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Newsletter

Daily Newsletter, Tuesday, 8/1/2017

Table of Contents

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

Market Wrap

Dead Stop at 22,000

by Jim Brown

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The Dow gapped open to 21,988 but could not move higher as traders hit the sell button.

Market Statistics

The Dow sold off immediately from that first attempt at 22,000 but tried again at 11:AM and again at noon. Both attempts stopped just under that round number resistance. After the initial morning volatility, the Dow traded in a narrow 50-point range the rest of the day. Apple gained $9 in afterhours and that would add about 50 points to the Dow if the gains hold overnight. That would lift the Dow over 22,000 based on the 21,960 close but I really doubt we will see a breakout. The likely scenario would be an opening touch of that level and then a fade as traders sell the news.


There was a heavy economic calendar this morning but none of it impacted the market. The CoreLogic Home Price Index for June rose from 6.6% to 6.7% as the gain over June 2016. The surplus of home price reports means they are all ignored.

Construction spending for June declined -1.3% compared to zero in May and analyst estimates for a +0.8% gain. Public construction spending fell -5.4%. Private construction spending fell -0.1%. Residential spending fell -0.2% and removing home improvement spending drops that to -0.3%. To put this in perspective U.S. construction spending was still $1.21 trillion with private construction at $940.7 billion. Highway spending fell -6.6% and spending on educational buildings fell -5.5%.

The ISM Manufacturing Index for July fell from 57.8 to 56.3. Analysts expected 56.5. The average for 2017 is 56.4 so we are right in the range. New orders declined from 63.5 to 60.4 and order backlogs declined from 57.0 to 55.0. Production slipped from 62.4 to 60.6 and employment fell from 57.2 to 55.2. Analysts fear a slowdown in auto manufacturing over the next several months will drag on the ISM and the GDP. Manufacturers are expected to extend the down time as they retool for the new model year. This is typically how they deal with excess inventory. Plants will remain closed after the retooling until inventories deplete.


Annualized auto sales for July were 16.8 million compared to the 16.7 million in June. This was the fifth month in this range and represents a plateau of sorts. Light truck sales fell from 10.72 million to 10.55 million and -1.6% lower than year ago levels. This is the first time that has happened since 2011. Auto sales rose from 5.98 million to 6.21 million but that was 12.5% lower than June 2016 and the lowest level since 2011. The average selling time for a new car/truck at a dealer was 76 days and the longest since 2009. Incentive spending/discounts averaged $3,900 per vehicle. According to JD Powers, that was a record for July.

For months, I have been writing about the declining credit availability for auto loans. Banks are seeing 3% delinquencies on existing loans and the highest since 2011. Some banks are no longer doing auto loans and the Fed has mentioned this credit tightening in recent months.

Personal income was flat in June and the lowest since November. Analysts expected a 0.4% rise. If rental income had not risen +0.6% the headline number would have been negative. Obviously, the vast majority of workers do not have rental income. Employee compensation rose +0.4% but proprietors income declined -0.1% and income on assets fell -1.8%. May's total personal income rose $53.2 billion but June income declined -$3.5 billion.

Personal spending was also flat after a +0.2% rise in May. Durable goods spending declined -0.1%, motor vehicles and parts -0.8%, household furnishings -0.1% and recreational spending -0.1%. Spending on clothing rose 0.7% and gasoline +1.2%.

Analysts believe the tight labor market is going to cause wages to rise along with spending but the increases are slow to appear. Rising wages will pull disenchanted workers back into the job market and their spending will increase significantly.

The PCE Deflator derived from those reports above, was flat at zero inflation for June. This came after a -0.1% decline in May. With zero inflation for the last two months, the Fed is going to struggle to justify another rate hike unless there is a dramatic change in inflation soon. The Fed continues to claim the low inflation is "transitory" but their time frame for rising inflation has now lengthened to "the next several years." That sounds more like wishful thinking than actual data.

Tomorrow we see the ADP Employment for July. The expectation is for a gain of 186,000 jobs. ADP estimates have been much higher than the real numbers over the last several months. Let's hope analysts got it right this time.

The Nonfarm Payrolls on Friday are expected to show a gain of 182,000 jobs, down from 222,000 in June. The nonfarm estimates have been low for the last several months.

The numbers are not going to matter unless there is a very large miss in either direction. The Fed is on hold until December so other than some minor volatility, the numbers will be ignored.


The calendar that matters is the earnings calendar. Tesla reports on Wednesday after the close with Yum and Activision Blizzard on Thursday. After this week is over more than 425 of the S&P 500 companies will have reported and the pace of the remaining reports will decline significantly.


