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Newsletter

Daily Newsletter, Saturday, 5/13/2017

Table of Contents

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

Market Wrap

Slowly Fading

by Jim Brown

Click here to email Jim Brown

The big cap and small caps indexes posted another day of minor declines but the Nasdaq bucked the trend.

Weekly Statistics

Friday Statistics

Four of the FAANG stocks posted gains but Google closed fractionally lower. The Nasdaq was helped by a big $13 gain in Amazon after Mark Cuban said the stock was significantly undervalued and still in "startup" status. He believes Amazon has so many efforts underway where they have less than 5% of the market that the stock could be significantly higher in the coming years. That gain helped improve Nasdaq sentiment and lift Facebook, Apple and Netflix. The Nasdaq Composite only gained 5 points but the Nasdaq 100 big cap index gained 12. Chip stocks and biotechs also contributed to the gain that pushed the $NDX to a new closing high.


The small cap Russell 2000 closed back below critical support at 1,388 because Friday was "ranking" day for the Russell indexes. Every June the Russell company rebalances their indexes and moves stocks in, out and around in their classifications. Currently there are only 2,935 stocks in the Russell 3000 because of companies that merged with others over the last year. Russell Rebalance Info

In the middle of May, Russell calculates their ranking of all stocks by market cap. They will provide a list in early June of which stocks will be leaving the indexes and which stocks will be added. This published list allows traders to game the system and jump in front of fund managers that will be selling stocks that are leaving the index and buying new stocks at the close on June 23rd.

The movement in individual stocks leaving the index can be significant. There is roughly $12.5 trillion dollars indexed to the various Russell indexes. About $9.7 trillion is indexed to active funds. Source Obviously all of that money is not indexed to the Russell 2000 but there is a significant amount.

The normal rebalancing process depresses the Russell indexes on the notification dates because traders are selling the stocks that are leaving the indexes and buying the stocks that will be added. The indexes only benefit from half of that scenario since buying stocks not currently in the index does not impact the index but selling current index components does have an impact.

Friday was ranking day at the close. Since the methodology of the reconstitution is well known, portfolio managers and hedge funds can do their own ranking based on the market cap at the close on Thursday. This allows them to speculate on which companies will be added and dropped before the Russell lists are actually published. Many have already calculated their own list and stocks were bought and sold on Friday in anticipation of the official ranking.

Russell will release the preliminary list of official changes on June 9th and update it again on June 16th. The actual rebalance will be at the close on Friday June 23rd. More than 15 billion shares traded on the June 24th rebalance last year.

Historically, the rebalance has weighed on the Russell indexes around the critical dates. However, this is a six-week period and volatility around the critical dates will be higher but over the entire six weeks the impact is negligible but it is normally negative. I suspect there was an impact on the Russell 2000 on Friday because the 0.53% decline was more than triple the percentages on the other indexes.


The economic events were positive on Friday but the retail earnings missed estimates. The Retail Sales for April rose +0.4% compared to estimates for +0.6% and a minor +0.1% gain in February. Sales excluding autos were +0.3%. The strongest areas were electronics at +1.3%, building materials +1.2% and non-store retailers at +1.4%. The weakest sectors were home furnishings -0.5%, food and beverages -0.3%, clothing -0.5% and general merchandise at -0.5%. Overall, retail sales are up 4.5% over the same period in 2016.

The Consumer Price Index (CPI) for April rose +0.2% after a -0.3% decline in March. The headline number matched analyst estimates. Food rose +0.2%, goods fell -0.2% and services rose +0.1%. On a year over year basis, the CPI is up 2.2% and in line with Fed expectations.

Consumer sentiment for May rose slightly from 97.0 to 97.7 in the first release. That is only slightly below the 12 year high of 98.5 in January. The present conditions component was flat at 112.7 and the expectations component rose slightly from 87.0 to 88.1.


