Option Investor
Newsletter

Daily Newsletter, Thursday, 5/25/2017

Table of Contents

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

Market Wrap

Lower GDP And New All Time Highs

by Thomas Hughes

Click here to email Thomas Hughes

Introduction

Weak trade data led economists to cut 2nd quarter GDP estimates and the broad market moved up to a new all-time high. Leading the move was big tech; the FANG stocks putting on an average 2% each, led by Netflix 3.6% advance. The streaming movie giant was boosted by positive comments from Piper Jaffray analysts issued a report suggesting 2020 EPS has been underestimated by 50%.

International indices were mixed. Asian markets rose in response to the FOMC minutes and rally in US stocks, led by the Shang Hai's 1.43% increase. European indices closed mostly flat with a few in negative territory after the OPEC failed to impress traders and sent oil prices diving.

Market Statistics

Futures were up all morning with barely a flicker when OPEC announced it would in fact extend production caps. Economic data was a bit mixed but also did little to move early trading. The open was positive, as expected, with the SPX gaining close to 6 points from the get-go and setting a new all-time high. The index dipped from there but only briefly, and then proceeded to advance until just after 11AM. The early intra-day high was hit at 11:10AM, just shy of +12 for the SPX. This high held until late afternoon when it was tested and breached. The new high did not hold, prices pulled back from it slightly, but the index was able to close with a new all-time high and near the high of the day.

Economic Calendar

The Economy

Two major economic reports today and giving conflicting view on the economy. The jobless figures show continued improvement in labor, the advance trade report for April was weaker than expected and led to a downgrade of 2nd quarter GDP expectation.

Initial jobless claims gained 1,000 on top of an upward revision to last week of 1,000 to hit 234,000. The 4 week moving average of initial claims fell -5,750 to 235,250 and a new 44 year low. On a not adjusted basis claims rose 1.4% versus an expected 0.8% and are down -12.8% year over year. These figures are consistent with ongoing labor market health and show further improvement in conditions. I expect next week's Challenger report will show low levels of job cuts.


Continuing claims for unemployment rose by 24,000 to hit 1.932 million, last week's figure was revised higher by 1,000. The four week moving average of claims fell by -16,000 to hit a new 44 year low, consistent with improvements in hiring/job creation and demand for employees. Based on this I expect to see strong hiring numbers from Challenger and steady to strong NFP figures.

The total number of Americans receiving unemployment benefits fell by -71,968 to hit 1.819 and a new seasonal low. This low is below my target and shows a deeper draw-down of the unemployed population than at this same time in years past, consistent with ongoing improvement in the labor market and a decline in overall unemployment. Based on this figure it is very possible we will see next week's unemployment rate come in at historically low levels. The only offsetting factor I can think would be an increase in the participation rate which in itself would be another positive for the economy.


The Advance Report for April trade data was weaker than expected but some data points showing positive improvement on a YOY basis. The trade deficit grew by 3.8% in April, widening to -$67.6 billion dollars. Wholesale Inventories declined by -0.3% after advancing by 0.1% in March, the March data revised down from 0.2%, but up 1.8% YOY. Retail Inventories also fell by -0.3% in April following gains in the previous month. March retail inventories was revised down to 0.3% from 0.5% but remain up 3% on a YOY basis.

The Dollar Index

The Fed Minutes and today's economic data suggest the economy is not growing quite as strongly as first thought but neither caused the dollar to plummet. In fact, it looks as if the Dollar Index could swing higher and next week's round of monthly macro-data could do it. Today the index tested support at the $97 again and moved up off of it again, ending the day with a small gain and creating a green bodied candle. The indicators are a bit mixed but consistent with such a possibility. MACD is still bearish but rolling over at a support level and stochastic is forming a strong bullish crossover deep in oversold territory, both consistent with support levels and a possibly swing in momentum.

The risk is two-fold. First is that an upswing may be short-lived, upside target is near $98.75 and a zone of potentially strong resistance, and may end up becoming a selling opportunity ahead of the FOMC meeting. The second is that tomorrow's GDP and economic releases, data from abroad, Trump antics or Fed-speak could send the index crashing through support at $97 in a continuation of the near-term down trend. Downside target on that move is near $95.


The Gold Index

Spot gold held steady near $1255 in today's trade as political fear and dollar value kept trading in check. Gold has been trending sideways in an increasingly narrow range for 7 days now and looks like it is winding up for another big move. Strong data could strengthen the dollar and send gold back to retest the lows, weak data the opposite. At the same time political risk is still a concern; if fear increases gold will likely move up, if it diminishes the reverse. A break in either direction could take gold as much as $45 in the near term, upside target is $1300 downside $1,215.

