Option Investor
Newsletter

Daily Newsletter, Saturday, 6/10/2017

Table of Contents

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

Market Wrap

Defanged

by Jim Brown

Click here to email Jim Brown

A combination of tech valuation downgrades and a short recommendation caused a tech flash crash on Friday.

Weekly Statistics

Friday Statistics

A confluence of unfortunate events triggered a massive sell off in tech stocks, led by the big cap techs that have supported the rally over the last several months. What goes up quickly can also come down quickly.

On Thursday evening, Bank of America Merrill Lynch warned that the tech sector currently "trades at its highest relative multiple since the Tech Bubble." On Friday morning Goldman Sachs warned the top five market cap techs, Facebook, Apple, Amazon, Microsoft and Google, which they named the FAAMG group, "were in a valuation air pocket" and were due for a pause after being inappropriately valued as stable, staple issues, acting as key drivers of the Nasdaq and S&P in 2017.

Lastly, short seller, Citron Research, went all in on an Nvidia short saying the recent price target revisions were "irresponsibly bullish." On Thursday, Citigroup put a $180 price target on Nvidia and laid out a bullish case for it to reach $300. Argus raised their target to $185 and Bank of America $180. The stock rallied $12 on Thursday and declined $10 on Friday so investors are still not running for the sidelines.

The trio of high profile tech downgrades did not stop the Nasdaq from opening at a new high but the hang time was brief. The Nasdaq 100 fell -228 points or -4% intraday before rebounding slightly at the close.



I am pretty sure we can all agree that those three investor notes did not cause a million investors to suddenly race to the exits on a summer Friday. Volume was 8.8 billion shares and well over the 6.4 billion average for the first three days of the week. What we saw on Friday was a case of algos gone wild. Trading computers, which currently account for 40% to 60% of the volume in equities and 60% of the volume in futures, had probably been shifted to a sell bias by their managers after the reports and once they saw the market roll over it was a feeding frenzy. The faster the decline, the faster the computers trade.

The decline hit its peak when there was a mini flash crash in Amazon and shares fell from $980 to $927 in less than one minute at 2:50 with 300,000 shares traded. To put that in perspective there meant $290 million in Amazon shares were traded in less than one minute. I looked at the time and sales and there were $6 to $10 ranges in the trade prices only hundredths of a second apart. There were trades at $927 with trades at $954 a hundredth of a second later and other trades scattered all over between them. To say it was chaotic would be an understatement.


I suspect the velocity of the decline in Amazon acted as a circuit breaker for the trading computers. That was the exact bottom in the charts of all the other big cap tech stocks.

The Nasdaq 100 QQQ ETF normally trades an average of 21.9 million shares a day. On Friday, it traded 109.3 million or five times normal. Note how the volume escalated as the day progressed to culminate at that 2:50 market bottom. The last 12 minutes of the day the volume was positive as traders either covered shorts or bought the dip.


The only economic report for the day was the Wholesale Trade Inventories for April. The headline number was a decline of -0.5% and the largest drop since the same -0.5% drop in February 2016. Durable inventories fell -0.3% and nondurable goods -0.8%. This was a lagging report for April and it was ignored.

The economic accountants did not ignore the inventories. That caused another decline in the Atlanta Fed real time GDPNow forecast to 3.0%.


The calendar for next week is weighted to the middle of the week and the most activity with the Fed rate decision on Wednesday. The Fed is expected to raise rates despite the lackluster jobs numbers. They may actually announce some proposed changes to their $4.5 trillion balance sheet.


Apple had some other problems on Friday than just FAANG valuations. It appears Apple is going to go with a mix of modem manufacturers in the iPhone 8. Apple has been using the modems from Qualcomm. With the patent battle in progress with Qualcomm they are shifting to modems from Intel. They are planning on using Intel in some phones and Qualcomm in others. The problem is that Qualcomm modems can transfer data at 1 gigabit per second and Intel's modems are only rated at 600 megabits per second. To keep from fighting the battle with consumers constantly asking for the phones with the Qualcomm modems, Apple is going to use software to degrade the phones with Qualcomm modems to 600 mb per second to match the Intel speeds. That way all the phones will be the same speed. They also did this in the iPhone 7 but it was unknown at the time. The prospect of Apple offering a premium iPhone for $1,000 or more with communications significantly slower than Samsung, Motorola and Pixel, as well as the much hyped gigabit networks from Verizon and AT&T, weighed on the stock price. The Samsung Galaxy S8 has the Qualcomm X16 LTE modem and the fastest phone modem in mass production.

On Thursday, RBC Capital warned that the iPhone 8 would be delayed by 1-2 months because of problems with the fingerprint sensor and the OLED screens. There have been multiple rumors of this problem over the last couple months from Cowen and Company, KGI and Drexel Hamilton but RBC is the latest to confirm it. RBC still believes Apple will announce the 7S, 7S+ and the iPhone 8 in September but the 8 will not be available until late October or even the late November timeframe.


Sirius XM (SIRI) said it would invest $480 million in Pandora (P). Controlling shareholder in Sirius, John Malone, recently tried to buy Pandora for $8 a share but the company refused his offer. The $480 million will give it 20% of Pandora and 3 board seats. Sirius is prohibited from buying more stock for 18 months and cannot purchase more than 31.5% in total after that period. Activist investor Corvex Management has been trying to get Pandora to sell itself for more than a year. KKR had earlier agreed to make an equity investment and they will get a $22.5 million termination fee to end that agreement.

Pandora also said it would sell ticketing firm Ticketfly to Eventbrite for $200 million and less than half the $450 million it paid just last year. Pandora is a firm in need of a better business plan and new leadership. With the Malone investment, they should eventually be a better run company. This will also give Sirius a potential entry into the music streaming market.


Western Digital (WDC) moved a little closer to acquiring Toshiba's memory assets on Friday. The company said it is raising its bid to 2 trillion yen or $18 billion. The deadline for a decision by Toshiba is Thursday. The acquisition will be in the form of a debt purchase to avoid antitrust concerns over its purchase of the second largest producer of NAND memory chips. A partnership between Broadcom and Silverlake Partners was thought to be the preferred bidder but Broadcom recently said it no longer has sny interest in the business. WDC had been bidding with a consortium led by a Japanese fund but Toshiba said it did not like that group and that led WDC to make a last ditch offer on its own. Foxconn has been rumored to have offered 2.2 trillion yen but the Japanese government will not approve a Chinese buyer.


