is positive.

Update 4/19/17: Chevron shares crashed with the entire energy sector after a nearly $2 drop in crude prices on weak inventory numbers from the EIA. WTI only declined -1 million barrels and gasoline rose 1.5 million compared to an expected decline of -1.6 million. The EIA said gasoline demand was down -0.8% from the same period in 2016.

Update 4/22/17: Chevron lost a court case in Australia for $260 million. The case ruled on the deductibility of interest on a $2.5 billion loan made from the parent company between 2003-2008. Chevron Australia paid 9% interest on the loan from Chevron and the parent company borrowed the money at a lower rate. The court said Chevron Australia could only deduct the interest at the parent's borrowing rate. Chevron said they would appeal.

Update 4/24/17: Chevron said it was selling its assets in Bangladesh to Himalaya Energy. No price was given but Bloomberg said the fields were worth about $2 billion. Chevron is planning on selling $10 billion in non-core assets in 2017. Himalaya is owned by a consortium of Chinese state owned firms. Bangladesh has a right of refusal on any deal and they said they were not done with their evaluations yet. The three fields held in the Chevron subsidiary produce 720 million cubic feet of gas and 3,000 barrels of condensate per day.

Update 4/28/17: Chevron reported earnings of $1.41 compared to estimates for 86 cents. The Chevron number did have a $600 million gain from the sale of an upstream asset so it is not really apples to apples comparison. Revenue of $33.4 billion missed estimates for $34.9 billion. Operating costs declined 14% and capex spending will be down more than 30%. Oil production rose 3% and full year growth is expected to be 4-9%.

Position 4/17/17:

Long June $110 call, currently $1.45. See portfolio graphic for stop loss.


FFIV - F5 Networks - Company Profile

Comments:

No specific news. Nice $1 gain to start the position.

Original Trade Description: May 8th.

F5 Networks, Inc. develops, markets, and sells application delivery networking products that optimize the security, performance, and availability of network applications, servers, and storage systems. It offers Local Traffic Manager, which provides intelligent load-balancing, traffic management, and application health checking; BIG-IP DNS that automatically directs users to the closest or best-performing physical, virtual, or cloud environment; Link Controller, which monitors the health and availability of each connection in organizations with more than one Internet service provider; Advanced Firewall Manager, a network firewall; and Application Security Manager, an Web application firewall that provides comprehensive, proactive, and application-layer protection against generalized and targeted attacks. The company also provides Access Policy Manager, which provides secure, granular, and context-aware access to networks and applications; Carrier-Grade Network Address Translation, which offers a set of tools that enables service providers to migrate to IPv6 while continuing to support and interoperate with existing IPv4 devices and content; and Policy Enforcement Manager that offers traffic classification capabilities to identify the specific applications and services to service providers. In addition, it offers cloud-based and other subscription services; BIG-IP appliances; VIPRION chassis-based systems; and Traffix Signaling Delivery Controller for diameter signaling and routing. The company sells its products to enterprise customers and service providers through distributors, value-added resellers, and systems integrators in the Americas, Europe, the Middle East, Africa, Japan, and the Asia Pacific Region. Company description from FinViz.com.

F5 reported earnings of $1.95 that missed estimates for $2.09. Revenue of $518.2 million rose 7% but missed estimates for $538 million. The company had guided for earnings of $2.01 to $2.04. They beat their own guidance but analysts were too optimistic.

The company blamed the miss on continued weakness in Europe. Sales rose 16% in the Asia Pacific region.

F5 began shipping some new products in Q1 but the volume shipments will hit in Q2. They also announced additional products that will also be shipping in Q2, which should be a good quarter. They guided for current quarter revenue of $520-$530 million with earnings of $2.01-$2.04.

Earnings July 26th.

Shares of F5 fell from $138 to $125 on the earnings miss on April 27th. After a week of post earnings depression, shares are now rebounding.

Position 5/9/17:

Long July $135 call @ $2.75, see portfolio graphic for stop loss.


FIVE - Five Below - Company Profile

Comments:

No specific news. New 9-month high. I raised the stop loss again because we need to exit this position soon. This is a May call.