The Gold Miners ETF GDX held steady in today's trading, very near the middle of it's short-term trading range and wedged between the short and long-term moving averages. The indicators are rolling over in confirmation of resistance at the declining resistance line, near $23 at this time. Stochastic is already firing a sell with MACD close to confirming, consistent with range bound trading a possible move to the bottom of the range near $21.


The Oil Index

OPEC met, they decided to extend production caps and the price of oil fell. WTI fell more than -5.25% on a deal that was nothing more than the market expected. The extension is for 9 months, taking the cap out to March of next year, and far less than what the market really wanted which was a deeper cut to help rebalance the market. The first 6 months of capped production didn't do much to help, the next 9 month's isn't likely to do much either unless global demand also picks up. WTI is now trading below $49 and could easily drop back to $45.

The Oil Index fell -1.5% on the news and created a long red candle. The index is moving lower from resistance at the top of last years trading range and both the short and long-term moving averages. The index looks set to move down to the bottom of last years trading range and recent support near 1,125. Stochastic confirms this move with a strong sell signal yet to be confirmed by MACD. MACD momentum remains bullish at this time but rolling over, and has been generally weak for the past month or so. Down side target is 1,125, a break below which would be bearish. Longer term I remain bullish and the 1,125 level is beginning to show potential as a bottom.


In The News, Story Stocks and Earnings

GM made headlines today when Bloomberg reported the company used emissions test beating devices in some of its trucks. Bloomberg became aware of the story when a class action lawsuit was filed against the company. The suit alleges GM's trucks "spew" more than double the allowed amount of emissions. GM responded saying the accusations were baseless and would be fought. Shares of the stock fell more than -2% to test support at the 6 month low of $32.


Netflix surged 3.5% on an upgrade from Piper Jaffray. The firm upped their target to $190, +16.5% to today's close, based on forward earnings potential. They say that 2020 EPS is undervalued based on expected US and international subscription levels. The stock is now trading at an all time with bullish indications on both the weekly and daily charts.


Abercrombie & Fitch reported earnings before the bell and, despite a less than positive report, shares moved up by nearly 10%. The company reported a big miss on EPS due to decreased leverage in retail prices but was able to beat revenue and margin expectations. The caveat is that sales were down YOY, the beat is nice but only terms of not being as bad as expected. Shares are moving higher on news there could be a bidding war for the brand between a pair of top investment firms.


After hours action was busy, multiple earnings reports were released and many were much better than expected. Costco beat on the top and bottom line sending the stock up by more than 2%. Ulta Cosmetics rose more than 5% after it beat EPS estimates by 14%. The mall based retailer says comp store sales rose 14.3% beating expectations for 11%. Deckers Outdoors gained 11% after reporting a profit when analysts had been expecting a loss.

The Indices

The indices all moved higher today, led by the Dow Jones Transportation Average which is the only to not be trading at all-time high levels. The transports gained 1.57% today, creating a long green candle moving up from the short-term moving average. The index appears to be moving up toward resistance targets at 9,320 in line with the underlying long-term trends. The indicators confirm this move with bullish crossovers, MACD forming its crossover today. A break above 9,320 would be bullish with a target at the current all-time high.


The NASDAQ Composite made the 2nd largest gain today but still less than half the move seen in the more volatile transportation average. The tech heavy NASDAQ gained 0.69% in move creating a small green bodied candle and setting a new all-time high. The index continues to drift higher in line with prevailing trends and looks like it could keep doing so into the nearer term. The indicators are both consistent with trend following entry with upside target near 6,400.


The S&P 500 made the third largest gain in today's trading, 0.44%. The broad market average created a small green bodied candle moving up from a long-term trend line in line with the prevailing bull market. The indicators both confirm this move and suggest higher prices are on the way. Stochastic has rolled over and pointing higher following a bullish crossover earlier in the week and this has been confirmed today by a bullish crossover in the MACD. Upside target is 2,480 in the near-term.


The Dow Jones Industrial Average is today's laggard with a gain of only 0.34%. The blue chips created a very small green bodied candle, almost a doji, and spinning top just beneath resistance at the current all-time high. Today's action was able to break above the long-term up trend line and is confirmed by the indicators suggesting resistance will at least be tested again. Both indicators are forming bullish crossovers, MACD confirms today, with upside target near 21,500.