Citigroup, a previous backer of SnapChat (SNAP) has had a change of heart. Citi downgraded the company from buy to neutral saying they are not sure when SNAP will turn profitable. They downgraded the 2018 earnings estimate from a loss of 42 cents to a loss of 46 cents. Citi said monetization was slower than previously expected because of a slower than expected rollout of new channels and opportunities. "Given issues with Android, summer seasonality, heightened competition and the nature of Snap's social network, we expect user growth to remain modest near term." SNAP missed estimates with their Q1 earnings. Nearly 70% of analysts have something other than a buy rating on SNAP. The company is also facing a large lockup expiration in August. Currently SNAP has 404 million shares available to trade and on July 29th another 663 million Class A shares will be unlocked along with 281.1 million Class B shares and 215.9 million Class C shares. Those convert to Class A shares if the holders decide to sell them. Snap recently tried to get existing insider shareholders to commit to a one-year holding period but were unsuccessful. That suggests many are planning to dump shares when the lockup expires.


Newly IPOed company Cloudera (CLDR) reported a Q1 loss of 27 cents compared to estimates for a loss of 36 cents. Revenue of $79.6 million also beat estimates for $75.8 million. They guided for the full year for a loss of $1.07 to $1.04 on revenue of $345-$350 million. Analysts were expecting $1.07 on revenue of $338.1 million. Shares were knocked for a 15% loss after Raymond James pointed out that billings of $75.2 million missed estimates for $81 million. The average contract length shrank from 20 months to 18 months. Raymond James cut its price target from $24 to $20 saying the newly public company would remain in the penalty box for some time until they established a positive track record.


In the first move of its kind, the FDA asked Endo International (ENDP) to halt sales of its opioid drug Opana ER. The FDA said this is the first time they have asked to remove an opioid drug from the market because of abuse. In 2012, the drug was reformulated to prevent abuse through snorting or injecting but after the reformulation the abuse from injecting rose even higher. The reason the FDA wants to remove the drug from the market makes no sense to me. They warned that continued availability of the drug could lead to a serious outbreak of HIV and Hepatitus C or a serious blood disorder from the injections and needle sharing.

That is like saying you are going to ban hammers because a lot of people could break things and smash their thumbs. The drug as prescribed does what it is supposed to do. The problem comes from the drug addicts crushing it up so they can inject it and reusing syringes. This is not the fault of Endo or the drug. There is such a thing as too much government protection. Shares of ENDP fell -17% on the news.


Zynga (ZNGA) was upgraded from equal weight to overweight by Morgan Stanley citing optimism over their "live services" business, which included poker. The analyst said it was increasing engagement and monetization. Poker makes up 19% of Zynga's revenue. They are expected to roll out a new suite of offerings in the coming months. Shares rose to a new 52-week high.


Alibaba (BABA) held its 2-day investor event and used the opportunity to raise guidance. They expect full year revenue growth of 45% to 49% and more than $34 billion in revenue. The CEO said gross merchandise volume would double over the next three years from $547 billion in 2017 to more than $1 trillion by 2020. Analysts are tripping all over themselves to upgrade their estimates. It remains to be seen how much of that increased revenue will turn into profits. Shares exploded higher on Thursday and declined only slightly on Friday.


It was a crazy week for oil prices after Tuesday's API report showed a decline of -4.62 million barrels and then the EIA report on Wednesday morning showed an unexpected rise of 3.3 million barrels. Prices collapsed from $48.25 to $45.25. Crude closed the week at $45.83 and right near the critical psychological level of $45. A trade under that level should target longer-term support at $43.

Analysts are very confused about the outlook for oil. The next OPEC meeting is in November and despite the Saudi Arabia "whatever it takes" comments on cutting production to control oil prices, the outlook is mixed. If prices were rising it would be easier to get compliance for the cuts because countries would be receiving more money. With prices hovering near six month lows there is rising worry that compliance will deteriorate and production rise. Add in the rising production from Libya, Nigeria, Iran and U.S. shale and the current level of cuts may not be enough to lift prices even when summer driving demand increases.

Refineries in the U.S. processed a record amount of oil the prior week but as expected, the post Memorial Day demand declined slightly. The next demand bump will be July 4th.


Producers added another 11 rigs with 8 of them oil rigs and 3 gas rigs. Active rigs are up more than 100% since the 404 low in May of 2016.

Production actually declined 24,000 bpd to 9.318 million bpd. This is just a blip somewhere in the production stream and definitely not a trend.


 

Markets

Stuff happens. I write constantly that the events that impact the market the most are the ones we are not expecting. We worry over the Fed, UK elections, North Korea, Comey testimony, etc, but the market ignored them because they were known events and the outcome was not disastrous. Theresa May lost seats, Comey called the president a liar, North Korea launched another round of missiles and the Fed is going to hike rates. It was just a normal week in the new normal we are living in the market today.

Analysts blamed the Friday crash on the Goldman and Bank of America warnings and the Citron short on Nvidia. Were they really to blame? I think the Nasdaq chart pattern for the first four days of the week was just as important as the Friday pattern. Nothing bullish happened. The index tested support at 5,850 three consecutive days and barely rebounded each day. More than likely this setup suggested that a topping pattern was forming and then the three events on Friday morning just pushed the Nasdaq over the cliff. The negativity was already there despite the late Thursday, early Friday uptick.


The S&P traded in a 31-point range from a new intraday high at 2,446 to an intraday low of 2,415 and closed right in the middle at 2,431 and a loss of only 2 points. Think about that. The Nasdaq 100 lost -228 points intraday and -143 at the close but the S&P closed flat and the Dow gained 90 points. Friday was bizarre in every way.

The lack of a decline in the S&P and Dow suggests the damage was limited to the big cap tech stocks that led the rally over the last several months. As long as the other indexes do not catch the same valuation flu on Monday, we should be in good shape.

Support at 2,420 is still intact and the S&P closed only 8 points from a new high.


The Dow was a strong performer on Friday with only three components deep in negative territory. Apple and Microsoft we understand but why was Visa tanking? It had to be because of the recent gains. The stock was making new highs and crashed with the techs. I did see some other big gainer stocks that were not techs that also declined. When you need to cover losses sometimes you have to sell other stocks and use those profits to cover the unexpected declines.

