Option Investor
Newsletter

Daily Newsletter, Monday, 7/24/2017

Table of Contents

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

Market Wrap

Oh What A Week

by Thomas Hughes

Click here to email Thomas Hughes

Introduction

The market is waiting on OPEC, the FOMC and 38% of the S&P to report earnings, oh my! The OPEC meeting turned out to be a bit of a dud so far, as for the rest we've to wait a bit to see they all play out. The FOMC meeting begins tomorrow, they aren't expected to raise rates so it will be the statement that drives trading. Earnings reporting is lightest today and heaviest on Friday with some of the biggest names in the market on the list. Today's highlight was Alphabet/Google after the bell.

Asian indices were mixed; China moved higher, Japan lower. The moves were driven by the week's upcoming FOMC meeting, ongoing political scandal in the US and the falling dollar. European indices were mostly lower although there were a few indices to close positive. The FTSE led with a loss near -1.0% followed by the DAX's -0.25%.

Market Statistics

Futures trading indicated a flat to mildly negative open for most of the morning. There was no economic data and little in the way of earnings to disturb trading in the early session. The open was as expected although selling quickly set in, within a few minutes of the open the SPX was down a quarter point. Selling persisted throughout the morning although action turned out to be rather light. Intraday bottom was reached just before 11:30AM, a little more than -0.50% for the broad market, and held the rest of the day. The indices crept higher from there in jerky action until recovering the early high late in the day. A rally in the final minutes of trading sent shares up to set a new intraday high but it did not hold into the close.

Economic Calendar

The Economy

No economic data before the opening bell but there were 2 shortly after it. The first was Markitt's Flash PMI reading for July. The reading for industrials came in at 53.2, up 1.2 points from last month, and is a new 4 month high. This month's advance is driven by new orders, employment and inventory growth. The reading for services sector was unchanged from the previous month at 54.2 and shows continued expansion in the sector.


Existing Home Sales was released at 10AM and came in slightly weaker than expected. The number of existing homes sold fell by -1.8% to 5.52 million on an annualized basis. The reason for the fall is continued lack of inventory. Despite the fall sales remain robust at near record highs and up 0.7% from last year.

Moody's Survey of Business Confidence gained 0.8% this week, rebounding from last week's lows. Despite the rise confidence appears to be in correction after hitting 2 year highs less than 2 months ago. Mr. Zandi says global confidence is still solid and positive but has softened on lower than expected sales and moderated forward outlook.


As of last Friday about 19% of the S&P 500 had reported earnings. Of those 73% have beaten EPS estimates and 77% have beaten revenue estimates, both above average. The blended rate of earnings has crept up in the last week, gaining 0.4% to hit 7.2%, with 9 of 11 sectors beating expectations. Looking to this week there are 191 companies expected to report, about 38% of the entire S&P 500 index, 13 of them are also Dow components.


Looking forward the earnings growth outlook remains positive but continues to dim. Declining oil prices and uncertainty in the oil sector have forward outlook plunging which is the main cause. Even so, outlook remains strong both for the sector and the index. The 3rd quarter estimate fell -0.7% to 6.4%, the 4th quarter estimate fell -0.5% to 11.7% which combined to bring full year blended rate down -0.3% to 9.3%.


The Dollar Index

The Dollar Index opened with a small gain but fell throughout the day. The index is under pressure from a rebalancing of central bank expectations and may move lower. Tomorrow's FOMC meeting and the Wednesday policy announcement is the next potential catalyst. The index is now trading at a slightly greater than 1 year low below $94. If support does not step in at these levels a move to $93 and $92 looks likely.


The Gold Index

Spot prices were up nearly a full percent in early trading but those gains were not held. FOMC expectations have prices inching higher with the possibility of retesting highs near $1300. There is no expectation of a rate hike, CME estimates chances at slightly more than 3%, so the statement will be key for the dollar and gold. If they continue to back off of their outlook for rate hikes, the time line and/or the target rate the dollar could continue its fall and send gold shooting higher.