Business inventories for March rose +0.2% and the smallest gain since October but it was higher than estimates for +0.1%. Retail inventories lead the gains at +0.49% compared to wholesalers at +0.18% and a drop of -0.01% by manufacturers.

The slightly better than expected inventories plus the rise in retail sales helped lift the Atlanta Fed real time GDPNow forecast for Q2 to 3.6% growth.


The economic calendar for next week is highlighted by the Philly Fed Manufacturing Survey on Thursday. This is considered a proxy for the national ISM manufacturing in two weeks. The new home construction on Tuesday would be the next most important with a sharp increase expected.


ArcelorMittal (MT) is doing a reverse 1:3 stock split next Friday.

Ball Corp (BLL) is splitting 2:1 on Tuesday. They increased their dividend by 54% to 20 cents. They have a post split buyback authorization for 20 million shares. They have 175 million shares outstanding and will have 350 million post split.

Ball is an interesting company. They make aluminum cans for beverages and consumer products. They make billions of soda cans, aerosol paint cans, etc. They also develop spacecraft, satellites, radio systems and defense systems. If there was ever a company that needed to do a spinoff to separate it is Ball. Unfortunately, the chart is terrible because the diverse businesses have choppy earnings patterns.


Advertising platform company The Trade Desk (TTD) reported earnings of 18 cents on revenue of $53.4 million. Analysts were expecting a 3-cent loss and revenue of $43.4 million. Shares exploded higher for a 30% gain.


JC Penny (JCP) reported adjusted earnings of 6 cents but that included sales of $125 million in assets. Analysts were expecting a loss of 21 cents but that did not include the asset sales. Revenue of $2.7 billion missed estimates for $2.8 billion. Same store sales declined -3.5% compared to estimates for a -0.7% decline. The company reaffirmed full year guidance for earnings of 40-65 cents and comp sales in a range of -1% to +1%. Analysts were expecting 48 cents.


The Penny's earnings came the day after Nordstrom (JWN) reported an -0.8% drop in same store sales. Earnings of 37 cents beat estimates for 26 cents and revenue of $3.3 billion matched estimates. Shares of Nordstrom fell almost as much as Penny's.


The retail sector is struggling. Online retailers are making inroads into the normal bricks and mortar sector and it is slowly taking its toll. U.S. retailers caused their own problems over the last decade as they overbuilt with a mall at every major intersection. The U.S. has four times the retail space per capita by square foot as Europe and six times the space in Japan. Chains like Macy's, Kohl's, Penny's, Sears and other big box retailers competed to be the anchors in every mall. The smaller stores inside the malls are struggling even worse. With the malls dying, there have been more than a dozen retail chain bankruptcies and analysts believe there will be a dozen more.

Macy's (M) is in the midst of a restructuring and closing of 68 non-performing stores. Analysts claim they need to close 100 more. They reported earnings earlier in the week of 24 cents that missed estimates for 36 cents. Same store sales declined -5.2% and revenue fell -7.5%.


Sears Holdings (SHLD) shares plunged after CEO Eddie Lampert went off on the media and blamed them for the decline in Sears sales. He complained in multiple forums that the appearance of a slow spiral into bankruptcy was because of media coverage. Consumers read a headline about the impending bankruptcy and they mentally drop Sears as a potential stopping point in their shopping trip. Personally, I think it is because they have been to a Sears recently and saw there was no inventory and no employees and found no reason to return. I have posted pictures of empty stores multiple times over the last year. Sears shares fell -20% over two days on the rant from Lampert.


There are more retailers reporting earnings next week with BOOT, DKS, HD, SPLS, TJX, URBN, AEO, LB, SMRT, TGT, BKE, BONT, ROST, SSI, WMT and FL. This is the heaviest week for retailers. If we look at the results from the prior two weeks, the overall expectations are negative. However, Dicks, Home Depot, Target and Walmart should perform the best.

Other highlights include Jack in the Box, Alibaba and Salesforce.com. Dow components include HD, CSCO and WMT.