The Dow is in breakout territory and assuming the banks continue rising ahead of the Fed, they should support the index over the next couple of days. Support is well back at 21,130.



The Nasdaq sinners list has a lot of double digit decliners and big losers in general. The Composite Index broke below support at 6,200 intraday but rebounded to close fractionally above that level at 6,207. This erased 7 days of gains but the rally is still intact. A real problem would appear if the index moved below 6,200 and developed a downward trajectory.

You can see on the chart there were two other big declines on March 21st and May 17th. The May 17th drop was -173 points, high to low, over two days. The March drop was 143 points, high to low, over two days. Both saw immediate rebounds the second day after an early morning bout of follow on selling. We cannot just assume this rebound will happen again on Monday but there is nothing preventing it.



The Russell 2000 had a great morning with an 18-point gain to a new high. At noon, when the worst of the Nasdaq selling was accelerating, the Russell rolled over and gave back more than half its gains. The index still closed at a new high. Since financials make up 27% of its components, the rally in financials helped to power the Russell.

The first Russell rebalance deletion list was released after the close on Friday. (List Here) These stocks will be sold at the open on Monday and will weigh on the Russell 1000 and Russell 2000. Whether they will be enough to offset other market factors is unknown.


The market does not need a reason to decline. Whenever enough people and computer programs make a directional decision on one day, the rest of the market will follow. Sell stops are hit, causing further declines, triggering additional sell stops. It is not magic. In this day of algorithmic computer trading and heavy reliance on ETFs, we have now seen multiple flash crashes where computer sellers ran out of computer buyers and an air pocket appeared.

Every time this happens, the programmers will go back to work to try and improve their trading programs. Actual investors will buy the dips and be thankful for the opportunities. Tom Lee at Fundstrat said the selloff provided an excellent buying opportunity for the big cap tech stocks.

In theory, there should be some margin selling at the open on Monday but the basic paradigm has not changed. Earnings are good and rising, investors and consumers are optimistic, interest rates are low and there is nothing on the horizon that should tank the markets. Let's hope some common sense reappears on Monday.


 

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Random Thoughts


Bullish sentiment spiked +8.5% to 35.4% but this survey ended on Wednesday and before the Nasdaq crash. If we rebound on Monday I suspect next Wednesday's results will not even show the impact of the crash. Investors with a neutral bias were the biggest change agent with them moving back into the bullish column. The bearish investors do not seem to change much from week to week. Their minds are made up until the market deviates from the current trend.



In the early 1990s if you worked for Apple, there were perks other than a nice paycheck. These sneakers were created specifically for Apple employees. This particular pair is being auctioned off by Heritage Auctions with a starting price of $15,000 and are expected to go for as much as $30,000. They are men's size 9.5. In 2007 a size 8.5 pair sold for $79 on Ebay. Times have definitely changed.



Former FBI Director James Comey has won the Washington Lottery. It turns out fame sometimes does produce fortune. Little did he know when President Trump cornered him in the White House that the event would change his life forever.

Several media outlets are reporting that Comey has been offered a $10 million book deal to give his version of the details surrounding the Clinton email controversy and the events that led to him being fired by President Trump. In addition, Hollywood producers are reportedly lining up for the movie rights to those same events. One producer is reportedly already trying to cast a tall leading man for the role. Comey is 6 feet 8 inches tall. I would be smiling too if I was Comey. This is a significant change from his life back before the election when he was being pounded daily for his stance on the Clinton emails.



This is 1970 and this kid will grow up to be the richest man in the world. This is Bill Gates out for a cruise on his custom bicycle. If you could find that bike today it would be worth a million dollars because of its heritage.



 

Enter passively and exit aggressively!

Jim Brown

Send Jim an email

 

"When I was 5 years old, my mother always told me that happiness was the key to life. When I went to school, they asked me what I wanted to be when I grew up. I wrote down 'happy'. They told me I didn't understand the assignment, and I told them they didn't understand life."

John Lennon



Index Wrap

Always Painful

by Jim Brown

Click here to email Jim Brown
Whenever the Nasdaq decides to take profits it is always painful.

The Nasdaq has now had three major decline days in the last four months. The one in March dropped -143 points and the May decline was 173 points. Friday, the Nasdaq 100 was down -228 points intraday but rebounded to lose 143 points for the day.

I discussed the various reasons in the Option Investor commentary so I will not repeat them here. We know what happened and what factors caught the blame. Now it is time to predict the future. Drag out those old crystal balls and brush off the dust.

The Nasdaq is either going to rebound on Monday or it's not. We cannot know for sure this weekend. If your crystal ball is better than mine, I have a job for you.

The Nasdaq 100 declined to 5,657 with major uptrend support at 5,600. There is more than likely going to be some follow on selling on Monday morning as margin calls are satisfied. There could be an attempt by the bears to force the markets lower but they have been very ineffectual in those attempts in 2017.

If this is a repeat of the March/May declines, we should have a minimal dip on Monday morning followed by a decent rebound that could take days. We cannot heal the pain of a flash crash in a couple hours of buying. If you look at the prior declines, it took a week or more before they recovered their losses. Traders lose capital in major declines and more importantly, they lose confidence. They will start out buying smaller positions and be more cautious on their entry points. They want to be sure there is a rebound in progress before putting money at risk again.

The ideal situation would be a drop back to that 5,600 level on Monday but I seriously doubt it will happen. That would be another 141-point decline intraday. If this was a garden-variety drop, we would be lucky to get a 30 point dip on Monday. If there is more to this decline than just a one-day dip, then the 5,600 level would be decent support.

The indicators were bullish on Thursday. The MACD was at a cycle high but the RSI was flattening because of the lack of forward motion on the index for the prior four days. Both indicators turned negative but that is a false negative until the index confirms with more losses. The indicators could spring back into positive territory almost immediately if we were to see a snap back rally. These momentum indicators are good for looking at a trending market but they are terrible at deciphering a flash crash event.


With the S&P neutral and the Dow at new highs, we only need to concentrate on a single level on the $NDX to determine market direction. The rebound from the 2:50 low hit 5,752 on three consecutive bars before sellers reappeared in enough quantity to push the index lower again. If the NDX can move over that 5,752 level on decent volume, the buying will accelerate. That is the go, no-go signal for the market on Monday.