The Gold Miners ETF GDX fell more than -1.70% in today's session. The Index created a medium size red candle confirming resistance still exists at the top of the ever narrowing trading range. I thought the last FOMC meeting would be the one to move the index out of this range, maybe it will be this one. That being said, there is a little evidence of break out to the upside or at least a continuation of sideways trading. Recent action has broken the down sloping resistance line which could lead to a move higher to next resistance target within the greater 6 month trading range. Support appears to be strong at the bottom of the range along the $21/$22 level, a move higher could go to $24 or $25.


The Oil Index

WTI gained a little more than 1.30% following today's OPEC/non-OPEC meeting in St Petersburg. There was no movement on speculated plans to extend the production cut already in place but comments emerged to the effect that OPEC and its allies in oil were committed to doing so if the need arose. Saudi Arabia pledged to curb exports next month in another attempt to limit supply but that supply remains above ground nonetheless. WTI is now trading near $46.40.

The Oil Index fell -0.6% to trade at the short term moving average. Today's action is the third of three down days since the index surged to a one month high and helps confirm support at this level. The indicators are bullish but consistent with a pullback so there is a chance of them reversing. A break of support would be bearish and could go as low as 1,100. A bounce from this level would be bullish and help confirm short term reversal in the sector. Whichever the case is likely to happen this week as the big oil companies begin to report.


In The News, Story Stocks and Earnings

Shares of Nintendo fell -2.5% in early trading on news of a major failure for Pokemon Go. Nintendo is not responsible for Pokemon Go but is a major shareholder in the company. Regardless, there was a huge Pokemon event where attendance was so great it crashed the servers. Needless to say there was very little game play done that day. The Nintendo charts are choppy due to their primary listing in Japan but they are not so choppy you can't see patterns forming, the one I see forming now is a possible Head and Shoulders.


Arconic, formerly the downstream unit of Alcoa, reported earnings before the bell. The company reported top and bottom line beats that led management to raise forward guidance. Even so the big news commentary about the use of flammable panels in the devastating London fire. Interim CEO (filling in for ousted Klaus Kleinfeld) says the company had no control of the supply chain which resulted in the panels use the building. Shares of the stock popped in early trading only to sell off during the day to close with a small loss. Today's price action closes a gap formed following the Grenfell Tower disaster and may help clear the way for future upside.


Google reported after the bell and delivered strong top and bottom line results. EPS came in 11.35% above estimates driven by cloud revenues. Total revenues grew by 21% over last year. The company reported growth in revenue and earnings for all segments, click growth coming in at +52% over last year at this same time. The news first drove shares higher but the move did not last. After the release was read a little more thoroughly shares fell -2.75%.


The Indices

The NASDAQ Composite was today's leader, driven higher on hopes for tech earnings this week and Google earnings this evening. The tech heavy index gained a little more than 0.35% to set a new all time high. It is creeping higher with strong bullish momentum and rising stochastic which has just crossed the upper signal line. Unless something emerges to reverse the move I would expect to see it continue higher into the near term at least.


The S&P 500 posted the smallest loss, only -0.11%. The broad market tried to set a new all time high but just wasn't able to do it. Today's action created a small spinning top doji just beneath resistance and this action may continue over the next day or so. Resistance is the underside of my up trend line and the current all time high, a break above which would be trend following and bullish. The indicators are both bullish and showing some strength although there is also some sign of resistance at current levels. A move up from here could go as high as 2,530 in the near term, a move lower may find support at the short term moving average.


The Dow Jones Industrial Average posted a loss of -0.31%. The blue chips created a small red bodied candle the 9th candle of near sideways action just above support along the short term moving average. The index appears to be in consolidation within a near term up trend and could be setting up for another push higher. The indicators are a little mixed, stochastic is bullish and pointing higher while momentum has shifted to the downside, so outlook is hazy. A move higher would set new all time highs but also face technical resistance at the underside of the up trend line. A move lower may find support at the short term moving average, a break below that could go as low 21,250 in the near term.


The Dow Jones Transportation Average made the largest decline, -0.45%. The transports have been in near term retreat and today created a small red bodied candle below resistance with bearish indicators. Resistance is the short term moving average, both indicators are pointing lower with targets near 9,325 and 9,155.