The indices are drifting higher and look like they want to go higher. All four major indices I track are showing signs of bullishness if not strength that could carry them up to new all-time highs in the near-term. Long-term outlook remains bullish but I remain cautious for new near and short-term trades due to expected slow-down in corporate earnings growth for the 2nd quarter cycle and a lack of real strength in the signals being fired. A correction may not come but I think it's better to keep trades small now, you can always add more later when the signals get stronger.

Until then, remember the trend!

Thomas Hughes


New Option Plays

Flying High

by Jim Brown

Click here to email Jim Brown

Editors Note:

This stock has a lot of opportunities to benefit from increased defense spending all around the world. Boeing makes a lot of airplanes and quite a few are for military forces around the world.


NEW DIRECTIONAL CALL PLAYS

BA - Boeing - Company Profile

The Boeing Company, together with its subsidiaries, designs, develops, manufactures, sells, services, and supports commercial jetliners, military aircraft, satellites, missile defense, human space flight, and launch systems and services worldwide. It operates in five segments: Commercial Airplanes, Boeing Military Aircraft, Network & Space Systems, Global Services & Support, and Boeing Capital. The Commercial Airplanes segment develops, produces, and markets commercial jet aircraft for various passenger and cargo requirements; and provides related support services to the commercial airline industry. This segment also offers aviation services support, aircraft modifications, spare parts, training, maintenance documents, and technical advice to commercial and government customers. The Boeing Military Aircraft segment researches, develops, produces, and modifies manned and unmanned military aircraft, and weapons systems for global strike, vertical lift, and autonomous systems, as well as mobility, surveillance, and engagement. The Network & Space Systems segment researches, develops, produces, and modifies strategic defense and intelligence systems, satellite systems, and space exploration products. The Global Services & Support segment provides integrated logistics services comprising supply chain management and engineering support; maintenance, modification, and upgrades for aircraft; and training systems and government services that include pilot and maintenance training. The Boeing Capital segment offers financing services and manages financing exposure for a portfolio of equipment under operating and finance leases, notes and other receivables, assets held for sale or re-lease, and investments. The company was founded in 1916 and is headquartered in Chicago, Illinois. Company description from FinViz.com.

Boeing dipped last week after the test flights for the 737-MAX were halted temporarily. Boeing is expecting to begin deliveries of that model later this month. The problem was a low pressure disk in the LEAP-18 engine built by CFM International. That is a joint venture between GE and France's Safran. The halt was only a day before Boeing announced they were resuming flights of the planes without the LEAP-18 engines. CFM said the problem would be fixed within "weeks" because an alternate supplier was increasing production of the specific part. That problem has already been forgotten.

Boeing has dozens of projects underway and the biggest backlog of plane orders in history. The 787 Dreamliner is already on its third revision. The first plane was the 787-8 then there was the 787-9 and now the 787-10. The 787-8 was barely profitable because of higher than expected production costs. However, the improved 787-9 and 10 are highly profitable and in high demand. The delivery mix fell to only 25% model 8s in Q1. Currently there are 672 Dreamliners on order and only 89 are for the model 8. By the time the planes are actually built that will probably decline much further. Orders being transferred from airlines to leasing companies are typically upgraded to the more desirable models because the leasing companies want the longest lasting, fully featured models so the lease rates remain higher longer. The newest version the 787-10 already has 169 orders and it costs $40 million more than the model 8 but only costs a couple million more to produce. Analysts believe Boeing's profitability will rise $1.5 billion on this order shuffle alone.

Boeing got another windfall when Trump was elected and suddenly took an interest in producing more F-18 Hornet's than F-35s. Boeing was only expected to produce 5 Hornets this year with a big order for F18 Growlers filling out the production line. The Growlers are the radar jamming planes that protect a flight of fighters. In the budget that was just passed, an additional $1.1 billion was allocated for 14 additional F-18s in this year. Trump had asked for 24 but Congress only approved 14. There will be a lot more in the budget for 2018. The F-18 is the workhorse of the Navy and many of their older planes are reaching the 6,000 flight hour maximum threshold. That means the Navy will need hundreds over the next several years to replace the aging aircraft. Boeing expects the production line to increase to 3-4 per month starting in 2020. Boeing expects another 100 planes to be ordered over the next five budget cycles and possibly more as the military scales down requests for F-35s in favor of the much cheaper F-18s. Boeing has an enhancement called Block III that basically gives the F-18 the networking capability of the F-35. They envision a stealthy F-35 entering hostile airspace and doing reconnaissance and then transmitting back threat and target information to the heavily armed F-18s to actually carry out the attacks. Over the last five years, the Navy has requested five times as many F-18s as F-35s. A F-18 costs $75 million and F-35 $121 million.