Conversely, a drop back below 5,715 and the late afternoon support would be at least a temporary sell signal. We could see that happen on the morning margin call selling. I would not recommend trying to trade that level because the drop could be sharp. I would only recommend buying over 5,750. If the market moved lower or stays lower for a couple days, we could develop a new signal from a lower level but you might not go wrong watching the 5,750 buy point for the rest of the week.


We also need to remember the VIX is at a 24 year low. It cannot go much lower but it can go a lot higher. Eventually we are going to have a selling event that last longer than one day and involves more than a couple dozen big cap tech stocks. There is no way we can tell in advance if Friday was a one-day wonder or the start of something bigger. We just have to wait it out and see what the market gives us.


Our insurance policy for market direction is the lack of material movement on the Russell 3000. That is the broadest tradable index and it only closed fractionally lower. The stocks in the broader market are still positive despite the beating the big cap techs took on Friday. The R3K is telling us the market is still healthy and there is no reason to panic.


The cumulative advance/decline on the S&P is also telling us there are no problems in the broader market. The line is almost at a new high despite the tech weakness on Friday.


The percentage of S&P stocks over their 50-day average rose to 69.8% and a three-month high. This is another indicator telling us the market is not sick.


I cannot guarantee you the market is going to rebound next week but every indicator/chart I looked at with the exception of the Nasdaq indexes, suggests the rally is still in progress and the dip will be bought.

Normally, if we follow what the charts are telling us rather than our own emotions we will be on the right side of the market.

Enter passively and exit aggressively!

Jim Brown

Send Jim an email


New Option Plays

Collateral Damage

by Jim Brown

Click here to email Jim Brown

Editors Note:

Sometimes when confronted with an unanticipated loss you have to sell something else to generate cash. I believe that was the case on Visa on Friday.


NEW DIRECTIONAL CALL PLAYS

V - Visa Inc - Company Profile

Visa Inc. operates as a payments technology company worldwide. The company facilitates commerce through the transfer of value and information among consumers, merchants, financial institutions, businesses, strategic partners, and government entities. It operates VisaNet, a processing network that enables authorization, clearing, and settlement of payment transactions; and offers fraud protection for account holders and assured payment for merchants. The company also offers gateway services for merchants to accept, process, and reconcile payments; manage fraud; and safeguard payment security online, as well as processing services for participating issuers of visa debit, prepaid, and ATM payment products. In addition, it provides digital products, including Visa Checkout that offers consumers an expedited and secure payment experience for online transactions; and Visa Direct, a push payment product platform, which facilitates payer-initiated transactions that are sent directly to the Visa account of the recipient, as well as Visa token service that replaces the card account numbers from the transaction with a token. Further the company offers corporate (travel) and purchasing card products, as well as value-added services. It provides its services under the Visa, Visa Electron, Interlink, V PAY, and PLUS brands. Company description from FinViz.com.

Visa reported earnings of 86 cents compared to estimates for 79 cents. Revenue of $4.5 billion rose 23.5% and beat estimates for $4.3 billion. They raised full year revenue guidance saying they expect to come in at the high end of the $17.49-$17.79 billion prior forecast. Analysts were expecting $17.75 billion. Shares rallied $10 since the earnings report.

Estimated earnings July 20th. Visa shares declined sharply on Friday even though they are not a tech stock. The sudden need to raise cash because of losses elsewhere may have caused investors to take profits in Visa. This should be a buying opportunity. With the Fed likely to raise rates this week the financial community should continue to post gains.

Buy Aug $95 call, currently $2.86, initial stop loss $92.85.


NEW DIRECTIONAL PUT PLAYS

No New Bearish Plays



In Play Updates and Reviews

Unfortunate Events

by Jim Brown

Click here to email Jim Brown

Editors Note:

The combination of the Goldman/BAML valuation calls and Citron short on Nvidia were blamed on the 2.4% loss on the Nasdaq. This type of market flush is my worst nightmare as an investor. Just about the time you finish creating a nice portfolio where everything is profitable and moving nicely higher, lightning strikes and everything is stopped out on the same day.

I tried to keep the stop losses a little farther away than normal because of the headline events we had been talking about all week. I was trying to avoid a headline volatility dip and as a result, we gave back a lot of our gains in the tech stocks.

If you add up the gains and losses from Friday, we only netted a $130 loss on a one contract per position basis. However, we gave back a lot more than that in accumulated gains.

There is a good chance this was a one-day wonder like we saw on May 17th but there is also the potential for Monday to be a follow on day for those that were not paying attention to the market on Friday and will be getting margin calls this weekend. I recommended we reload several of the positions at specific price points. If we get another knee jerk dip at the open on Monday we might get to reenter at decent prices. There is risk that the decline accelerates so be prepared to abandon ship if it looks like the flush is continuing. The Nasdaq 100 lost -2.4% but we are due for a 5% to 7% correction at any time. We have been due since October and it could be another six days or six months before it appears but it will appear.

I like to say, don't buy the dip, buy the rebound. If you are a trader, you understand.



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


AAPL - Apple Inc
The long call position was stopped at $151.85.

ATVI - Activision
The long call position was stopped at $57.65. RELOAD

FB - Facebook
The long call position was stopped at $149.85. RELOAD

NFLX - Netflix
The long call position was stopped at $159.85. RELOAD

PTC - PTC Inc
The long call position was stopped at $55.85.

SHOP - Shopify
The long call position was stopped at $92.25. RELOAD

TTD - The Trade Desk
The long call position was stopped at $50.50.



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Long and short equity trades = Premier Investor



BULLISH Play Updates

AAPL - Apple Inc - Company Profile

Comments:

Apple shares were crushed by the Nasdaq decline. There was not any news specific to Apple but came from a Goldman note saying the big gap tech stocks had hit a "valuation air pocket" and the selling was brutal.

Original Trade Description: May 27th.