Depending on which index you take for your lead the market is heading higher or lower. If the transports lead the market it looks like we're in for near term correction, if you take cues from the NASDAQ it looks like the indices will keep drifting higher. Considering the number of earnings reports coming out this week I'd say there is a good chance we'll know which one is right by the end of the week. I remain cautiously bullish in the near term and firmly bullish for the long, waiting to see what happens with the FOMC, earnings and the GDP release. A triple shot of good news could spark a new round of buying.

Until then, remember the trend!

Thomas Hughes


New Option Plays

Software is King

by Jim Brown

Click here to email Jim Brown

Editors Note:

The move to software as a service rather than a one-time purchase is powering these companies. Adobe, Microsoft, SalesForce.com and Autodesk are leading the charge. We played ADSK in June but the Nasdaq decline knocked us out.



NEW DIRECTIONAL CALL PLAYS

ADSK - Autodesk Inc - Company Profile

Autodesk, Inc. operates as a design software and services company worldwide. The company's Architecture, Engineering and Construction segment offers Autodesk Building Design Suites to manage various phases of design and construction; Autodesk Revit products that offer model-based design and documentation systems; Autodesk Infrastructure Design Suites; AutoCAD Civil 3D, a surveying, design, analysis, and documentation solution; and AutoCAD Map 3D software for infrastructure planning, design, and management. Its Platform Solutions and Emerging Business segment offers AutoCAD software, a professional design, drafting, detailing, and visualization software; and AutoCAD LT, a professional drafting and detailing software. The company's Manufacturing segment provides Autodesk Product Design Suites for digital prototyping; Autodesk Inventor to go beyond 3D design to digital prototyping; AutoCAD Mechanical software to accelerate the mechanical design process; Autodesk Moldflow, an injection molding simulation software; Autodesk Delcam, a CAD and computer-aided manufacturing software; Autodesk PLM 360, a product lifecycle management application; and Autodesk Fusion 360, a product development environment. Its Media and Entertainment segment offers Autodesk Maya and Autodesk 3ds Max software products that offer 3D modeling, animation, effects, rendering, and compositing solutions; and Autodesk Flame and Autodesk Lustre software applications that offer editing, finishing, and visual effects design and color grading solutions. Autodesk, Inc. sells consumer products for digital art, personal design and creativity, and home design in digital storefronts and over the Internet. It licenses or sells its products to customers in the architecture, engineering, and construction; manufacturing; and digital media, consumer, and entertainment industries directly, as well as through resellers and distributors. Company description from FinViz.com.

For Q1, Autodesk (ADSK) reported a loss of 28 cents that beat estimates for a loss of 33 cents. Revenue of $478.8 million beat estimates for $474.1 million. The company is losing money because they are converting from a software sales model to a subscription model and that always causes a short fall in the first 12-24 months of the process but results in larger profits in the future. New subscriptions rose 26% to 1.09 million, up 227,000 from the same period in 2015.

The company guided for the current quarter for a loss of 21-27 cents on revenue of $460-$480 million. Analysts were expecting $503 million and a 13-cent loss. Shares declined $2 on the news.

The CEO said today the global building boom is a big boost for Autodesk revenue. You have to have a program to build a building today and that program has to be linked to dozens or even hundreds of smartphones. All of that is a positive for Autodesk.

Earnings Aug 17th.

The stock spiked to $114.50 on the earnings in May and then faded on consolidation until the Nasdaq flash crash the prior week. Being a tech stock it imploded with the rest of the tech sector. The rebound followed the pattern of the rest of the large cap tech stocks. A couple days higher and then a retest of the decline. Shares rebounded from the early July lows and are moving back towards the May high at $114. Monday's close was a 6-week high.

This is a short term position since ADSK reports earnings on August 17th and the option expires on the 18th. We will decide the day before earnings if we want to hold over the report. Normally we do not. I would like to see a gain of a couple bucks in the premium and a quick exit before the report.

Buy Aug $115 call, currently $2.21, initial stop loss $105.85.


NEW DIRECTIONAL PUT PLAYS

No New Bearish Plays



In Play Updates and Reviews

Normal Settlement

by Jim Brown

Click here to email Jim Brown

Editors Note:

Monday was a normal post expiration settlement day with the exception of the Nasdaq. The Dow and S&P traded relatively flat as option traders settled their expired option trades and dumped stock that may have appeared in their accounts this morning as a result of options being exercised. The Nasdaq had a good day to break through the 6395-6400 resistance and close at a new high.