Boeing said on any given day 2 out of every three F-18 planes are out of commission waiting for repairs. Planes have been flown hard in the post 9/11 world with multiple theaters of war and planes down for a single part end up getting cannibalized for other parts to keep the remaining planes flying.

Boeing will also profit from the $110 billion arms deal with Saudi Arabia and the escalation to $350 billion over the next decade.

All of this means Boeing is going to remain highly profitable for a very long time and this is just two production lines of the dozens of products being manufactured by the company.

Earnings July 26th.

Shares made a new high on May 9th at $187 before dropping back to $182 on the market decline. That drop has been erased and shares are poised to break out to a new high and probably begin a new leg even higher.

Options are expensive so I am recommending a spread.

Buy Aug $190 call, currently $5.20, initial stop loss $179.65.
Sell short Aug $200 call, currently $1.78, initial stop loss $179.85.
Net debit $3.42.


NEW DIRECTIONAL PUT PLAYS

No New Bearish Plays



In Play Updates and Reviews

Surprising Gains

by Jim Brown

Click here to email Jim Brown

Editors Note:

The indexes managed to move over prior resistance levels in a low volume rally. The S&P and Nasdaq closed at new highs and the Dow jumped over prior resistance at 21,000 and it closing in on the record high close at 21,115.

The Russell did not participate with a gain of only 0.88 and well below strong resistance at 1,400. This is a big cap rally and the hope for the small caps is that they find some traction when the big caps take a rest. Recently it has been either big or small but not both at the same time.

Four of the five FAANG stocks posted solid gains but Apple only managed a 53-cent move. Those rumors of iPhone 8 production delays are starting to return.



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


OA - Orbital ATK
The long call position was entered at the open.

TSCO - Tractor Supply
The long put position was stopped at $54.75.



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

Credit spreads and naked puts = OptionWriter

Long term option investments = LEAPS Investor

3-6 month Option Trades = Ultimate Investor

Iron Condors = Couch Potato Trader

Long and short equity trades = Premier Investor



BULLISH Play Updates

ATVI - Activision Blizzard - Company Profile

Comments:

No specific news. Another nice gain and a new high.

Original Trade Description: May 22nd.

Activision Blizzard, Inc. develops and publishes games for video game consoles, personal computers (PC), mobile devices, and online social platforms. The company operates through three segments: Activision Publishing, Inc., Blizzard Entertainment, Inc., and King Digital Entertainment. The company develops, publishes, and sells interactive software products and entertainment content through retail channels or digital downloads; and downloadable content. It also publishes subscription-based massive multiplayer online role-playing games; and strategy and role-playing games. In addition, the company maintains a proprietary online gaming service, Battle.net that facilitates the creation of user generated content, digital distribution, and online social connectivity in its games. Further, it engages in creating original film and television content; and provides warehousing, logistics, and sales distribution services to third-party publishers of interactive entertainment software, as well as manufacturers of interactive entertainment hardware products. The company serves retailers and distributors, including mass-market retailers, consumer electronics stores, discount warehouses, game specialty stores, and consumers through third-party distribution and licensing arrangements in the United States, Australia, Brazil, Canada, China, France, Germany, Ireland, Italy, Japan, Malta, Mexico, the Netherlands, Romania, Singapore, South Korea, Spain, Sweden, Taiwan, and the United Kingdom. Activision Blizzard, Inc. was incorporated in 1979 and is headquartered in Santa Monica, California. Company description from FinViz.com.

Activision reported Q1 earnings of 56 cents, up 17%. Sales rose 19% to $1.73 billion. Activision had originally guided for 25 cents and $1.55 billion. Analysts were expecting 22 cents and $1.1 billion so it was a major blowout. For the full year, they raised guidance to 88 cents and $6.1 billion, up from 72 cents and $6.0 billion.

Blizzards's monthly active users rose to 431 million. King Digital has 342 million active users. The new Overwatch game was the fastest Blizzard title to hit 25 million registered players and now has more than 30 million. Revenues from in game purchases rose 25% driven by World of Warcraft and Overwatch customization features.

Activision is a powerhouse with rapidly rising revenue and multiple game titles arriving in the coming months.

Earnings August 3rd.