The 800-pound gorilla that will determine Wednesday's market direction reported earnings after the close. Apple reported earnings of $1.67 ($8.72 billion) compared to estimates for $1.57. Revenue of $45.41 billion beat estimates for $44.71 billion. They guided for the current quarter to revenue of $49-$52 billion. Analysts were expecting $49.15 billion. Apple sold 41.03 million iPhones compared to estimates for 40.7 million. For Q2-2016 they sold 40.4 million. CEO Tim Cook had previously said Q2 might be a little sluggish as people waited for the iPhone Pro/8 to be announced.

The guidance seems to indicate that there will be an announcement in September. It is a good guess that the iPhone 7 and 7s Plus will be updated in September with the SE seeing a possible update in August. The guidance did not lend any credibility to a potential manufacturing delay in the Pro/8 but they also did not put the fears to rest.

Apple also sold 11.42 million iPads compared to estimates for 9.03 million. They shipped 4.29 million Macs and missed estimates for 4.33 million.

If Apple can hold the gains through the open on Wednesday, they could power the Dow to touch 22,000. Whether the Dow will hold that level is another question.


Under Armour (UA) reported earnings before the bell and it was not pretty. The company reported a loss of 3 cents compared to estimates for a 6-cent loss. Revenue of $1.09 billion rose 8.7% beat estimates for $1.08 billion. They guided for earnings of 37-40 cents for the full year, which was lower than the 42-cent estimate. They guided for revenue growth of 9-11% compared to prior guidance of 11% to 12%.

The company said it was launching a restructuring plan and would close facilities, existing leases and cut jobs. They will take a full year charge of $110-$130 million. They have already closed 33 factory outlets and 23 UA stores in the last 12 months.

Footwear sales declined -2.4% compared to the 40% growth in Q2-2016. This chart from Quartz, shows the progression of footwear revenue over the last 13 quarters. Sales are plunging and so is the stock price.


Shares of UA fell -10.4% to a historic low. The declines are likely to continue.


Lumber Liquidators (LL) rocketed higher after posting earnings of 16 cents that beat estimates for 8 cents. That reversed a 45 cent loss in the year ago quarter. Revenue rose 11% to $253.5 million and beat estimates for $256 million. Shares rose 36% on the news. This was the best quarter since the scandal over the Chinese flooring.


Shopify (SHOP) reported a loss of 1 cent that easily beat estimates for a 6-cent loss. Revenue rose 75% to $151.66 million and beat estimates for $143 million. The company said a record number of retailers joined the platform and more than 500,000 retailers in 175 countries now used the service. Cash on hand rose from just under $500 million in March to more than $932 million. More than 131 million people have purchased from a Shopify store in the last 12 months. Shares rallied 13% on the news.


Xerox (XRX) reported earnings of 87 cents compared to estimates for 80 cents. Revenue of $2.57 billion missed estimates for $2.62 billion. The company guided for full year earnings of $3.20-$3.44 compared to estimates for $3.32. Xerox completed a 1:4 reverse split in June.


Snap Inc (SNAP) will not be eligible for inclusion into the S&P-500 and Russell indexes because of new rules requiring voting rights for shareholders and prohibiting companies with multiple share classes. This will not impact existing companies including Google, Berkshire Hathaway. The Russell indexes passed a rule last week requiring unaffiliated investors to have at least 5% voting rights in order to be in a Russell index. The S&P indexes followed suit with the multiple share class restriction. Existing companies with multiple classes are grandfathered under the new rule.

The SNAP IPO gave investors in their multiple share classes little to no voting rights. The two founders retained 88.6% of the voting rights. Alphabet (GOOGL-GOOG) started the craze in 2014 when they did a 2:1 split where the new shares had no voting rights in order to protect the founders from being diluted. When Facebook went public, Zuckerberg retained the preferred shares with 10 votes each while regular shareholders only received 1 vote.

The SNAP lockup expiration has begun with 400 million new shares available to trade. On August 14th another 782 million shares will be free to trade. Shares closed at a new low on Tuesday.


After the bell AMC Entertainment (AMC) shares fell -25% to $15.70 after the company warned it expected to report a loss of $1.34-$1.36 per share for the quarter. That compares to earnings of 24 cents in the year ago quarter. The big hit will come from a $202.6 million impairment charge on its investment in National CineMedia LLC. The results also include a 4.4% decline in the U.S. box office results. The company also warned of "lower estimates for a very challenging third quarter." They plan on raising an additional $30 million through higher prices, promotions and adjustments to operating hours and staffing levels. They recently completed the $1.2 billion acquisition of Carmike Cinemas. They will report earnings on August 7th.