More than 450 S&P companies have reported earnings. The average growth rate is 14.7%. More than 75% have beaten estimates and above the long-term average of 64% and the short-term (4 quarters) average of 71%. More than 63% have beaten on revenue compared to the 59% and 53% averages. For Q2, 59 companies have issued negative guidance and 30 have issued positive guidance. Only 19 S&P companies report earnings next week and 39 over the next two weeks. The earnings cycle is rapidly drawing to a close.

Apple (AAPL) sold $7 billion in new debt to bring their total debt to more than $98 billion. Apple borrows money at roughly the same interest rate as the 10-year treasury so they do not have to transfer cash from overseas and pay a 35% or higher tax rate. If Apple sells a phone in the UK, it pays income taxes in the UK on that profit. If Apple transfers the money to the U.S. it has to pay income taxes again at a much higher rate. Apple and other companies with billions overseas are hoping President Trump can get a repatriation tax cut if a bill ever makes it to a vote. That is no longer expected in 2017. The interest they will pay on the debt is far less than they would pay in taxes. Apple is using the money for buybacks and other corporate purposes.

On a side note, we reached $700 billion in 2017 corporate debt issuance and the fastest year on record to that number. Intel and Amgen also did debt offerings recently to avoid bringing cash back to the states.

Apple shares gained another $2 on Friday after Goldman Sachs said the iPhone 8 will definitely cost over $1000 and could "drive meaningful upside in revenue over the next 12 months." Goldman raised their price target from $164 to $170. The analyst said the base models will probably start at $999 and $1,099 and go up from there. That compares to $749 as the base price of the 128GB iPhone 7. The average selling price (ASP) of the phones is going to explode higher and with expected full year sales of 243 million phones the revenue is going to rocket higher. Analysts believe the actual costs to manufacture the phone will rise $79 to $104 each. That is $35 for the new OLED screen and $19-$24 for faster memory and various increments for other components.


Sprint and Softbank have started merger talks with T-Mobile (TMUS). Softbank is the majority owner of Sprint and Deutsche Telekom owns 64% of T-Mobile. Telecom mergers have been barred for almost a year by the FCC as they conducted $20 billion in wireless spectrum auctions. The ban specified that merger talks could begin after April 27th. Sprint tried to buy T-Mobile in 2014 but the deal was blocked. Since then T-Mobile's market cap has risen to $55 billion and $23 billion more than Sprint.

Despite having the lowest rates in the U.S., Sprint is having trouble adding customers. They are currently fourth place in market share. With AT&T trying to buy Time Warner for $85 billion, Sprint believes it could also receive offers from other cable companies like Charter or Comcast.


General Electric (GE) was downgraded by Deutsche Bank from hold to sell. The analyst cut the price target from $28 to $24 citing weak earnings and weak cash flow. "GE's weak cash flow has become worse in recent quarters. On an operating basis, excluding GE Capital dividends and proceeds from business and asset divestitures, GE does not appear to be generating sufficient cash flow to sustain its operations." Despite revenue of $27.7 billion in Q1, the company was -$1.6 billion cash flow negative. The company is trying to sell its consumer lighting business, GE Water and GE Industrial Solutions. Combined they generate about $5 billion in annual revenue. Shares fell 2% to a 52-week low at $28.


Boeing (BA) said it had resumed flights of the 737 MAX and it had received approval from regulatory agencies. The flights had been halted after a potential problem was found on LEAP 18 engines with a part manufactured by CFM International, a joint venture of GE and France's Safran. CFM said potential flaws in the forging of a disc inside the engine could have led to cracks. The company said they expected to have the problem parts replaced within "a few weeks." There was no problem with any operational aircraft and planes without the LEAP 18 engines were still flying. Boeing expects to make its first commercial delivery of a 737 MAX later this month.