Shares dropped sharply with the market last Wednesday and have already rebounded to close at a new high today.

Position 5/23/17:

Long August $60 calls @ $2.66, see portfolio graphic for stop loss.


CVX - Chevron - Company Profile

Comments:

OPEC announced a 9-month extension to its production cuts. Unfortunately, that is exactly what was expected and no more and after all the positive rumors about deeper cuts, the announcement turned into a sell the news event.

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%.

Udate 5/15/17: Chevron said they had taken Train 1 of the massive Gorgon LNG plant offline for a month to do some maintenance. The plant cost $54 billion to build and has 3 trains that can produce 15.6 million tonnes of LNG per year.

Position 4/17/17:

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


FB - Facebook - Company Profile

Comments:

No specific news. Zuckerberg spoke at the Harvard graduation and said he supported the government giving everyone a salary so they would be free to fail and still has a permanent income. This is called "universal basic income" and quite a few Silicon Valley bigwigs support it.

Original Trade Description: May 17th.

Facebook, Inc. provides various products to connect and share through mobile devices, personal computers, and other surfaces worldwide. Its solutions include Facebook Website and mobile application that enables people to connect, share, discover, and communicate each other on mobile devices and personal computers; Instagram, a mobile application that enables people to take photos or videos, customize them with filter effects, and share them with friends and followers in a photo feed or send them directly to friends; Messenger, a messaging application to communicate with people and businesses across platforms and devices; and WhatsApp Messenger, a mobile messaging application. The company also offers Oculus virtual reality technology and content platform, which allow people to enter an immersive and interactive environment to play games, consume content, and connect with others. Company description from FinViz.com.

Facebook also blew away earnings estimates and they are growing earnings at the fastest rate of any of the FAANG stocks. They have multiple revenue streams and sites like Instagram and WhatsApp that are just starting to accelerate earnings. They said Instagram had reached 50,000 advertisers. Facebook's problem is they do not have enough page views to monetize despite the 1.9 billion users. They have more advertisers than they have space.

Earnings August 2nd.

Facebook had been moving sideways since hitting the $153 high post earnings. Volatility was low and investors were just waiting for a market dip so they could get a better entry point. Share fell to uptrend support at $145 and even if they due decline further there is strong support around $140.

Update 5/18/27: Facebook was fined $122.4 million by EU regulators for giving them false information in the WhatsApp acquisition process. The EU asked how many WhatsApp users were also Facebook users and the company said it did not know and did not have way of matching the usernames. A year after the acquisition Facebook launched a service that did match users and the EU said they had the capability all the time.

The company also announced a new effort to reduce "clickbait" headlines and punish websites that continually publish fake news. I hope they are successful.

Update 5/19/17: Facebook is going to live stream 20 Major League Baseball Friday night games. The company also said it was adding an "Order Food" option to let some users order, pay and have food delivered or be available for pickup. The service works with restaurants that use Delivery.com or Slice.

Update 5/22/17: Facebook shares were weak after the BROWSER bill was introduced in the House. Websites and browsers must get explicit permission from users in order to collect and use personal data including browser history, search terms, cookies, etc. They also cannot deny you the use of their program if you decline to give them permission to use your data. While the bill has little chance of passing it was a wet blanket on Facebook today.

Update 5/24/17: Reuters reported that Facebook has signed content deals with Vox Media, Buzzfeed, ATTN, Group Nine Media and others to begin creating shows for its upcoming video service. They are going to develop both short and long form content with ad breaks included. The first scripted shows will be up to 30 min which Facebook will own. The second tier will be shorter scripted and unscripted shows with episodes lasting 5-10 minutes.

Position 5/18/17:

Long Aug $150 call @ $4.90, no initial stop loss.


IWM - Russell 2000 ETF - Company Profile

Comments:

The Russell did not participate in the rally once again. I considered closing it but once big caps begin to stall, the small caps tend to find buyers. We are still two weeks from the first release of the Russell rebalance stocks so there is still a chance the Russell could catch fire. I am tightening the stop loss again to take us out if the market rolls over.

Original Trade Description: May 17th.

The iShares Russell 2000 ETF seeks to track the investment results of an index composed of small-capitalization U.S. equities.

The Russell 3000 is the top 3,000 investible stocks in the U.S. The Russell 1000 is the top 1,000 stocks by market cap and the Russell 2000 is the next 2,000 stocks by market cap. The Russell 2000 is commonly called the small cap index but it has a large number of midcap stocks as well.