Alphabet (GOOGL) reported disappointing earnings after the close and shares are down -$30 in afterhours. Whether that will weigh on the Nasdaq on Tuesday is unknown given today's relative strength in techs. Amgen and Biogen both report on Tuesday and they could give investors something to watch while they wait for FB and PYPL on Wednesday and AMZN on Thursday. The risk for Tuesday is the 5 Dow components reporting before the open. If 2-3 of them disappoint, it could push the Dow below support.

I believe today's Dow declines were traders taking profits ahead of that event just in case disaster strikes.



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


PYPL - PayPal
The long call position was stopped at $58.45.

HOG - Harley-Davidson
The long put position was entered at the open.



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Credit spreads and naked puts = OptionWriter

Long term option investments = LEAPS Investor

3-6 month Option Trades = Ultimate Investor

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Long and short equity trades = Premier Investor



BULLISH Play Updates

AMAT - Applied Materials - Company Profile

Comments:

The company announced the current CFO was planning to retire at the end of 2018 and he would step out of his role in August so the new CFO could benefit from a smooth long-term transition. The new CFO is Dan Burn, currently CFO of NXP Semiconductors, which is being bought by Qualcomm. Shares traded flat for the day on the news.

Original Trade Description: July 17th.

Applied Materials, Inc. provides manufacturing equipment, services, and software to the semiconductor, display, and related industries worldwide. It operates through three segments: Semiconductor Systems, Applied Global Services, and Display and Adjacent Markets. The Semiconductor Systems segment develops, manufactures, and sells a range of manufacturing equipment used to fabricate semiconductor chips or integrated circuits. It offers products and technologies for transistor and interconnect fabrication, including epitaxy, ion implantation, oxidation and nitridation, rapid thermal processing, chemical vapor deposition, physical vapor deposition, chemical mechanical planarization, and electrochemical deposition; patterning, selective removal, and packaging products and systems that enable the transfer of patterns onto device structures; and metrology, inspection, and review systems for front- and back-end-of-line applications. The Applied Global Services segment provides integrated solutions to optimize equipment and fab performance and productivity, including spares, upgrades, services, remanufactured earlier generation equipment, and factory automation software for semiconductor, display, and other products. The Display and Adjacent Markets segment offers products for manufacturing liquid crystal displays, organic light-emitting diodes, and other display technologies for TVs, personal computers, tablets, smart phones, and other consumer-oriented devices, as well as equipment for flexible substrates. The company serves manufacturers of semiconductor wafers and chips, liquid crystal and other displays, and other electronic devices. Applied Materials, Inc. was founded in 1967 Company description from FinViz.com

Estimated earnings date August 17th.

AMAT is an old chip company founded in 1967. In chip terms this company is an antique. However, they are growing by focusing on new products rather than fight it out for low margin chip products everyone else is making. One of their focus products is OLED screens. The adoption rates for OLED screens means strong demand for chips to power those screens. By 2021 more than two-thirds of smart phones could have OLED screens. AMAT is shooting for 30% to 40% of the total addressable market two years from now. They currently have 15% share. They have grown their display revenue by 20% annually for the last five years.

The company said the demand for memory, which is currently off the charts, is just getting started. The coming of big data, IoT, streaming video and massive data storage requirements has caused a surge in demand that is just the tip of the coming iceberg. AMAT grew its memory revenue to 35% of the total in the last quarter. Manufacturers are raising prices by about 15% per quarter because of the shortages and there is no end in sight.

The upgraded analyst price targets after the big semiconductor show last week is now $65 on the high side and $55 on the low end. AMAT closed at $46 today.

Position 7/18/17:

Long Aug $47 call @ $1.30, see portfolio graphic for stop loss.


BABA - Alibaba - Company Profile

Comments:

Alibaba, Tencent, Baidu and JD.com are rumored to be investing $12 billion into China Unicom. Alibaba and Tencent are reportedly putting up $10 billion. This is part of a push by the Chinese government to increase private ownership in state backed enterprises.

Original Trade Description: June 10th.