Apple Inc. designs, manufactures, and markets mobile communication and media devices, personal computers, and portable digital music players to consumers, small and mid-sized businesses, and education, enterprise, and government customers worldwide. The company also sells related software, services, accessories, networking solutions, and third-party digital content and applications. It offers iPhone, a line of smartphones; iPad, a line of multi-purpose tablets; and Mac, a line of desktop and portable personal computers. The company also provides iLife, a consumer-oriented digital lifestyle software application suite; iWork, an integrated productivity suite that helps users create, present, and publish documents, presentations, and spreadsheets; and other application software, such as Final Cut Pro, Logic Pro X, and FileMaker Pro. In addition, it offers Apple TV that connects to consumers' TV and enables them to access digital content directly for streaming high definition video, playing music and games, and viewing photos; Apple Watch, a personal electronic device; and iPod, a line of portable digital music and media players. Further, the company sells Apple-branded and third-party Mac-compatible, and iOS-compatible accessories, such as headphones, displays, storage devices, Beats products, and other connectivity and computing products and supplies. Additionally, it offers iCloud, a cloud service; AppleCare that offers support options for its customers; and Apple Pay, a mobile payment service. The company sells and delivers digital content and applications through the iTunes Store, App Store, Mac App Store, TV App Store, iBooks Store, and Apple Music. It also sells its products through its retail and online stores, and direct sales force, as well as through third-party cellular network carriers, wholesalers, retailers, and value-added resellers. Company description from FinViz.com.

The eyes of the world will be focused on Apple in two weeks as it updates application developers on all the new features and software in its various products. This covers the iPhone, iPads, Macs and Watches. Apple routinely tries to keep from giving away its best secrets but it is impossible for developers to develop unless they know what they are developing. There are always leaks. This typically provides a boost to Apple shares.

Apple reports earnings on August 1st. That is getting close to the normal September announcement date for the iPhone 8. If the buzz from the developers conference is good we could see shares rise into that earnings report.

Shares have been flat for the last three weeks despite the constantly rising Nasdaq. The WWDC could be the catalyst that lifts Apple shares out of this consolidation pattern.

Update 5/31/17: ZDNet said Apple has already started production on its competitor to the Amazon Echo. The device will not be announced publicly until later but there will be clues at the WWDC that starts on Monday. Reportedly, it will have surround sound and better quality than Amazon and Google. Apple will need to release some info to developers at the conference if they want any applications available when the smart device begins shipping.

Update 6/5/17: Apple announced a ton of new features and a couple new devices on the opening day of the WWDC. The Apple Watch was upgraded with dozens of new features that will actually make is useful. They announced the new macOS called High Sierra and a bunch of new MacBooks to go with the OS. They announced a new iMac, MacBook Pro, MacBook Air. The iMac Pro will start at $4,999 with a 5K display from Nvidia. Buyers will have a choice of a 8, 12 or 18 core processor, which is maximum overkill. They announced peer-to-peer payments to compete with Paypal, Venmo and Square Cash. They announced the ARKit which will allow developers to easily creare augmented reality apps for iOS devices. They upgraded the 105 and 12.9 inch iPads but left the 9.7 inch model alone. They announced the Apple HomePod speaker, powered by Siri, to compete with Google and Amazon's Echo.

I am using the August strikes so the earnings expectations will keep the premium inflated. I do not plan on holding over earnings. We will exit in July or earlier depending on how the stock reacts to the WWDC news.

The August strikes are expensive so I am recommending a spread.

Position 5/30/17:

Closed 6/9/17: Long Aug $155 call @ $4.89, exit $4.20, -.69 loss
Closed 6/9/17: Short Aug $165 call @ $1.67, exit $1.42, +.25 gain
Net loss 44 cents.


ADP - Automatic Data - Company Profile

Comments:

No specific news. Minor decline in a mixed market.

Original Trade Description: June 1st.

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

When ADP reported they beat on earnings with $1.29 compared to estimates for $1.23 but revenues of $3.41 billion missed estimates of $3.43 billion. The news that tanked the stock was a 7% decline in new bookings. Every other metric was fine. The company guided for full year revenue growth of 6% and earnings to rise 17-18%.

Who would not want to own a company growing revenue 6% and earnings 17% per year. Those are good solid numbers.

Apparently there were enough knee jerk sellers to crash the stock from $104 to $95. After two weeks in the doghouse shares began to rise again and they are almost back to $104.

The stock has tried to break out three times this year and each time gets just a little higher before failing. This time, I expect a breakout, market permitting.

Earnings August 2nd.

Position 6/2/17:

Long Aug $105 call @ $1.05, see portfolio graphic for stop loss.


ATVI - Activision Blizzard - Company Profile

Comments:

No specific news. The position was stopped out due to the Nasdaq tech wreck. I am recommending we reload it next with an ATVI trade at $58.60.

RELOAD: With an ATVI trade at $58.60, Buy Aug $60 Call.

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:

Closed 6/9/17: Long August $60 calls @ $2.66, exit $2.02, -.64 loss.

RELOAD: With an ATVI trade at $58.60, Buy Aug $60 Call.


BA - Boeing - Company Profile

Comments:

Boeing said it won a $410 million contract modification for 38 Apache helicopters for Britain.

Original Trade Description: May 25th.

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.

Update 5/27/17: Tom Cruise said he was planning on filming a new Top Gun movie in 2018. Since the F-14 is no longer flown and the F-35 is not yet available for its film debut, Boeing will probably receive a major public relations bonanza with the F/A-18 Super Hornet in the title role. If it stars in the movie it would be a major advertising win because the capabilities will be shown all around the world and that could generate additional orders.

Boeing received a new $58.6 million contract to demonstrate a new generation of technology to intercept and destroy multiple missiles fired at the USA. This is a result of the accelerated missile testing currently in progress in North Korea. The technology is called the Multi-Object Kill Vehicle (MOKV). Basically, it would be one missile that would be launched at an incoming swarm of hostile missiles. As the MOKV nears the intercept point it would itself launch multiple interceptors and each would be directed to a different target by the radar and communication systems on the MOKV. Instead of firing one missile from the ground to target one incoming missile, the MOKV would be like launching a launching pad of missiles to a predetermined location and then having it attack the swarm on its own. This is not going to be cheap technology.

Boeing also said it won a $89 million contract from the Navy to incorporate the Block II Infrared Search Track System in the F/A-18 E/F aircraft.

Update 5/31/17: The Boeing Midcourse Defense anti-missile system performed flawlessly and knocked down a target ICBM fired from the Marshal Islands on Tuesday. This is the equivalent of a bullet hitting a bullet with a closing speed of more than 2,000 mph in space. That is pretty impressive. Boeing is the prime contractor with Northrop Grumman (NOC), Raytheon (RTN) and Orbital ATK (OA) the key subcontractors. Shares closed at a new high.