The Russell 2000 imploded with a 39 point, -3% decline to 1,355. There is strong support at 1,344. "IF" the market rebounds as I expect the Russell is likely to rebound strongly now that all the stop losses have been hit.

The corresponding level on the IWM is $134 with the ETF closing at $134.89 on Wednesday. This support has held since January despite six intraday penetrations that were immediately bought.

Position 5/18/17:

Long July $136 call @ $3.08. No initial stop loss.


MCD - McDonalds - Company Profile

Comments:

No specific news. Shares closed at a 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.

Update 5/15/17: McDonald's Bar-B-Que opened on May 15th, 1940. The store closed and was later reopened in 1948 with only 9 items on the menu. Hamburgers were 15 cents, cheeseburgers 19 cents and cokes/coffee were 10 cents. Today, McDonalds serves 77 million customers a day. Short history of MCD in pictures The stock celebrated today with a new high.

Update 5/18/17: McDonald's added 1,000 additional restaurants to its McDelivery program utilizing UberEATS food delivery service. They had been testing at 200 stores in Florida since January. Apparently, McDonalds customers are loving it.

Update 5/22/17: The Chicago Tribune said restaurants offering the delivery service were seeing a surge in large orders. People are ordering the 40-piece Chicken McNuggets in quantity as well as the Big Mac and Chicken McNuggets Meal Bundle. That is 2 Big Macs, a 20-piece McNugget, 3 medium fries and 3 beverages for $14.99, which were also being ordered in quantities. When you think about it, if you are having friends over, ordering multiples of those deals gives everyone a choice and plenty to eat. Having UberEats deliver it is simpler than having someone gather up everyone's orders and money and then driving to McDonalds, waiting in line and then waiting while they put together your large order. If you can get it all home without spilling french fries and soda all over your car you are very lucky. This is another reason why McDonalds sales are going to rise in the coming quarters.

Position 5/4/17:

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


NFLX - Netflix - Company Profile

Comments:

Piper Jaffray reiterated an overweight rating this morning but raised the price target from $166 to $190. The analyst said Netflix probably low-balled the company's 2020 earnings expectations by as much as half. The analyst said it the international viewers grow as well over the next 10 quarters as the last 10 then expectations could be 100% too low. They believe Netflix could have 180 million international subscribers by 2020. Jaffray said the total addressable market of broadband viewers could be more than 765 million by 2020.

MKM Partners also raised their price target from $175 to $195.

The highly anticipated fifth season for House of Cards is only a week away and shares typically rally on the releases. The next two weeks could see shares rise.

Original Trade Description: May 17th.

Netflix, Inc., an Internet television network, engages in the Internet delivery of television (TV) shows and movies on various Internet-connected screens. The company operates in three segments: Domestic Streaming, International Streaming, and Domestic DVD. It offers members with the ability to receive streaming content through a host of Internet-connected screens, including TVs, digital video players, television set-top boxes, and mobile devices. The company also provides DVDs-by-mail membership services. It serves approximately 100 million streaming members in 190 countries. Netflix, Inc. was founded in 1997 and is headquartered in Los Gatos, California. Company description from FinViz.com.

Netflix posted blowout earnings and shares rocketed higher to hit $161 on Monday. I have been waiting for three weeks for a pullback. Analysts are projecting higher highs with the high price targets at $175. There have been continuous rumors that either Disney or Apple will try to buy them not only to acquire the platform but to keep the other company from acquiring it. Both have said they want to have a big presence in streaming. Tim Cook just said it last week. Both have the cash and Disney has billions of dollars in content it can immediately add to the platform.

Netflix is expected to add 3 million subscribers in Q2. They are testing higher prices in Australia to see what price levels will cause subscriber flight. Once they figure it out you can bet they will apply it to the rest of their 100 million customers. That is instant profit. Bumping rates by $5 gets them another $500 million a month in revenue.

They announced with earnings they were finally entering China through a partnership with the largest existing streamer in China. This is one more step to a full release in the future.

Update 5/18/17: The FCC voted 2-1 to roll back the 2015 net neutrality order from President Obama. Some say this will impact major internet users like Netflix. However, the company said last month that elimination of the order would not have any impact on their business because they were big enough and had a broad enough customer base that ISPs would not try to slow down their streaming traffic. The order prevented ISPs from charging for faster bandwidth for heavy users. Netflix is responsible for 40% of the internet traffic in peak hours.