Alibaba Group Holding Limited, through its subsidiaries, operates as an online and mobile commerce company in the People's Republic of China and internationally. It operates Taobao Marketplace, an online shopping destination; Tmall, a third-party platform for brands and retailers; Juhuasuan, a sales and marketing platform for flash sales; Alibaba.com, an online wholesale marketplace; Alitrip, an online travel booking platform; 1688.com, an online wholesale marketplace; and AliExpress, a consumer marketplace. The company also provides pay-for-performance and display marketing services through its Alimama marketing technology platform; Taobao Ad Network and Exchange (TANX), a real-time bidding online marketing exchange in China; and data management platform through TANX for marketers to execute their campaigns with proprietary and tailored data. In addition, it offers cloud computing services, including elastic computing, database, storage and content delivery network, large scale computing, security, and management and application services through its Alibaba Cloud Computing platform; Web hosting and domain name registration services; payment and escrow services; and develops and operates mobile Web browsers. The company provides its solutions primarily for businesses. Company description from FinViz.com

Alibaba is the poor investor's Amazon. With shares at $135, the options are at least reasonable but not cheap. Alibaba is growing as fast or faster than Amazon and tries to copy everything Amazon does.

When the company reported earnings for the last quarter at 63 cents, they missed estimates for 68 cents. Revenue of $5.6 billion easily beat estimates for $5.2 billion. Other than the earnings miss it was a solid quarter with ecommerce up 47% and cloud computing up 102%. Digital media growth was up 234%. Mobile MAUs rose from 493 to 507 million. That is important because 90% of China's ecommerce occurs on a mobile device.

The company announced plans to buy back $6 billion in stock over a two-year period.

Earnings August 18th.

Shares dipped on the earnings miss then spiked on the guidance to $125.50, which was a new high. After a little more than two weeks of post earnings consolidation, shares returned to that $125.50 level and closed at a new high.

There was an analyst day last week and that kicked the stock up to another level with a $10 gain. The company guided for 45% to 49% revenue growth in this year and analysts were only expecting 37%. MKM partners raised the price target to $177. Pacific Crest raised their price target to $160 from $137. Needham raised their target to $155. The Benchmark Company is targeting $175.

Shares declined on Tuesday on no news. With the stock overbought after the analyst meeting we could be seeing some simple profit taking. I am going to put an entry trigger on the position. If shares continue lower I will revise the entry.

Update 6/20/17: Alibaba is hosting a forum for 3,000 entrepreneurs in Detroit to explain how easy it is for them to begin selling products on Alibaba's websites. CEO Jack Ma said in another interview he expects to employ 1 million workers in the USA.

Update 6/27/17: JP Morgan initiated coverage with an overweight rating and $190 price target. Barclays said it valued Alibaba in a sum of the parts method at $200 but their price target for the parent is $175 with an overweight rating.

Update 6/29/17: Mott Capital said Alibaba could be worth $210 on a fundamental basis. A "source" in China said Alibaba will launch a device similar to Amazon's Echo but Chinese speaking, next week. That should give the stock a decent pop.

Update 7/5/17: Alibaba announced the Alexa clone called Genie X1, which will be available to the first 1,000 people for a one-month trial. The cost will be $73 during this live test and it only speaks mandarin.

Update 7/10/17: RBC analyst Mark Mahaney raised his price target on BABA from $140 to $160 and reiterated an outperform rating saying fundamental trends remain impressive. Alibaba said recently it is targeting $1 trillion in gross merchandise volume in 2020. Alibaba's Singles Day promotion is 40 times larger in sales than Amazon's Prime Day, which starts tonight.

Position 6/19/17 with a BABA trade at $139.50

Long Aug $145 call @ $5.95, see portfolio graphic for stop loss.
Short Aug $155 call @ $2.92, see portfolio graphic for stop loss.
Net debit $3.03.


PYPL - PayPal - Company Profile

Comments:

No specific news. Shares dipped just enough intraday to stop us out at $58.45. We would have had to exit tomorrow anyway because of Wednesday's earnings and that is why the stop loss was so tight.

Original Trade Description: June 21st.