Wal-Mart (WMT) said it acquired Moosejaw.com, a retailer that specializes in outdoor apparel and camping gear. Moosejaw carried brands including Woolrich, Marmont, Camelbak, Patagonia, North Face and 400 others as well as its own Moosejaw brand of apparel. Wal-Mart purchased Jet.com for $3 billion last August and ShoeBuy.com for $70 million in December. Wal-Mart is racing to grab market share from Amazon and recently changed their online store to free two-day shipping for orders over $35. Wal-Mart's ecommerce sales rose 20.6% in the last quarter. Wal-Mart reports earnings this week.


Crude prices rebounded nicely for the week to close at $48 after the EIA reported a -5.3 million-barrel decline in inventories. This was actually the fifth consecutive weekly decline but also the largest. OPEC meets on May 25th to discuss future production cuts and expectations are growing for an extension and possible an increase in the cuts.


The blue line is the current oil inventory level and the gray band is the five-year average range. Clearly, we have been above that range for a long time but the direction is positive. We could be back in the five-year range in the next several weeks. This would be positive for prices.


This is a long-term chart of crude inventories and you can see how levels spiked from the surge in shale production just two years ago. It would take a major event to put the inventories back into the "normal" range. Our best hope of that happening is the roughly 1.5 million bpd annual increase in demand. If OPEC could maintain limits on production for a couple years the normal depletion rate plus the normal demand increase, would solve the problem.


Markets

All the major indexes traded down for the week with the exception of the Nasdaq. The week started good with the S&P trading over 2,400 on Tue/Wed and even closing at 2,399.63 and a new high on Wednesday. Unfortunately, the Dow was not cooperating and the steady weakness that started after Tuesday's open, dragged the big cap indexes lower.

The S&P dipped to 2,394 on Thursday Morning and the low for the week. The dip was bought but the index could not make it back to positive territory. Friday's decline was due to weekend event risk and the loss was minimal and on the lowest volume since April 17th at 6.06 billion shares. The market decline over the last three days was not a sell off. It was a lack of interest. We are lacking any material catalysts and we have plenty of political diversions.

Current support on the S&P is just above 2,380 and there are no indications of material selling pressure.


Apple is doing an excellent job of supporting the Dow and the Nasdaq. McDonalds has continued to make new highs with Home Depot and Visa not far behind.

The Dow chart is bearish. The index closed below support at 20,900 and dipped below secondary support intraday on Tuesday at 20,800. The Dow needs a catalyst. With HD, CSCO and WMT reporting earnings this week we could have some catalysts but they may not all be positive. The Dow is suffering from post earnings depression since the majority of its components have already reported.

Friday's close was critical. It was only 4 points under support so for our purposes it held. However, any further declines will begin to target a gap fill from the two short squeeze gaps at the end of April. The Dow has been moving slowly sideways in a very narrow trading range since that short squeeze. The bias has changed to bearish and it will turn more so if support at 20,900 is violated any further.



The Nasdaq indexes remain the most bullish. The Composite made a new high on Wednesday and closed only 8 points lower on Friday. The Nasdaq 100 big cap index closed at a new high on Friday by 5 points. Facebook, Apple, Amazon and Netflix all contributed but Google was a fractional laggard. Chip stocks and biotechs also provided support with the Biotech Index up +38 points or +1.07% in a weak market.

As you can tell by the Nasdaq 100 chart below, the tech stocks are very overextended and they will eventually rest. Whether that is this week or even this month, nobody knows but it will happen.




Both small cap indexes broke down with a three-week low on the S&P-600. This could be related to the Russell rebalance but that would be speculation. The steep declines over the last two days suggest portfolio managers are taking cash off the table.


Event risk has returned but not in the form that we would have expected. On Monday, Washington was talking about healthcare and tax reform and then on Tuesday Comey was fired. The manner it was done, the conflicting stories and excuses, the slander of Comey and the threat of secret recordings, all combined to cause a violent uproar in the media. Healthcare and tax reform have been forgotten and the witch-hunt for Russian collusion has now taken on a new importance for the democrats.