Original Trade Description: April 10th.

Five Below, Inc. operates as a specialty value retailer in the United States. It offers accessories, including novelty socks, sunglasses, jewelry, scarves, gloves, hair accessories, athletic tops and bottoms, and T-shirts, as well as beauty products comprising nail polish, lip gloss, fragrance, and branded cosmetics; and items used to complete and personalize living space, including glitter lamps, posters, frames, fleece blankets, pillows, candles, incense, and related items, as well as provides storage options for the customer's room and locker. The company also provides sport balls; team sports merchandise and fitness accessories, such as hand weights, jump ropes, and gym balls; games, including name brand board games, puzzles, toys, and plush items; and pool, beach and outdoor toys, games, and accessories. In addition, it offers accessories, such as cases, chargers, headphones, and other related items for PCs, cell phones, and tablet computers; books, video games, and DVDs; craft activity kits; arts and crafts supplies that consist of crayons, markers, and stickers; and trend-right items for school comprising backpacks, fashion notebooks and journals, novelty pens and pencils, and everyday name brand items. Further, the company provides party goods, gag gifts, decorations, and greeting cards, as well as every day and special occasion merchandise products; assortment of classic and novelty candy bars, movie-size box candy, and gum and snack food; chilled drinks through coolers; and seasonally-specific items used to celebrate and decorate for events, such as Christmas, Easter, Halloween, and St. Patrick's Day. It primarily serves teen and pre-teen customers. As of January 28, 2017, it operated approximately 522 stores in 31 states. Company description from FinViz.com.

Five Below is an expensive Dollar Store. Everything in Five Below is $5 or less. That gives they a wider range of products and still keeps them somewhat Amazon proof because buying it online requires shipping.

Five Below is a bargain hunter impulse store. Customers rarely walk in with a specific product in mind but looking for a bargain instead. This is a kid magnet because they stock a lot of stuff that appeals to adolescents.

They reported earnings of 90 cents that beat estimates for 89 cents. Revenue was $388.1 million and that narrowly beat estimates for $387 million.

They guided for Q1 for earnings of 12-14 cents and analysts were expecting 13 cents. For the full year, they guided for $1.55-$1.61 per share and analysts expected $1.58. Revenue guidance was $1.21 to $1.23 billion.

They currently operate about 550 stores and plan to open 100 in 2017. They expect to increase that to 2,000 stores over time. They were primarily in Texas Florida and the North East but they have begun to expand into California and the feedback has been outstanding. Nothing costs under $5 in California so their stores are hot locations.

Earnings June 21st.

Shares closed at a 7-month high on Monday and just over resistance at $44.50. If the current rally holds the next resistance test would be $52.

Update 4/12/17: Five will open the first nine stores in California next week with stores at Aliso Viejo, Anaheim, Compton, Hawthorne, Montebello, Fontana, Rancho Cucamonga, South Gate and Redlands.

Position 4/11/17:

Long May $45 call @ $1.90, see portfolio graphic for stop loss.


MCD - McDonalds - Company Profile

Comments:

No specific news. Shares made another new high.

Original Trade Description: May 3rd.

McDonald's Corporation operates and franchises McDonald's restaurants in the United States, Europe, the Asia/Pacific, the Middle East, Africa, Canada, Latin America, and internationally. The company's restaurants offer various food products, soft drinks, coffee, and other beverages. As of December 31, 2016, it operated 36,899 restaurants, including 31,230 franchised restaurants comprising 21,559 franchised to conventional franchisees, 6,300 licensed to developmental licensees, and 3,371 licensed to foreign affiliates; and 5,669 company-operated restaurants. McDonald's Corporation was founded in 1940 and is based in Oak Brook, Illinois. Company description from FinViz.com.

McDonalds is surging because they have overhauled their menu, offered breakfast all day, shifted to fresh beef, mobile ordering, delivery with UberEats, kiosks AND they are selling coffee for $1 and specialty drinks for $2. That is vastly lower than Starbucks and it is helping them steal market share. People stopping by to pick up a cheap coffee tend to order a snack as well. Who can resist adding an Egg McMuffin to go with that coffee.