PayPal Holdings, Inc. operates as a technology platform company that enables digital and mobile payments on behalf of consumers and merchants worldwide. It enables businesses of various sizes to accept payments from merchant Websites, mobile devices, and applications, as well as at offline retail locations through a range of payment solutions, including PayPal, PayPal Credit, Braintree, Venmo, Xoom, and Paydiant products. The company's platform allows consumers to shop by sending payments, withdraw funds to their bank accounts, and hold balances in their PayPal accounts in various currencies. Company description from FinViz.com.

PayPal started out as a payment system for Ebay. Since then they have moved into dozens of areas including credit cards, peer to peer payments. Instead of being locked into one business model, they are rapidly expanding to multiple business models. Recently they partnered with MasterCard and Visa to have their digital payments processed on their systems. The company is expanding the scope of its Venmo payment platform, which handled $6.8 billion in Q1, up 114%. This peer to peer app will now allow you to pay for goods at any merchant that accepts the app, just like Apple pay.

In Q1 PayPal revenue rose 17% to $2.975 million and earnings rose 5%. Total accounts rose 23% to 203 million. As a comparison, Mastercard's revenue was less at $2.7 billion. That is a shocker to most people.

With their Q1 earnings, PayPal committed to buy back $5 billion in stock.

Expected earnings July 26th.

Shares dipped with the Nasdaq tech crash but are recovering. Their recent high was $55 and shares closed at $53.50 today. Options are inexpensive.

Update 7/5/17: Payment processor, Vantiv, offered $10 billion to buy London based Worldpay. That immediately boosted Paypal and Square on thoughts there may be other combinations in the future. Paypal has a market cap of $66 billion and Square $5 billion so Paypal is not likely a potential target but they could benefit from acquiring a smaller player.

Update 7/12/17: PayPal announced a partnership with Apple to use PayPal in the iTunes App Store. This will let users with Paypal accounts buy songs, movies, etc from iTunes. This is a good deal for both companies.

Update 7/13/17: Analyst at Monness, Crespi, Hardt published a note saying PayPal was his "top pick" for 2017. Shares rallied $1.35 to a new high.

Position 6/22/17:

Closed 7/24/17: Long August $55 call @ $1.58, exit $4.11, +$2.53 gain.


THO - Thor Industries - Company Profile

Comments:

No specific news. Decent gain today despite the Dow decline.

Original Trade Description: July 15th.

Thor Industries, Inc., through its subsidiaries, designs, manufactures, and sells recreational vehicles, and related parts and accessories primarily in the United States and Canada. It operates through Towable Recreational Vehicles and Motorized Recreational Vehicles segments. The company offers travel trailers under the Airstream International, Classic Limited, Sport, Flying Cloud, Land Yacht, and Eddie Bauer trade names, as well as Interstate and Autobahn Class B motorhomes; gasoline and diesel Class A and Class C motorhomes under the Four Winds, Hurricane, Chateau, Challenger, Tuscany, Axis, Vegas, Palazzo, Synergy, Quantum, Compass, Gemini, A.C.E, Alante, Precept, Greyhawk, and Redhawk trade names; and fifth wheels under the Redwood and DRV Mobile Suites trade names. It also provides conventional travel trailers and fifth wheels under the Montana, Springdale, Hideout, Sprinter, Outback, Laredo, Alpine, Bullet, Fuzion, Raptor, Passport, Cougar, Coleman, Kodiak, Aspen Trail, Voltage, Cameo, Cruiser, ReZerve, Sunset Trail, Zinger, Landmark, Bighorn, Sundance, Elkridge, Trail Runner, North Trail, Cyclone, Torque, Prowler, Wilderness, Shadow Cruiser, Fun Finder, Stryker, Sportsmen, Spree, Venom, Durango, SportTrek, Connect, Sportster, Sonic, Jay Flight, Jay Feather, Eagle, Pinnacle, Seismic, AR-One, Launch, Autumn Ridge, Travel Star, Highlander, Roamer, and Open Range trade names. In addition, the company offers equestrian recreational vehicle products with living quarters under the Premiere, Silverado, Ranger, Laredo, Trail Boss, and Trail Hand trade names; lightweight travel trailers and specialty products under the Camplite and Quicksilver trade names; and Class A motorhomes under the Insignia, Aspire, Anthem, and Cornerstone trade names, as well as provides aluminum extrusions and specialized component products. Company description from FinViz.com

In a weak economy, Thor is kicking butt. The company reported earnings of $2.11 which rose 41.6% compared to estimates for $1.87. Revenue of $2.02 billion rose 57% beat estimates for $1.96 billion. Operating cash flow rose 26.2% and gross profits rose 45.5%.