Trump had the right to fire Comey. Reasons were unimportant because he is appointed at the will of the president. It was all the other headlines that made it important. Investors were laser focused on tax reform and healthcare. Now that they have been pushed onto the back burner, the potential dates have slid significantly. One prominent senator said we will be lucky to get healthcare in 2017, if at all, and tax reform may have to wait until after the midterm elections.

This is eventual death for the stock market. All the optimism built into the post election rally was fueled by tax reform, deregulation and infrastructure spending. Healthcare was of lesser importance to the market. Once investors understand that everything has been pushed back by months instead of days, it will be market negative.

Everyone was previously targeting getting healthcare reform signed into law before the August recess. That is only 39 working days away for the House and there is no chance of even getting a bill voted on before then in the Senate, much less spending a couple months battling it out in the conference committee and the amended version making its way to both the House and Senate again. Most investors do not understand this 39-day calendar. As realization dawns, it may not be pretty.

Right now, nobody wants to sell and pay taxes on profits if those taxes are going to be cheaper several months from now. If the market begins to decline and tax reform has shifted to 2018, there could be a mass exodus from equities. The yield on the ten-year treasury closed at the low for the week on Friday as investors began to realize the market could be in jeopardy.


Adding fuel to the event risk fire, North Korea tested a new ballistic missile on Saturday. The missile flew 435 miles and was considered successful. This will put pressure on President Trump to do something. This could give also him an opportunity to move the focus off the Comey problem and back on to the geopolitical scene. However, any action against North Korea has significant risk because of Seoul being only 37 miles from the border with 20,000 pieces of artillery aimed in its direction.

With the MACD sell signal only a day or two away on the best six months of the year strategy, I think this could be a pivotal week in the market. It is also option expiration and once those options expire, there is nothing to keep funds in the related equity positions. I would recommend caution in adding long positions.



Random Thoughts


Cautious bulls jumped back on the fence despite new highs in the market on Tue/Wed. The survey closes on Wednesday so the late week declines are not in the numbers. It was interesting that bearish sentiment did not budge. Neutral sentiment is now 6% over the average and most of that came from last week.

Last week results


The founder of the world's largest hedge fund said the "magnitude of the next downturn will be epic." Bridgewater's Ray Dalio said the global economy is "at or near its best" with few, if any major risks on the horizon. However, "we fear that whatever the magnitude of the downturn that eventually comes, whenever it eventually comes, will likely produce much greater social and political conflict than currently exists."

He said, after 8 years of rebound the global growth is stabilizing. However, central bankers have stimulated this long-term growth by keeping interest rates at abnormally low levels. Meanwhile, President Trump has vowed to implement an array of policies that will stoke fresh animal spirits in the U.S. economy and equity investors worldwide appear to have pinned their hopes on those pro business policies coming to fruition.

Dalio warned that debt is building in the system and pension and healthcare entitlements are slowly rising to squeeze the economy and the market.

"The US is in a period of exceptional political uncertainty as the new administration's policies continue to take shape." He believes equity investors may have 1-2 years of additional gains before the music stops.

Source


I am sure everyone has heard about the ransom ware outbreak in 74 countries. The malware is triggered by an email click then runs rampant on office networks to infect every computer it can find. Your files are encrypted and you have to pay a ransom in Bitcoin to get them released. After 3 days the price doubles.

An enterprising 22-yr old malware research tech in the UK stumbled on to the "kill switch" on Saturday morning. While dissecting the malware code they discovered a call to a nonexistent website. If the call to the website came back unsuccessful, the malware was executed on the PC and the propagation begun. If the website responded present, the code self destructed and that attack ended. The tech quickly registered the nonexistent website and pointed it to a "sinkhole" server and the outbreak immediately stopped. It took several hours for the existence of the website to propagate across the global Internet but once it did, the outbreak was over. Our servers were attacked continuously from late Friday afternoon until the attack ended late Saturday. We have good firewalls so we could watch the attacks occur even though they were being blocked. Millions of people owe that technician a thank you.