McDonalds reported better than expected earnings and raised guidance. They reported $1.47 compared to estimates for $1.33. Revenue of $5.68 billion beat estimates for $5.53 billion. Same store sales rose 1.7% compared to expectations for an 0.8% decline. Global sales were up 4%.

Earnings July 25th.

Goldman has had a neutral rating on them forever but upgraded the fast food giant today to a buy with $153 price target. Goldman admitted they were late but said there was still plenty of time given the improved metrics. Goldman cited McDonald's "Experience of the Future" plans for mobile ordering and kiosks and said the expanding delivery options could expand revenue.

McDonalds closed at a new high today in a weak market.

Update 5/4/17: McDonalds said it was adding Signature Crafted Recipes to its stores in Florida and would be adding 5,000 workers to handle the volume.

Position 5/4/17:

Long July $145 call @ $1.67, see portfolio graphic for stop loss.


MSM - MSC Industrial Direct - Company Profile

Comments:

No specific news. Still holding over support.

Original Trade Description: April 22nd.

MSC Industrial Direct Co., Inc., together with its subsidiaries, markets and distributes various ranges of metalworking and maintenance, repair, and operations (MRO) products primarily in the United States, Canada, and the United Kingdom. The company's MRO products comprise cutting tools, measuring instruments, tooling components, metalworking products, fasteners, flat stock, raw materials, abrasives, machinery hand and power tools, safety and janitorial supplies, plumbing supplies, materials handling products, power transmission components, and electrical supplies. It offers approximately 1,000,000 stock-keeping units through its master catalogs; weekly, monthly, and quarterly specialty and promotional catalogs; brochures; and the Internet, such as its Websites comprising mscdirect.com and use-enco.com. The company serves primarily through its distribution network of 85 branch offices and 12 customer fulfillment centers. In addition, it distributes fasteners and other consumables for customers in manufacturing, government, the Department of Defense, transportation, and natural resources end-markets. The company was founded in 1941 and is headquartered in Melville, New York. Company description from FinViz.com.

MSC reported earnings of 93 cents compared to estimates for 90 cents. Revenue of $703.8 million beat estimates for $696.8 million. They guided for the current quarter to revenue of $734-$748 million and analysts were expecting $735 million. They declared a quarterly dividend of 45 cents. Shares fell $18 on the news.

The earnings were great and guidance was good. Why did the stock crater? Shares had vastly outperformed the market with a $35 post election gain. The earnings turned into a sell the news event as investors captured all that built up profit.

Shares bottomed at $86 last week and began to move slightly higher. Having just released earnings they to not report again until July 6th. We have plenty of time.

Just to be sure the rebound has begun I am going to put an entry trigger on the position.

Position 4/24/17:

Long June $95 call @ $1.71, see portfolio graphic for stop loss.


SAIC - Science Applications Intl - Company Profile

Comments:

No specific news. SAIC not performing. I am recommending we close the position.

Original Trade Description: April 26th.

Science Applications International Corporation provides technical, engineering, and enterprise information technology (IT) services primarily in the United States. The company's offerings include engineering; technology and equipment platform integration; maintenance of ground and maritime systems; logistics; training and simulation; operation and program support services; and end-to-end services, such as design, development, integration, deployment, management and operations, sustainment, and security of its customers' IT infrastructure. It serves the U.S. military comprising Army, Air Force, Navy, Marines, and Coast Guard; the U.S. Defense Logistics Agency; the National Aeronautics and Space Administration; the U.S. Department of State; and the U.S. Department of Homeland Security. The company was formerly known as SAIC Gemini, Inc. and changed its name to Science Applications International Corporation in September 2013. Company description from FinViz.com.

Back in late March, SAIC reported earnings of 79 cents that missed estimates for 80 cents. Revenue of $1.03 billion also missed estimates for $1.09 billion. Shares were knocked for a $16 loss. They paid a dividend of 31 cents and bought back 457,000 shares for $38 million.