Sales of towable travel trailers rose 52.6% and sales of motorized RVs rose 78.7%. There was no bad news in the Thor report.

Estimated earnings date September 4th.

With the company posting record earnings the stock spiked from $94 to $104 on June 6th. When the market dipped, shares only pulled back to $102. In late June they rebounded to $110. During the market volatility over the last three weeks they dipped back to $102 and found support there once again. Now that the market has turned positive shares are rebounding.

I am using the September strike because of the September earnings date. We will exit well before then but that date will keep the premiums inflated.

Position 7/17/17:

Long Sept $110 call @ $3.00, see portfolio graphic for stop loss.


VIX - Volatility Index - Index Profile

Comments:

After a minor lift at the open, the VIX trended lower in the afternoon despite the Dow and S&P in negative territory. The 9.43 closing low was the 8th consecutive day under 10. This is extremely abnormal.

Original Trade Description: July 12th.

The CBOE Volatility Index (VIX Index) is a key measure of market expectations of near-term volatility conveyed by S&P 500 stock index option prices. Since its introduction in 1993, the VIX Index has been considered by many to be the world's premier barometer of investor sentiment and market volatility. Several investors expressed interest in trading instruments related to the market's expectation of future volatility, and so VX futures were introduced in 2004, and VIX options were introduced in 2006.

The VIX closed at a 24-year low on July 14th at 9.51. The index has been spending a lot of time under 10 over the last three months and this is highly abnormal. The VIX typically trades up to 20 or more three times a year or more. That has not happen since the days before the election. This period of abnormal volatility WILL eventually end.

With the Trump administration getting more desperate to achieve some legislative goals there is always the risk they will go to extremes to get them accomplished. Add in the unknown but rapidly expanding Russian probes and anything is possible. We saw the Dow fall triple digits intraday on just the release of 5 emails from Trump Jr. If the probe actually uncovered something material, it could cause a major market meltdown.

The debt ceiling and the budget expire on Sept 31st. If Congress cannot get a budget passed and raise the debt ceiling, the government would shut down on October 1st. We have seen this before. The last time it happened the U.S. lost its AAA credit rating and the market declined sharply for more than a week.

What about North Korea? Military force could be used at any time but North Korea seems dead set on testing another nuke and expanding its ICBM tests. If fighting breaks out between the U.S. and North Korea it would cause a significant market decline because of the geopolitical concerns and the potential loss of life in Seoul, South Korea.

Even if none of those events occurred, there is always the risk of a 10% market decline just because we have not had one in a very long time. With August and September the worst months of the year for the market, the potential for a correction this year could be higher than normal. The Nasdaq is already up 18% and the Dow 9% for the year. The FAANG stocks are at record highs, which many say are unsupported by fundamentals.

There are so many potential opportunities for a market disaster. It only makes sense to take out some protection while the volatility is at record lows. I am recommending a November call to get us past the Aug/Sep period and the potential for a debt ceiling event in early October.

Position 7/20/17:

Long Nov $15 call @ $1.85, no stop loss. Target $22 to exit.



BEARISH Play Updates (Alpha by Symbol)

HOG - Harley-Davidson - Company Profile

Comments:

No specific news. Shares rebounded slightly from the 52-week low close on Friday.

Original Trade Description: July 24th.