Source - MalwareTech Blog


40 years ago in a galaxy far, far away, a new science fantasy film that cost a whopping $10 million to make, was opening at the box office. Star Wars opened at the box office on May 25th, 1977. I can still remember waiting in line to see the picture and being amazed by the opening scene with the Star Cruiser soaring over the top of the screen for what seemed like forever.

Star Wars had the best opening weekend since Jaws at $2.6 million from a puny 43 theaters. By the end of 1977 the film had grossed $197 million on a $10 million budget. By today's standards that is small. Guardian's of the Galaxy 2 opened last week at $175.9 million and almost the full year's take for Star Wars. Of course you would have to convert 1977 dollars to 2017 dollars to make a fair comparison. ($197 million in 1977 equals $788 million today) Star Wars has only made $775 million in total but it spawned billions of dollars of prequels, sequels and associated product sales.

Full Article



 

Enter passively and exit aggressively!

Jim Brown

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Index Wrap

Best Six Month Strategy

by Jim Brown

Click here to email Jim Brown
This could be the year where this strategy really pays off.

Back in 1986 the Stock Trader's Almanac discovered the position switching strategy that corresponds with the "Sell in May and go away" strategy that has been around for decades. They found that investing only in the best six months of the year and sitting out the worst six months of the year produced astonishing returns.

Since 1950, if you had invested $10,000 in the Dow over the worst six months of the year you would have a cumulative loss of $6,710 over the 66-year period. If you invested $10,000 in the Dow in 1950 and never touched it you would have a gain of $860,000 today. However, if you used the best six months switching strategy with a MACD entry point, you would have generated $2,496,586 in profits. Obviously, that is a significant difference and the strategy is very easy.

Basically, the best six month period is November-April and the worst six months are May-October. Since millions of events impact the market the Almanac publishers figured out that using a MACD buy/sell signal could significantly improve results rather than just using a strict calendar formula.

A lot of investors follow this strategy so it is sort of a self-fulfilling strategy.

Read the full details HERE


Currently the MACD is about to trigger a sell signal. When the MACD triggers the crossover, it would be a sell signal for long positions. They recommend moving to cash or bonds or some neutral position. The advantage is that you are out of the market over the summer months and free to vacation without worrying about the market gyrations. When we get close to November, you begin looking for a positive signal on the MACD to time the entry back into the market for the next six months.


On the Dow, the sell signal was triggered on Friday but we do not use the Dow for the signals because it is more volatile with only 30 stocks. The Dow has been the weakest index with 26 of the 30 components having already reported earnings. The Dow is suffering from post earnings depression.


The moving average percentages are also declining. The percentage of S&P stocks over their 50-day average has declined to only 54.8%. The percentage over their longer 200-day average is 72.2% and a three-month low. This percentage is dropping like a rock.



On the Dow, there are only 14 stocks currently trading over their 50-day average and the direction is bearish.


The VIX closed at a 24-year low on Monday at 9.77. The VIX is telling us to be cautious because complacency is at a two decade high. However, some analysts claim the shift to passive investing with ETFs has negated the signal quality in the VIX. Individual investors are no longer buying S&P puts to protect their portfolio. The VIX is calculated off the option premiums on the S&P.

While I believe that is true to some extent, the major hedge funds and large portfolio managers still use S&P puts to hedge their portfolios. If the market actually rolls over, we will see those put prices rise regardless of how many people are actually buying them.


Lastly, the Russell 3000 has triggered a sell signal by 0.01 point on the MACD and any further decline would confirm it. The R3K came to a dead stop at resistance from March. The index made a new high by 0.14 of a point on Wednesday. The prior high of 1,422.32 was March first and it closed at 1,422.46 on Wednesday. If it declines from here that could easily be seen as a double top.