Update 5/22/17: Netflix expects to have 102 million subscribers by the end of Q2 with 51.45 million in the U.S. and 50.49 million internationally. Three years ago the company only had 11 million international subscribers. They expect international numbers to exceed U.S. subscribers by the end of the third quarter. With international subscribers growing roughly 3 million per quarter they should reach 100 million in 2020 as acceptance continues to grow. That puts them on track for 200 million total subscribers by 2025.

Earnings July 17th.

We have to use a spread because options are still expensive.

Position 5/18/17:

Long July $160 call @ $6.45, no initial stop loss.
Short July $175 call @ $2.16, no initial stop loss.
Net debit $4.29.


OA - Orbital ATK - Company Profile

Comments:

No specific news and another nice gain. Now testing new high resistance at $102.50.

Original Trade Description: May 24th.

Orbital ATK is a global leader in aerospace and defense technologies. The company designs, builds and delivers space, defense and aviation systems for customers around the world, both as a prime contractor and merchant supplier. Its main products include launch vehicles and related propulsion systems; missile products, subsystems and defense electronics; precision weapons, armament systems and ammunition; satellites and associated space components and services; and advanced aerospace structures. (Company supplied description.)

The company reported earnings on May 11th of $1.23 that missed estimates for $1.39. The miss was due to a surprise hike in the tax rate that analysts were not expecting. There was an event two years ago that caused a lower tax rate in the year ago quarter. Analysts factored in that repeat rate without realizing it was a one-time event. Revenue of $1.085 billion beat estimates for $1.083 billion.

Revenue in the Flight Systems Group, Defense Systems Group and Space Systems Group was up between 4.6% and 5.2%. Order backlogs at the end of the quarter were up 12% to $9.8 billion. Total backlogs including options and indefinite quantity contracts were $14.8 billion.

The company guided for 2017 earnings of $5.80-$6.20 and revenues of $4.550-$4.625 billion. Free cash flow is expected to be $250-$300 million.

Earnings August 10th.

Today Orbital received a $76 million order for 50 caliber ammunition from the U.S. Army. Orbital operates the Lake City ammunition plant for the military under an $8 billion facilities management contract. Last month they announced a $92 million order for 5.56mm and 7.62mm ammunition. Since taking over the plant they have produced more than 17 billion rounds of small caliber ammunition. They also received a $53 million contract to produce 120mm and 105mm ammunition including the new M1002 and M724A2 rounds for howitzers and tanks. To date they have produced more than 5 million rounds of large caliber ammunition.

Orbital ATK’s Defense Systems Group is an industry leader in providing innovative and affordable precision and strike weapons, advanced propulsion and hypersonics, missile components across air-, sea- and land-based systems, ammunition and related energetic products.

Shares broke over resistance at $99.75 today on the award win. With the emphasis on higher defense spending and a war fighter now in charge of the military, we can expect future orders to continue. Add in their missile systems, space launch systems, etc and Orbital is a good candidate to play this sector.

Position 5/15/17:

Long Aug $105 call @ $2.60, see portfolio graphic for stop loss.


VAR - Varian Medical - Company Profile

Comments:

Varian will be hosting multiple events at the ISRS meeting in Switzerland from May 28th - June 1st. They will be demonstrating their leading edge radiosurgery systems for cancer treatment.

Original Trade Description: May 20th.

Varian Medical Systems, Inc. designs, manufactures, sells, and services medical devices and software products for treating cancer and other medical conditions worldwide. It operates through two segments, Oncology Systems and Imaging Components. The Oncology Systems segment provides hardware and software products for treating cancer with radiotherapy, fixed field intensity-modulated radiation therapy, image-guided radiation therapy, volumetric modulated arc therapy, stereotactic radiosurgery, stereotactic body radiotherapy, and brachytherapy. Its products include linear accelerators, brachytherapy afterloaders, treatment simulation, verification equipment, and accessories; and information management, treatment planning, image processing, clinical knowledge exchange, patient care management, decision-making support, and practice management software. This segment serves university research and community hospitals, private and governmental institutions, healthcare agencies, physicians' offices, oncology practices, radiotherapy centers, and cancer care clinics. The Imaging Components segment offers X-ray imaging components for use in radiographic or fluoroscopic imaging, mammography, special procedures, computed tomography, computer aided diagnostics, and industrial applications. It also provides Linatron X-ray accelerators, imaging processing software, and image detection products for security and inspection purposes. This segment serves original equipment manufacturers, independent service companies, and end-users. In addition, the company offers products and systems for delivering proton therapy; and develops technologies in the areas of digital X-ray imaging, volumetric and functional imaging, and improved X-ray sources. The company was formerly known as Varian Associates, Inc. and changed its name to Varian Medical Systems, Inc. in April 1999. Varian Medical Systems, Inc. was founded in 1948. Company description from FinViz.com.