Update 6/1/17: Boeing shares dipped at the open after the company got into a fight with the Canadian Defense Minister. Boeing complained that Canadian firm Bombardier was selling jets to U.S. customers below cost because of subsidies from the Canadian government. The defense minister became irate and cut off contact with Boeing regarding a potential order for 18 F-18 Super Hornets to replace some of their aging CF-18 fighters. This was just a headline storm. It is not material to Boeing at this time.

Update 6/7/17: Boeing said the current Arab argument with Qatar has not hurt the $21.1 billion order for 72 F-15QA multirole fighters. The State Dept said they still expect the order to be signed soon. Canada said it planned to increase its military spending by 73% over the next ten years and would involve a significant number of new planes. The spokesman said Canada would hold an open competition to buy 88 advanced fighters to replace its fleet of 77 CF-18 planes. Previously, the government had planned to buy 65 fighters. Part of the requirement is that the planes would have to operate seamlessly with planes and communication systems of Canada's allies. That gives Boeing a big edge up plus they are the incumbent having made and maintained the CF-18s.

Update 6/8/17: Boeing said it was going to send some of its aircraft completion work to China and a production plant near Shanghai. The plant will focus on painting and furnishing jets to be used in China. Boeing expects this to help sales to China of 6,800 jets over the next 20 years. The company said this would not impact any jobs in the USA.

Position 5/26/17:

Long Aug $190 call @ $5.15, see portfolio graphic for stop loss.
Short Aug $200 call @ $1.79, see portfolio graphic for stop loss.
Net debit $3.36.


COST - Costco - Company Profile

Comments:

No specific news.

Original Trade Description: June 1st.

Costco Wholesale Corporation, together with its subsidiaries, operates membership warehouses. It offers branded and private-label products in a range of merchandise categories. The company provides dry and packaged foods, and groceries; snack foods, candies, alcoholic and nonalcoholic beverages, and cleaning supplies; appliances, electronics, health and beauty aids, hardware, and garden and patio; meat, bakery, deli, and produces; and apparel and small appliances. It also operates gas stations, pharmacies, optical dispensing centers, food courts, and hearing-aid centers; and engages in the travel businesses. In addition, the company provides gold star individual and business membership services. As of August 28, 2016, it operated 715 warehouses, including 501 warehouses in the United States, Washington, District of Columbia, and Puerto Rico; 91 in Canada; 36 in Mexico; 28 in the United Kingdom; 25 in Japan; 12 in Korea; 12 in Taiwan; 8 in Australia; and 2 in Spain. Further, the company sells its products through online. Company description from FinViz.com.

Costco reported earnings of $1.59 compared to estimates for $1.30. Revenue of $28.22 billion rose 8% but missed estimates for $28.6 billion. Same store sales rose 5% and beat expectations for 4%. Shares spiked $2.50 on the report.

Earnings August 24th.

On May 31st, Costco reported May sales results of $9.86 billion, an increase of 7%. Same store sales rose 4.5% in the U.S. and 6.4% internationally with the company average at 4.5%.

Guggenheim said the May comps reinforce the case for 20% earnings growth in Q4. Costco customers are on track to spend more than $100 billion on their Visa branded credit cards and 70% will be at retailers that are not Costco. The company stands to make $170 million on the commissions from Visa.

People love to shop at Costco and they spend a lot of money. A weekend shopping trip to the local Costco store will expose you to roughly 30 tables of free samples as Costco employees cook up concoctions available for sale in the store. Broiled salmon, cocktail weenies, crab dip, jalapeno biscuits, barbecue, etc, are all available for tasting. Weekend shopping takes on a party atmosphere and the local stores are always full. Amazon cannot crack this code.

We played Costco before the earnings and exited with a nice gain after they announced $7 special dividend for mid May. Now that earnings are over and shares are breaking out to a new high, it is time to play them again.

Position 6/5/17:

Long July $183 Call @ $2.60, see portfolio graphic for stop loss.


FB - Facebook - Company Profile

Comments:

No specific news. Facebook shares crashed in the tech wreck. We were stopped out for a gain. I am recommending we reload the position with a FB trade at $145.25.

RELOAD: With a FB trade at $145.25, Buy Aug $150 Call.

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:

Closed 6/9/17: Long Aug $150 call @ $4.90, exit $6.80, +$1.90 gain.

RELOAD: With a FB trade at $145.25, Buy Aug $150 Call.


LB - L Brands - Company Profile

Comments:

No specific news. Shares rebounded sharply with a $1.84 gain in a mixed market.

Original Trade Description: May 30th.

L Brands, Inc. operates as a specialty retailer of women's intimate and other apparel, beauty and personal care products, and accessories. The company operates in three segments: Victoria's Secret, Bath & Body Works, and Victoria's Secret and Bath & Body Works International. Its products include loungewear, bras, panties, swimwear, athletic attire, fragrances, shower gels and lotions, aromatherapy, soaps and sanitizers, home fragrances, handbags, jewelry, and personal care accessories. The company offers its products under the Victoria's Secret, PINK, Bath & Body Works, La Senza, Henri Bendel, C.O. Bigelow, White Barn, and other brand names. L Brands, Inc. sells its merchandise through company-owned specialty retail stores in the United States, Canada, the United Kingdom, and Greater China, which are primarily mall-based; through its Websites comprising VictoriasSecret.com, BathandBodyWorks.com, HenriBendel.com, and LaSenza.com; and through franchises, licenses, and wholesale partners. As of January 28, 2017, the company operated 2,755 retail stores in the United States; 270 retail stores in Canada; 18 retail stores in the United Kingdom; and 31 retail stores in the Greater China area. It also operated 203 La Senza stores in 24 countries; 159 Bath & Body Works stores in 30 countries; 23 Victoria's Secret stores in 12 countries; 391 Victoria's Secret Beauty and Accessories stores in 70 countries; and 5 PINK stores in 3 countries. The company was formerly known as Limited Brands, Inc. Company description from FinViz.com.

The company reported its seventh consecutive quarter of positive earnings surprises despite a minor revenue miss. Earnings of 33 cents beat estimates for 29 cents. That was well above the company's own guidance for 20-25 cents. Revenue of $2.436 billion was slightly lower than the estimate for $2.456 billion.