The company explained in detail several different items that caused them to miss estimates including the constant challenges with government contracting. The government never does anything on schedule including awarding contracts or making payments when contracts are completed.

During the quarter, they received awards of $800 million and net bookings for the full year were $5.3 billion with a book to bill ratio of 1.2 and their strongest ever. Their order backlog at the end of the quarter was $8 billion.

Earnings June 29th.

This is a good solid company that was punished for some minor execution issues and for the calendar challenges of dealing with the government. Shares cruised along in the $72 range for three weeks and begin rising this week. I am sure the market short squeeze did not hurt.

Now that the shares have started to rebound we can take a position.

I am going to reach out to the August option cycle to get past their earnings date. Open interest is thin so I would use a limit order to enter the position. Once we get closer to June the volume will increase.

Position 4/27/17:

Long August $80 call @ $1.90, see portfolio graphic for stop loss.


SYMC - Symantec - Company Profile

Comments:

No specific news. Only a minor decline. Earnings are Wednesday afternoon. Close Wednesday morning at the open.

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.

Update 3/23/17: Morgan Stanley raised their price target from $33 to $37 saying Symantec's recent wave of acquisitions, including Blue Coat Systems and LifeLock, have improved Symantec's position with their rivals. In June, they bought Blue Coat for $4.65 billion to beef up their enterprise offerings. In February, they paid $2.3 billion for LifeLock to enhance their consumer security business. Morgan Stanley expects Symantec to make more acquisitions after their recent $1 billion debt offering.

Update 4/26/17: Symantec said cyber criminals were upping the fees to get your data back after they infect your computer with ransomware. The average fee in 2016 was $294 and that has risen to $1,077 in 2017. DON'T click those links in emails!!!

Update 4/27/17: Symantec, Google and Mozilla have reached an agreement on the life cycle of Symantec trust certificates. There is a push on in the browser community to shorten the duration of security certificates because of the proliferation of bogus websites. If the certificates expire faster, then the websites have to be revalidated more often and the bogus sites will slowly be weeded out.

Earnings May 10th.

Position 3/17/17:

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


$VIX - Volatility Index - Index Description

Comments:

The VIX traded even lower intraday to 9.56 before rising slightly on the afternoon market drop.

Monday's close at 9.77 was the lowest close since December 1993. That is a 24 year low!!

This is a July call. We have plenty of time and the odds of a market sell off over the next 2.5 months are close to 100%. The VIX cannot go much lower but it can go a lot higher.

While holding the VIX call is an insurance play for us, I hope we are never in a position to profit from it. That would mean a lot of our long positions would be under water or stopped out.

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.

Update 5/1/17: The VIX made a new intraday low at 9.90 and closed at a 10-yr low at 10.11. The government shutdown has been avoided according to reports out of Washington and that helped to deflate the VIX. Marine Le Pen is rapidly gaining on Macron in the French election runoff for next Sunday. She gained 6 points in two days to 41% in the recent polls compared to Macron's 59%. If she can gain another 6% early this week then the entire event risk scenario comes back into play with a potential come from behind win.

Position 3/30/117
Long July $14 call @ $2.55, no stop loss. Added 5/9/17: Long July $14 call @ $1.60, no stop loss.
Average cost now $2.07.

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.
Previously Closed 4/10/17: Long Apr $13 call @ $2.30, exit $1.80, -.55 loss.



BEARISH Play Updates (Alpha by Symbol)

PG - Procter & Gamble - Company Profile

Comments:

No specific news. No excitement. PG announced a new program called Gillette on Demand where consumers can simply text "blades" to 252-337 and they will be shipped immediately to arrive in 2-3 days.

Original Trade Description: May 1st.