Oil prices fell more than 2% after a Bloomberg News survey showed that OPEC production rose another 210,000 bpd in July after a 393,000 bpd increase in June. We also learned that compliance with the 1.8 mmbpd production cut enacted in January by OPEC and non-OPEC producers, fell from 90% to 78% in July. That is the lowest compliance for the year. To do the math for you, that means they only cut 1.4 mmbpd in July or 400,000 bpd less than their promise.

After the bell today, the API inventory report for last week showed a surprise rise of 1.779 million barrels compared to expectations for a -2.8 million barrel decline. If the EIA report on Wednesday shows an increase as well, we could be headed back to $45 oil.




Markets

The S&P posted the biggest gain in a week at +6 points but it failed to retest resistance at 2,485. The index traded in a very narrow 7-point range and all the gains came at the open. There was some morning volatility but that ended at noon and the range shrank to 2 points for the rest of the day. This is NOT a bullish sign. Obviously, everyone was waiting for Apple to report before putting new money to work. Unfortunately, the S&P futures are only up 2 points in afterhours. Now that the excitement is over, does that mean the sellers will appear? Only time will tell.


The Dow "should" be on track to touch 22,000 on Wednesday. However, even with Apple's big $9 afterhours gain, the Dow futures are only up 42 points. Immediately after the Apple spike the futures rose to 22,025 but they have since declined to 21,948. That does not suggest Apple is going to push the index over that 22,000 level but there is still a lot of darkness before the market opens. Anything is possible.

Personally, I would not be surprised to see the 22,000 level touched but then get hit by a sell the news event. These big round number targets act as magnets but once touched they can reverse polarity and repel the index just as quickly.



The Nasdaq only gained 15 points today despite being well off its highs and posting three days of declines. This was a very lackluster session but obviously, everyone was waiting for Apple. Now that Apple has reported, investors are free to place bets in the direction of their choice. The Nasdaq futures are up +44 points and the majority of that is Apple's 9 point gain. If the Nasdaq rolls over and breaks support at 6,335 it could be a long drop. Conversely, if Apple's gains energize the sector there is very strong resistance at 6,400 and 6,460.



The small cap Russell 2000 posted a gain but it was also lackluster. The index barely moved over the critical 1,425 level and it definitely was not a bullish bounce.


With the futures well off their highs, I am concerned we could get a sell the news event on Wednesday. I would be happy if I am wrong but the market feels heavy despite the broad gains on Tuesday. Volume was only moderate at 6.3 billion shares and now that Apple has reported, the earnings excitement will fade along with the volume.

There is no reason to rush into the market. There is always another day to trade if you have capital in your account. Retail traders normally turn bullish right at the top in the market and exactly at the wrong time. Be patient. Let's see what Wednesday brings.

Enter passively, exit aggressively!

Jim Brown

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New Option Plays

Futures Falling

by Jim Brown

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Editors Note:

The futures spiked immediately after the Apple earnings and $9 gain. The Dow futures spiked to 22,025 and everyone thought Wednesday was going to be a breakout day. In the hours after the evening session closed the Dow futures have declined to 21,945 and are slowly bleeding points. The S&P futures have decline to only +1.50 and the Russell futures are down -1.00. The Nasdaq futures are holding at +42 and that is purely based on the $9 Apple afterhours gain.

There is a good chance we could see a spike at the open on Wednesday and then a sell the news event. I am recommending we wait and watch on Wednesday and see what happens.



NEW DIRECTIONAL CALL PLAYS

No New Bullish Plays


NEW DIRECTIONAL PUT PLAYS

No New Bearish Plays



In Play Updates and Reviews

Gap Higher Held

by Jim Brown

Click here to email Jim Brown

Editors Note:

The Dow gapped open to 21,988 and held those gains most of the day. However, the round number resistance at 22,000 kept the index from advancing. After the gap higher the Dow traded in a very narrow 50 point range the rest of the day.

Apple beat on earnings and gained $7 in afterhours. That would add roughly 50 Dow points at the open if the gains stick overnight.

End of month retirement cash flows should support the indexes for the next day or two with the normal August volatility not expected until the second week of August.



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


FTNT - Fortinet
The long put position was entered at the open.



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Credit spreads and naked puts = OptionWriter

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Long and short equity trades = Premier Investor



BULLISH Play Updates

COST - Costco - Company Profile

Comments:

Shares continued to post gains after Guggenheim said July same store sales, expected out on Wednesday, could be strong and provide a stabilizing influence on the stock.

It was announced after the close that founder and Chairman, Jeff Brotman had died. He cofounded Costco with Jim Sinegal in 1983. He has been Chairman since 1994. Shares declined about 75 cents in afterhours.