The bad news was a 9% decline in same store sales. The majority of that was due to the exit from swimwear and related apparel categories. This has been in progress for about two years. Those two categories created a 6% decline for the lack of swimwear and 9% decline for the related apparel. Excluding those the comp sales were in line with estimates. However, Victoria Secret lingerie sales declined -12% while PINK sales rose in the low single-digits.

They raised their 2017 guidance to earnings of $3.10-$3.40, up from $3.05-$3.35. Q2 earnings guidance was 40-45 cents. Analysts were expecting $3.19 and 45 cents.

Expected earnings Aug 16th.

Update 6/1/17: The company said despite a 10-14% impact from the discontinued swimsuit and swim apparel lines, same store sales for May only declined -7%. That means without that impact sales would have been up 3% or more.

Shares were down ahead of earnings to $47.50. They have rebounded to a two-week high and appear to be on the road to recovery. Resistance is $53.50.

Position 5/31/17:

Long August $52.50 call @ $2.35, see portfolio graphic for stop loss.


MCD - McDonalds - Company Profile

Comments:

No specific news. Minor gain and holding over short term support.

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.

Update 5/31/17: McDonalds said they were expanding the mobile delivery from 1,100 stores to 3,500 by the end of June. They are planning on expanding to all 14,000 stores by the end of the year. This is a very big deal for McDonalds.

Update 6/1/17: Telsey Advisory Group reiterated an outperform but raised their price target from $150 to $165.

Position 5/4/17:

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


NFLX - Netflix - Company Profile

Comments:

No specific news. Netflix crashed on the Goldman tech warning. We were stopped out and I am recommending we reload with a NFLX trade at $154. Support is $153.50.

RELOAD: With a NFLX trade at $154.00, Buy July $160 Call. Sell July $175 call.

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.

Update 5/27/17: 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.

Update 6/2/17: Tom Lee of Fundstrat said "stick with the FANG stocks in 2H-2017 for 20% to 40% additional gains." Netflix added $2 to a new high close.

Update 6/6/17: Cantor Fitzgerald raised their price target from $165 to $190 saying international subscriptions are set to surge. The analyst said Netflix has 50% penetration in the US households with broadband access but only 5.7% internationally. He expects that international number to rise dramatically as advertising and acceptance grows.

Earnings July 17th.

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

Position 5/18/17:

Closed 6/9/17: Long July $160 call @ $6.45, exit $7.50, +1.05 gain.
Closed 6/9/17: Short July $175 call @ $2.16, exit $2.41, -.25 loss.
Net gain 80 cents.

RELOAD: With a NFLX trade at $154.00, Buy July $160 Call. Sell July $175 call.


PTC - PTC Inc - Company Profile

Comments:

No specific news. Crashed nearly $3 in the tech wreck to stop us out.

Original Trade Description: June 6th.

PTC Inc. develops and delivers software products and solutions worldwide. It operates in two segments, Software Products and Services. The company computer-aided design products, including PTC Creo, an interoperable suite of product design software for design engineers; and PTC Mathcad software for solving, analyzing, and sharing vital engineering calculations. It also offers product lifecycle management products comprising PTC Windchill that provides lifecycle intelligence; and PTC Creo View, which enables enterprise-wide visualization, verification, annotation, and automated comparison of various product development data formats. In addition, the company provides application lifecycle management products, such as PTC Integrity that enables users to manage system models, software configurations, test plans, and defects, as well as model-based systems engineering solutions that connect requirements engineering, architecture modeling, physical product definition, and system verification functions. Further, it offers service lifecycle management products that include PTC Servigistics, a suite of software products that enable a systematic approach to service lifecycle management; and PTC Arbortext, an enterprise software suite that allows manufacturers to create, illustrate, manage, and publish technical and service parts information. Additionally, the company provides Internet of Things products, such as ThingWorx, KEPServerEX, Vuforia Studio, and Vuforia, which enable customers to design, connect, operate and service smart and connected products. In addition, it provides consulting, implementation, training, cloud, and license and support services. The company was formerly known as Parametric Technology Corporation and changed its name to PTC Inc. in January 2013. Company description from FinViz.com.

PTC is similar to AutoDesk (ADSK) and business is booming for both of them. PTC just announced ThingWorx Manufacturing Apps that will drive 3D printers.

They reported earnings of 30 cents that beat estimates for 28 cents. Revenue of $280 million missed estimates for $283.2 million. They guided for the current quarter for earnings of 24-29 cents and revenue in the $288-$293 range. For the full year they guided to $1.13-$1.23 and revenue of $1.16-$1.17 billion.

Expected earnings July 19th.

Like AutoDesk, Adobe Systems, etc, they are shifting from a software sales model to a cloud subscription model. This is impacting current earnings as they lose the short-term cash flow from sales but replace it with the long-term cash flow from subscriptions. Subscriptions now account for 71% of bookings. Q2 license and subscription revenue rose 11%. License and subscription bookings rose 20% to $185 million.

They project that every 1% increase in subscription revenue will add $4 million in annual revenue and 3 cents in earnings.

Shares spiked on earnings then went sideways for two weeks while those gains were consolidated. Shares began rising over the last three days and closed at a new high on Tuesday.

They report earnings on July 19th and the July options expire on the 21st. However with the stock at $59.65, the $60 strike is inflated and the July $65 may be out of range for the limited time. I am recommending we go with the October strikes so the earnings expectations will still be in the premium when we exit before earnings. Because it is a longer strike the premium will not fade as quickly. We get the benefit of the higher strike and lower premium and the potential build in expectations. Just because we buy times does not mean we have to use it.

Position 6/7/17:

Closed 6/9/17: Long Oct $65 call @ $2.10, exit $1.13, -.97 loss.


RMD - ResMed Inc - Company Profile

Comments:

No specific news. Minor gain in a mixed market but a new 2-year high.

Original Trade Description: June 6th.

ResMed Inc. designs, develops, manufactures, and markets medical devices and cloud-based software applications that diagnose, treat, and manage respiratory disorders. Its portfolio of products include devices, such as air flow generators, ventilators, and oxygen concentrators; diagnostic products; mask systems; headgear and other accessories; dental devices; portable oxygen concentrators; and cloud-based software informatics solutions. The company also produces continuous positive airway pressure, variable positive airway pressure, and AutoSet systems for the titration and treatment of sleep disordered breathing (SDB). In addition, it offers data communications and control products, such as EasyCare, ResLink, ResControl, ResControl II, TxControl, ResScan, and ResTraxx modules that facilitate the transfer of data and other information to and from the flow generators. The company markets its products to sleep clinics, home healthcare dealers, patients, hospitals, physicians, and third-party payers through a network of distributors and direct sales force in approximately 100 countries. Company description from FinViz.com.