The Procter & Gamble Company provides branded consumer packaged goods to consumers in North America, Europe, the Asia Pacific, India, the Middle East, Africa, and Latin America. The company's Beauty segment offers hair care products comprising conditioners, shampoos, styling aids, and treatments; and antiperspirants and deodorants, personal cleansing, and skin care products. This segment markets its products under the Head & Shoulders, Olay, Pantene, Rejoice, Old Spice, Safeguard, and SK-II brands. Its Grooming segment provides blades and razors, pre- and post-shave products, and other shave care products, as well as appliances under the Braun, Fusion, Gillette, Mach3, Prestobarba, and Venus brands. The company's Health Care segment offers toothbrushes, toothpaste, and other oral care products; and gastrointestinal, rapid diagnostics, respiratory, vitamins/minerals/supplements, and other healthcare products under the Oral-B, Crest, Prilosec, Vicks, Metamucil, Pepto Bismol, and Align brands. Its Fabric & Home Care segment provides fabric care products, including fabric enhancers, laundry additives, and laundry detergents; and home care products comprising air care, dish care, P&G professional, and surface care products under the Tide, Ariel, Downy, Gain, Cascade, Dawn, Febreze, Mr. Clean, and Swiffer brands. The company's Baby, Feminine & Family Care segment offers baby care products, such as baby wipes, diapers, and pants; adult incontinence and feminine care products; and family care products, such as paper towels, tissues, and toilet papers. This segment markets its products under the Pampers, Always, Bounty, Charmin, Luvs, and Tampax brands. The company sells its products through mass merchandisers, grocery stores, membership club stores, drug stores, department stores, distributors, baby stores, specialty beauty stores, e-commerce, high-frequency stores, and pharmacies. The Procter & Gamble Company was founded in 1837. Company description from FinViz.com.

P&G is never going out of business but their continual slowdown in sales it a testament to the changing retail environment. Even their age old, die hard brands, like Tide and Mr. Clean are losing market share to the dozensof new products in the same category. Tide was the old reliable that everyone used 50-70 years ago. Now it is just one of the group of brand name products for washing clothes.

P&G posted adjusted earnings of 96 cents compared to estimates for 94 cents. Revenue of $15.61 billion declined -1% and missed estimates for $15.71 billion. The strong dollar caused a 2% decline in revenue. The company guided for a 1% decline in revenue for the year compared to prior guidance of flat revenue. The affirmed earnings estimates for $3.67. This was the 13th consecutive decline in quarterly revenue.

Earnings July 26th.

Shares dropped $3 on the revenue miss and weak guidance. Investors are not excited about owning a company with declining revenue. That always squeezes profits as well.

I am recommending a September option instead of July because the July expires the week before earnings. We are not going to hold over but I would like to have those earnings expectations in the premium when we exit. Buying longer dated options does not mean you have to hold them until maturity. We can buy time but we do not have to use it.

Position 5/2/17:

Long Sept $85 put @ $2.05, see portfolio graphic for stop loss.


SPY - S&P-500 SPDR ETF - ETF Profile

Comments:

Thanks to Apple and the Nasdaq the S&P is refusing to decline. The minor drop today was bought at 2,390 after spending the morning over 2,400.

The Dow and S&P have reached levels where we should begin worrying about a potential double top in the markets. The rally last week has erased nearly all the option premium. There is no reason to close the position for pennies.

Original Trade Description: March 25th.

The SPDR S&P 500 trust is an exchange-traded fund which trades on the NYSE Arca under the symbol. SPDR is an acronym for the Standard & Poor's Depositary Receipts, the former name of the ETF. It is designed to track the S&P 500 stock market index.

The S&P-500 is in danger of a material drop, possibly to 2,250 or the equivalent 225 level on the SPY ETF. The chart is unsupported and we are entering into a typically volatile period of the year over the next five weeks. I am recommending we buy insurance with a put on the SPY only IF the SPY trades at a new five-week low of 232.75. That way if the market opens higher on Monday we can watch to see if that direction holds before putting money at risk.

I believe if the market goes lower next week it could be the beginning of a major decline.

Position 3/27/17:

Long May $230 put @ $3.49, see portfolio graphic for stop loss.




If you like the trade setups you have been receiving and you are on a free trial then now is the time to subscribe. Don't wait until you miss a newsletter to decide you want to take the plunge.

subscribe now