Original Trade Description: July 26th.

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 shares were knocked for a $32 loss on the news that Amazon was buying Whole Foods. There was panic that Amazon was getting into the grocery business and would decimate the sector. Nothing could be further from the truth. Even if it was it would cause the most trouble for chains like Kroger, Safeway, Sprouts Farmers Market, etc.

If the acquisition goes through, and there is growing doubt, I do not foresee Whole Foods selling big screen TVs, winter parkas, cameras, caskets, cruises or ketchup and toilet paper by the case. The two stores are not compatible.

Furthermore, 45% of Costco members are already Amazon Prime members we as well based on a Morgan Stanley survey. Members of both services are looking for deals.

Costco makes the majority of its money from memberships (75%) and very little margin on its products. Amazon and Whole Foods are not going to undercut Costco on prices. Costco had 48.3 million members at the end of last quarter, up from 47.9 million. There were 37.4 Gold Star members and 18.3 million executive memberships. Total cardholders rose from 88.1 million to 88.9 million. Whole Foods has 350 stores and only about 12 million estimated repeat shoppers.

Did you know that Costco sells its products on Amazon. Costco's private label brand, "Kirkland" makes up about 20% of Costco's sales in the stores and those same products are available on Amazon. Actually, sales of the Kirkland products on Amazon are higher than in the stores.

Earnings August 24th.

Costco shares are starting to recover from the decline. Shares appear to have bottomed at support at $1.50. I expect them to rise as we get closer to earnings. Any remaining shorts will not want to hold over an earnings report that is likely to be strong. It the market decides to weaken in August, Costco is insurance since it has already sold off. Investors will be looking to buy the beaten down stocks as a safety play.

Update 7/28/17: WR Baird reiterated an outperform rating with a $200 price target. They see the 15% decline a major buying opportunity and expect revenue to grow 4% to 5% in the current quarter. They see Costco as the leader in the retail sector.

Position 7/27/17:

Long Sept $155 Call @ $2.40, see portfolio graphic for stop loss.


VIX - Volatility Index - Index Profile

Comments:

The VIX declined only slightly despite the broad rally across all markets. There appears to be some fear underlying the market.

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)

DIA - Dow ETF - ETF Profile

Comments:

The Dow posted another positive close thanks to gains in 3M. Goldman and Chevron. Dow stalled just under 22,000 and faded into the close and Apple earnings. Apple shares rose $7 in afterhours and that would be 49 Dow points if it holds overnight.

Original Trade Description: July 27th.

The SPDR Dow Jones Industrial Average ETF Trust seeks to provide investment results that, before expenses, correspond generally to the price and yield performance of the Dow Jones Industrial Average (the "Index"). The Dow Jones Industrial Average (DJIA) is composed of 30 "blue-chip" U.S. stocks. The DJIA is the oldest continuous barometer of the U.S. stock market, and the most widely quoted indicator of U.S. stock market activity. The DJIA is a price-weighted index of 30 component common stocks.

The Dow closed at a new high in an ugly market solely because of big gains in Boeing, Disney and Verizon. If the rest of the market continues lower, the Dow will eventually crater as well. I am recommending we enter a put position on the Dow ETF at the current high.

Position 7/28/17:

Long Oct $215 put @ $3.33, see portfolio graphic for stop loss.
Short Oct $205 put @ $1.29, see portfolio graphic for stop loss.
Net debit $2.04.


FTNT - Fortinet - ETF Profile

Comments:

No specific news. Shares declined slightly in a bullish market to break initial support.

Original Trade Description: July 29th.

Fortinet, Inc. provides cybersecurity solutions for enterprises, service providers, and government organizations worldwide. The company offers FortiGate physical and software licenses that provide various security and networking functions, including firewall, intrusion prevention, anti-malware, virtual private network, application control, Web filtering, anti-spam, and wide area network acceleration; FortiManager product family to provide a central management solution for FortiGate products comprising software updates, configuration, policy settings, and security updates; and the FortiAnalyzer product family, which offers a single point of network log data collection. It also provides FortiAP secure wireless access points; FortiWeb, a Web application firewall; FortiMail email security; FortiDB database security appliances; FortiClient, an endpoint security software; and FortiSwitch secure switch connectivity products. In addition, the company provides FortiSandbox advanced threat protection solutions; FortiDDos and FortiDB database security appliances; and FortiSIEM family of products to provide a cloud-ready security information and event management (SIEM) solution for enterprises and service providers. Further, it offers security subscription, technical support, training, and professional services.Company description from FinViz.com.

Expected earnings October 25th.