ResMed reported earnings of 71 cents that rose 2.8% and beat estimates by a penny. Revenue of $514.2 million rose 13.3% but missed estimates for $519 million. Revenue in the America's rose 18% compared to a 9% rise in EMEA and APAC. Gross margin was 58.3%. They ended the quarter with $827.3 million in cash. They announced a quarterly dividend of 33 cents, payable on June 15th.

Expected earnings July 27th.

ResMed's recent claim to fame is the ResMed AirMini, the world's smallest CPAP mask. Their goal is to change 20 million lies by 2020 with products that improve patient outcomes and daily lives. They manufacture and market products for chronic diseases where there is a large patient base.

They currently provide remote monitoring for more than three million patients around the world.

Shares closed at a two year high on Wednesday. Earnings are July 27th and the July options will deflate too quickly. I am recommending the October strikes but we will exit before the earnings. We can always buy time but we do not have to use it.

Position 6/8/17:

Long $75 call @ $2.90, see portfolio graphic for stop loss.


SHOP - Shopify - Company Profile

Comments:

No specific news. Shares were crushed in the tech wreck. I am recommending we reload.

RELOAD: With a SHOP trade at $93.50, Buy July $95 Call. Sell July $105 call.

Original Trade Description: May 31st.

Shopify Inc. provides a cloud-based multi-channel commerce platform for small and medium-sized businesses in Canada, the United States, the United Kingdom, Australia, and internationally. Its platform provides merchants with a single view of their business and customers in various sales channels, including Web and mobile storefronts, physical retail locations, social media storefronts, and marketplaces; and enables them to manage products and inventory, process orders and payments, ship orders, build customer relationships, and leverage analytics and reporting. The company was formerly known as Jaded Pixel Technologies Inc. and changed its name to Shopify Inc. in November 2011. Company description from FinViz.com.

The company reported a Q1 loss of 4 cents compared to estimates for a loss of 11 cents. Revenue rose 75% to $127.4 million and beat estimates for $122.1 million. Merchant solution revenue rose 92% to $65.3 million and subscription revenue rose 60% to $62.1 million. They guided for Q2 to revenues of $142-$144 million and the full year for $615-$630 million. That is above their prior guidance of $580-$600 million.

Expected earnings August 1st.

The company was very positive about the future outlook. On May 18th they announced a secondary offering for $500 million at $91 per share. The stock dropped from $91 to $81 on the news but immediately recovered. Wednesday's close was a two-week high after that announcement.

SHOP has been discussed multiple times as takeover bait for Ebay or Amazon. Neither company will comment but Amazon would be the likely player. They could gobble up Shopify at $7 billion like a late night snack.

I believe shares are going to resume their upward momentum now that the secondary offering has been consumed by the market.

Update 6/5/17: The S&P/TSX index is considering whether to add SHOP to the Canadian index. That would equate to about 5.4 million shares of additional buying from index funds. The rule change that would allow SHOP to benefit is out for comment until June 9th.

I wanted to buy calls that expire after earnings but there are no August strikes yet. The next strike in October is too expensive. Even the short-term strikes are expensive so I am going with a July spread to reduce the risk.

Position 6/1/17:

Closed 6/9/17: Long July $95 call @ $5.25, exit $5.00, -.25 loss.
Closed 6/9/17: Short July $105 call @ $2.35, exit 2.50, -.15 loss.
Net loss 40 cents.

RELOAD: With a SHOP trade at $93.50, Buy July $95 Call. Sell July $105 call.


TTD - The Trade Desk - Company Profile

Comments:

No specific news. Shares were crushed in the tech wreck. TTD is not a FANG stock btu the recent gains made it ripe for profit taking in a major market downturn.

Original Trade Description: June 5th.

The Trade Desk is a technology company that empowers buyers of advertising. Through its self-service, cloud-based platform, ad buyers can create, manage, and optimize more expressive data-driven digital advertising campaigns across ad formats, including display, video, audio, native and, social, on a multitude of devices, such as computers, mobile devices, and connected TV. Integrations with major data, inventory, and publisher partners ensure maximum reach and decisioning capabilities, and enterprise APIs enable custom development on top of the platform. Headquartered in Ventura, CA, The Trade Desk has offices across the United States, Europe, and Asia. Company description from Trade Desk.

In May the company reported adjusted earnings of 18 cents on revenue of $53.4 million. They did not give earnings guidance but their revenue guidance was $43 million. They guided for EBITDA of -$2 to +$2 million and posted $6.3 million.

Since going public last September they have beaten guidance on all three quarterly reports. Year over year revenue growth has risen 84%, 70% and now 76% for those three reports. Customer retention has been over 95% for 13 consecutive quarters.

The company guided for full year revenue of $291 million, up from $270 million in the prior guidance. The adjusted EBITDA goal was raised from $72 million to $78 million.

Earnings August 10th.

Shares have been in a steady uptrend since mid-April. The $14 earnings spike only took a couple days to consolidate and shares are moving up again.

There are no August options so we have to use July and exit well before earnings.

Position 6/6/17:

Closed 6/9/17: Long July $60 call @ $2.20, exit .65, -1.55 loss.


VAR - Varian Medical - Company Profile

Comments:

No specific news. Minor decline from the new high. I am glad to see the relative strength in VAR. Even with this much profit at risk, nobody wanted to sell it.

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.

Update 5/25/17: 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.

Update 6/5/17: Varian announced it has joined a partnership to develop radiotherapy centers in Vietnam. This will eventually mean the deployment of multiple installations in Vietnam.

Position 5/22/17:

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


$VIX - Volatility Index - Index Description

Comments:

The VIX posted a new 24-year intraday low at 9.37 at the open when all the indexes were at new highs. That was quickly erased as the tech wreck began and the VIX spiked to 12.11 before fading in the afternoon rebound.

The June 2nd close at 9.75 was the lowest close since December 1993. The June 9th intraday low at 9.37 was also 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 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.



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