The market is weak but it has not yet broken down. The Dow is the weakest index but it is clinging to support at 20,900 by the slimmest of margins. If investors are going to use the best six months switching strategy this year then this will be a pivotal week. If the Dow loses its grip on that support and the Russell continues lower, the Nasdaq big caps could take a well deserved profit break.

There is considerable political risk that has not yet been priced into the market and that kind of risk tends to impact the market slowly. The Watergate disaster took a year for the market to feel the real impact because political events tend to unwind slowly. The average investor does not pay any attention to Washington. When the problems finally develop to the point where investors pay attention, the market is normally in full decline.

I would recommend caution in adding long positions this week until we see how the market reacts.

Enter passively and exit aggressively!

Jim Brown

Send Jim an email


New Option Plays

Aggressive Rebound

by Jim Brown

Click here to email Jim Brown

Editors Note:

AthenaHealth crashed after earnings but continues to rebound even on market weakness.



NEW DIRECTIONAL CALL PLAYS

ATHN - AthenaHealth - Company Profile

athenahealth, Inc., together with its subsidiaries, provides network-based medical record, revenue cycle, patient engagement, care coordination, and population health services for medical groups and health systems. It offers athenaCollector, a network-enabled billing and practice management solution; athenaClinicals, an electronic health record for electronic health record management to help manage patient's clinical documentation; athenaCommunicator, an engagement and communication solution that provides an automated communication service between patients and provider practices for interactions outside the exam room; and athenaCoordinator for order transmission and care coordination services. The company also provides athenahealth Population Health, a cloud-based population health service; and Epocrates service that include clinical information and decision support services in the areas of drug and disease information, medical calculator and tools, clinical guidelines, clinical messaging, and market research. In addition, it offers athenahealth Health Plan data exchange facilitates to exchange the data between providers and health plans for the healthcare operations of clients; athenaOne Analytics that includes an analytics and dashboard application, as well as provides visibility into the financial and operational health of an organization; and pre-certification processing and referral processing services. The company serves clients in the health care industry through its direct sales force and channel partners in the United States and internationally. athenahealth, Inc. was formerly known as athenahealth.com, Inc. and changed its name to athenahealth, Inc. in November 2000. Company description from FinViz.com.

ATHN shares fell from $121 to $95 after reporting slower than normal growth in the first quarter. The company reported earnings of 32 cents compared to estimates for 46 cents. Revenue of $284.4 million rose 11% but missed estimates for $296.6 million. ATHN has averaged 20% growth in the past and the slowdown hammered the stock. They guided for the full year for revenue of $1.21 to $1.25 billion.

There was good news. They added 2,406 new providers of its Collector software. They added 2,791 providers using their Clinical software system. The hospital software segment saw 86% growth in discharged bed days. Covered lives rose 25% to 2.8 million. They handle 88 million patient records and now have more than 99,000 providers.

The lower earnings came from a 13% increase in expenses, mostly due to an aggressive research and development effort, which will increase profits later.

Earnings July 27th.

Analysts believe ATHN was surprised by the lower growth in Q1 and they drastically lowered guidance to avoid missing estimates again in the future. This is the under promise and over deliver tactic.

Shares have been rebounding strongly since the drop. Even on weak market days, they continue to post gains.

Because of the positioning of share price and option strikes, I am recommending a spread using the June options. This will limit our potential gain but also limit out cost and risk. There are no July/August options and the September options are far too expensive.

Buy June $110 call, currently $3.30, initial stop loss $99.65
Sell short June $115 call, currently $1.20, initial stop loss $99.65


NEW DIRECTIONAL PUT PLAYS

No New Bearish Plays



In Play Updates and Reviews

Still Bearish

by Jim Brown

Click here to email Jim Brown

Editors Note:

The Dow and S&P only declined slightly but the moves are still bearish. Both indexes made a lower high but they also closed near the top of the intraday range. While the charts are bearish, this weakness was probably due to weekend event risk and traders moving to the sidelines rather than take a chance of another negative headline over the weekend.