Drugs are not the only opportunity to rid yourself of a terrible disease. Varian produces multiple products for discovering and targeting cancer. They are the sector leader in imaging and radiation therapy.

Varian reported earnings of 89 cents that beat estimates for 88 cents. Revenue of $655 million beat estimates for $643 million. They guided for ful lyear earnings of $3.56-$3.64 per share.

Earnings July 26th.

On May 6th, the company announced a "game-changing treatment platform" to combat the cancer challenge. (their words) The new Halcyon system is an entirely new device that "simplifies and enhances virtually every aspect of image-guided volumetric intensity modulated radiotherapy (IMRT). This new treatment system is designed to expand the availability of high quality cancer care globally and help save the lives of millions more cancer patients." The new system requires only 9 steps compared with the 30 treatment steps required by current generation equipment. "Halcyon is well suited to handle the majority of cancer patients, offering advanced treatments for prostate, breast, head & neck, and many other forms of cancer." Press Release

The company demonstrated the new device to packed crowds at the ESTRO 36 conference in Vienna on May 8th. Shares spiked $4 on the announcement.

ASCO is about cancer treatment and the conference begins on June 2nd for four days. While the drug community will be getting plenty of press, the Varian equipment should also be benefitting from the headlines.

The market decline knocked $2 off Varian shares and gave us a buying opportunity.

Update 5/24/17: Varian announced it was going to install its first Proton Therapy System in Thailand. The first one in a country is always the hardest. The order will be booked in this quarter's earnings. Shares rallied to close right on resistance at $96.75 but a breakout is imminent.

Position 5/22/17:

Long August $100 call @ $2.00, see portfolio graphic for stop loss.


$VIX - Volatility Index - Index Description

Comments:

Intraday low at 9.72 and close at 9.99. Very close to new 24 year closing lows.

The May 8th 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)

TSCO - Tractor Supply - Company Profile

Comments:

No specific news. Shares rebounded nearly 3% in a positive market to stop us out of the position at $54.75 for a decent gain.

Original Trade Description: May 15th.

Tractor Supply Company operates rural lifestyle retail stores in the United States. The company offers a selection of merchandise, including equine, livestock, pet, and small animal products necessary for their health, care, growth, and containment; hardware, truck, towing, and tool products; seasonal products, such as heating products, lawn and garden items, power equipment, gifts, and toys; work/recreational clothing and footwear; and maintenance products for agricultural and rural use. As of January 26, 2017, it operated 1,600 retail stores in 49 states. The company operates its retail stores under the Tractor Supply Company, Del's Feed & Farm Supply, and Petsense names. It also operates an e-commerce Website, TractorSupply.com. The company sells its products to recreational farmers, ranchers, and others, as well as tradesmen and small businesses. Tractor Supply Company was founded in 1938 and is headquartered in Brentwood, Tennessee. Company description from FinViz.com.

In mid April TSCO warned that sales were weak and cut its earnings outlook. Same store sales fell -2.2%. The average number of transactions declined -1.4% and the average ticket size fell -0.9%. The company blamed price deflation from competition and lower sales of seasonal merchandise. They cut estimates from 49 cents to 45-46 cents.

The company has been around since 1938. Have they not gotten a grasp of weather patterns yet?

When they reported earnings of 46 cents that matched the lowered analyst estimates. Revenue rose 6.6% to $1.56 billion.

Let make sure we have this right. In Mid April, they warned of lower sales for multiple reasons and cut earnings estimates. Two weeks later, they reported a 6.6% increase in sales rather than a decrease. Other investors picked up on the discrepancy and shares began to fall. Since Amazon does not sell tractors online, somebody else is forcing their profits lower. Maybe the sale of big ticket items like tractors is suffering from the same illness as motorcycles and motor homes. A lack of extra money in consumer pockets.

The next earnings release is July 26th.

I am going to step out to the October strikes because the July options would expire before earnings. It would be best to have some earnings expectation in the premium to keep them elevated.

We can buy all the time we want. We do not have to use it. We will exit before earnings.

Position 5/16/17:

Closed 5/25/17: Long Oct $55 put @ $1.95, exit $3.70, +$1.75 gain.




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