Harley-Davidson, Inc. primarily manufactures and sells cruiser and touring motorcycles. The company operates through two segments, Motorcycles & Related Products, and Financial Services. The Motorcycles & Related Products segment designs, manufactures, and sells wholesale on-road Harley-Davidson motorcycles, as well as motorcycle parts, accessories, general merchandise, and related services. It offers motorcycle parts and accessories, such as replacement parts, and mechanical and cosmetic accessories; general merchandise, including MotorClothes apparel and riding gears; and various services to its independent dealers comprising motorcycle services, business management training programs, and customized dealer software packages. This segment also licenses the Harley-Davidson name and other trademarks. It sells its products to retail customers through a network of independent dealers, as well as ecommerce channels in the United States, Canada, Latin America, Europe, the Middle East, Africa, and the Asia-Pacific. The Financial Services segment provides wholesale and retail financing services; and insurance and insurance-related programs primarily to Harley-Davidson dealers and retail customers in the United States and Canada. This segment offers wholesale financial services, such as floorplan and open account financing of motorcycles, and motorcycle parts and accessories; and retail financing services, including installment lending for the purchase of new and used Harley-Davidson motorcycles. It also operates as an agent providing point-of-sale protection products, including motorcycle insurance, extended service contracts, credit protection, and motorcycle maintenance protection. Harley-Davidson, Inc. was founded in 1903 and is based in Milwaukee, Wisconsin. Company description from FinViz.com.

A week ago, they reported earnings of $1.48 compared to estimates for $1.38. Revenue of $1.77 billion also beat estimates for 1.59 billion. That was the good news. The bad news was a 6.7% drop in motorcycle sales, with a 9.3% decline in the USA. They warned they only expected to ship 241,000 to 249,000 for the full year, down 6% to 8% from 2016 .Prior guidance was for flat sales to 1% lower. For Q3 they only expect to ship 39,000 to 44,000 units, down 10% to 20% from Q3-2016.

Finding consumers who can afford a new bike and finding financing is getting tough. The major banks are pulling back from auto and motorcycle loans because of the rising defaults. The situation for Harley is not going to improve this year.

Expected earnings Oct 17th.

Friday's close was a 52-week low.

Position 7/24/17:

Long Nov $45 put @ $1.80, initial stop loss $50.65.


ROST - Ross Stores - Company Profile

Comments:

No specific news. Shares collapsed as support at $54 failed. The next support level is $52 and below could be a long drop.

Original Trade Description: July 11th.

Ross Stores, Inc., together with its subsidiaries, operates off-price retail apparel and home fashion stores under the Ross Dress for Less and dd's DISCOUNTS brand names in the United States. It primarily offers apparel, accessories, footwear, and home fashions. The company's Ross Dress for Less stores sell its products at savings of 20% to 60% off department and specialty store regular prices primarily to middle income households; and dd's DISCOUNTS stores sell its products at savings of 20% to 70% off moderate department and discount store regular prices to customers from households with moderate income. As of March 6, 2017, it operated 1,363 Ross Dress for Less stores in 37 states, the District of Columbia, and Guam; and 198 dd's DISCOUNTS stores in 15 states. Company description from FinViz.com.

Expected earnings August 17th.

They reported Q1 earnings of 82 cents compared to estimates for 79 cents. Revenue of $3.31 billion beat estimates for $4.27 billion. Same store sales rose 3%. Operating margins shrank. The company is planning on operating 90 stores in 2017.

Unfortunately, they guided for the full year for earnings of $3.07 to $3.17 and analysts were expecting $3.15 at the midpoint. The guidance from Ross also includes an extra week in 2017 over 2016 and that means it is even weaker than it seems.

They guided for same store sales of 1-2% and well below the 3% in Q1. They also guided for margins to contract again from 15.2% in Q1 to 13.9%-14.1%. A week later regulators posted criminal charges against a California man that generated $8.2 million in profits on insider trading in Ross shares. The insider was not named. Shares rolled over and are still falling. Three analysts have cut their estimates for Ross since the earnings.

With the retail sector getting hit every day by some store closure notice or analyst downgrade, Ross could continue falling until their earnings report.

Update 7/14/17: Telsey Advisory Group upgraded Ross from market perform to outperform with a $70 price target. Shares spiked $1.60 at the open to stop us out but then gave back all but 34 cents. I am recommending we reload this position using the same option/strike.

Update 7/17/17: The company said they opened 28 new stores in June/July as part of their plans to open 90 stores in 2017. The company currently has 1,384 locations and are planning on 2,500 in the years ahead. That is a lot of additional overhead in a declining retail market.

Position 7/17/17:

Long August $52.50 put @ $.80, see portfolio graphic for stop loss.

Previously closed 7/14: Long August $52.50 put @ $1.04, exit .65, -.39 loss.




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