The Nasdaq posted minor gains thanks to Apple and Amazon. There is no stopping either of those stocks. Since this was a Friday, the market action is not really a clue for direction next week. The constant drip of weakness will eventually turn into a flood but it could be days or weeks before that happens.

I am going to continue scaling down the number of positions so we are not wiped out when a real downtrend appears.



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


APC - Anadarko Petroleum
The long call position was closed at the open.



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

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3-6 month Option Trades = Ultimate Investor

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Long and short equity trades = Premier Investor



BULLISH Play Updates

APC - Anadarko Petroleum - Company Profile

Comments:

We closed the position at the open. I was surprised to see shares up slightly today after news broke that more than 30 suits had been filed related to the home explosion in Firestone Colorado, with more to come.

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:

Closed 5/12/17: Long Aug $55 call @ $2.14. Exit $1.55, -.59 loss.


CGNX - Cognex Corporation - Company Profile

Comments:

No specific news. New closing high.

Original Trade Description: May 10th.

Cognex Corporation provides machine vision products that capture and analyze visual information in order to automate tasks primarily in manufacturing processes worldwide. The company offers machine vision products, which are used to automate the manufacturing and tracking of discrete items, such as mobile phones, aspirin bottles, and automobile tires by locating, identifying, inspecting, and measuring them during the manufacturing or distribution process. Its products include VisionPro, a software suite that provides various vision tools for programming; displacement sensors with vision software for use in 3D application; In-Sight vision systems that perform various vision tasks, including part location, identification, measurement, assembly verification, and robotic guidance; In-Sight vision sensors; ID products, which are used for reading codes that are applied on discrete items during the manufacturing process, as well as have applications in logistics automation for package sorting and distribution; DataMan barcode readers; barcode verifiers; vision-enabled mobile terminals for industrial barcode reading applications; and barcode scanning software development kits. The company sells its products through direct sales force, as well as through a network of distributors and integrators. Company description from FinViz.com.

Cognex reported earnings growth of 200% to 51 cents. Revenue growth increased 40% to $134.9 million and well over guidance of $123.5 million. Gross margin was 79%. Operating income rose 128% to $37.4 million. Operating margin rose from 17% to 28%. The company raised guidance for Q2 for revenue in the $165-$170 million range or roughly 13.7% growth.

Earnings July 31st.

The CEO said growth across all regions were better than expected. Factory automation in the America's increased by mid-teens percentages and was expected to improve. Growth across a range of industries including consumer electronics and automotive were better than expected. Automotive related revenue rose 20% in the quarter.

There are no negatives in the Cognex story. Shares spiked to $90 on the earnings, a new high, and have held there for the last six days. Wednesday's close was a new high and it looks like a breakout is imminent.

Position 5/11/17:

Long August $95 call @ $3.70, see portfolio graphic for stop loss.


CNC - Centene Corp - Company Profile

Comments:

No specific news. Barely holding on prior resistance.

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. Only a minor decline.

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. Nasdaq weakness over the last couple days is weighing on FFIV.

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.


MCD - McDonalds - Company Profile

Comments:

McDonalds said it was offering to finance 55% of restaurant upgrades for franchisees. Upgrades to dated restaurants can cost $150,000 to $700,000. By funding these upgrades McDonalds is trying to win back the 500 million in customer visits lost over the last five years. Shares rallied to new highs.

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.


$VIX - Volatility Index - Index Description

Comments:

Still no volatility and the longer we remain at this level the higher the volatility spike when it arrives.

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:

After the bell news broke that Nelson Peltz increased his stake in PG by 600% to 36.17 million shares or $3.5 billion. This could cause shares to spike at the open on Monday. I did not recommend a close since any opening gap would hit our stop loss.

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:

Another drop for the Dow and S&P but the Nasdaq kept the markets from declining further.

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.




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