The company reported Q2 earnings of 14 cents that beat estimates for 8 cents. Revenue of $363.5 million also beat estimates for $361 million. All the normal metrics were good to great but their guidance failed to impress. Full year guidance was higher but Q3 guidance disappointed.

They guided for revenues in the $367-$373 million range and analysts were expecting $372 million. Earnings guidance for 22 cents matched estimates. Investors normally do not want a match, they want a raise. The lower level on the revenues is also a caution. Shares fell $3 over the last three days and are right on the verge of breaking through support.

The entire cybersecurity sector has been weak despite the recent attacks. This is another weight on FTNT.

Position 8/1/17:

Long Sept $36 put @ $.90, see portfolio graphic for stop loss.


IBM - International Business Machines - ETF Profile

Comments:

No specific news. Shares posted another minor gain thanks to the rally in the Dow.

Original Trade Description: July 29th.

International Business Machines Corporation provides information technology (IT) products and services worldwide. Its Cognitive Solutions segment includes Watson, a cognitive computing platform that interacts in natural language, processes big data, and learns from interactions with people and computers. The company's Cognitive Solutions segment also offers data and analytics solutions, including analytics and data management platforms, cloud data services, enterprise social software, talent management solutions, and solutions tailored by industry; and transaction processing software that runs mission-critical systems in banking, airlines, and retail industries. The company's Global Business Services segment offers business consulting services; delivers system integration, application management, maintenance, and support services for packaged software applications; and business process outsourcing services. Its Technology Services & Cloud Platforms segment provides cloud, project-based, outsourcing, and other managed services for enterprise IT infrastructure environments. This segment also offers technical support, and software and solution support; and integration software solutions. The company's Systems segment offers servers for businesses, cloud service providers, and scientific computing organizations; data storage products and solutions; and z/OS, an enterprise operating system for z systems. It has a strategic collaboration with ABB Ltd to develop industrial artificial intelligence solutions. The company was formerly known as Computing-Tabulating-Recording Co. and changed its name to International Business Machines Corporation in 1924. Company description from FinViz.com.

Expected earnings October 17th.

IBM reported revenue of $19.29 billion, down -5% annually and the 21st consecutive quarterly decline. Analysts were expecting $19.49 billion and that was already on the low side. Earnings were $2.97 and beat estimates for $2.74 thanks to a lower tax rate of 9.2%. Full year guidance was reiterated for "at least" $13.80. Several years ago, they made a big deal out of forecasting $20 a year in earnings. That is not likely to happen in this decade. All five of IBM's reporting segments posted revenue declines.

The problem with IBM is the lack of a light at the end of the tunnel. There is no way out of this problem without major changes which could include splitting the company up or going on an acquisition spree. Shares hit $182.50 in February but hopes have now been dashed twice with Q1 and Q2 earnings. The outlook is dim.

If the market were to roll over and the Dow decline materially, IBM would be a leader in that decline. It has been losing ground even when the Dow is setting new highs.

With earnings Oct 17th we can use the Oct options which expire on the 20th. They should hold their premium well.

Position 7/31/17:

Long Oct $140 put @ $3.10, see portfolio graphic for stop loss.


SPY - S&P-500 ETF - ETF Profile

Comments:

End of month retirement cash inflows lifted the indexes again but the S&P only posted a minor gain of 6 points. Apple's earnings will determine the Dow direction on Wednesday.

Original Trade Description: July 24th.

• The SPDR S&P 500 ETF Trust seeks to provide investment results that, before expenses, correspond generally to the price and yield performance of the S&P 500 Index (the "Index") The S&P 500 Index is a diversified large cap U.S. index that holds companies across all eleven GICS sectors.

The S&P is marching slowly towards a date with destiny and 2,500. Since the median estimate by the top 16 analysts was a 2,450 yearend price target on the S&P, the arrival at 2,500 could be a tripwire that triggers an August correction. We have not had a 5% drop in a year and it has been 9 months since a 3.5% decline. With earnings rapidly playing out and most of the high profile companies will finish reporting by next Wednesday, I am going to recommend a bearish position for August/September.

I am going to set an entry trigger for a SPY put with the S&P at 2,495. Since aggressive traders normally want to anticipate a particular number, I want to enter the position just before we reach that level.

Update 7/26/17: The Dow was up +100 points, Nasdaq +10, Nasdaq 100 +20 and the S&P only gained 70 cents. The Russell 2000 lost -6 and the S&P-400 lost -15. We may not get to that 2,495 level. I am going to add another trigger/strike in case we get a failure from this level.

Position 7/27/17 with a S&P trade at 2,465:

Long Oct $243 put @ $3.65, see portfolio graphic for stop loss.




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