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Daily Newsletter, Tuesday, 8/15/2017

Table of Contents

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

Market Wrap

Retail Train Wreck

by Jim Brown

Click here to email Jim Brown

The S&P futures were up sharply before Home Depot released its earnings. It was all downhill from there.

Market Statistics

Home Depot beat on earnings and revenue and raised guidance but the stock was knocked for a $4 loss to erase 28 Dow points. Adding to the retail disaster was Advanced Auto Parts, Coach and Dick's Sporting Goods. It was a cross section of retailers and the entire sector crashed, even stocks that were not even remotely related to those specific retail categories. G-III Apparel (GIII) fell -9% on no news. They just happened to be in the wrong sector.


The economic reports were positive across the board. The NY Empire Manufacturing Survey for August rose from 9.8 to 25.2 and well over the 10.0 consensus. That is the strongest reading since September 2014. New orders rose 7.3 points to 20.6 and a five-month high. Backorders were still a drag at -4.7 after an identical reading in July. Employment rose slightly from 3.9 to 6.2.


Retail sales for July rose +0.6% after a revised 0.3% rise in June. Previously the June number showed a decline of -0.2%. Strength was broad based with nonstore retailers seeing a 1.3% rise and motor vehicles and parts a 1.2% rise. Building materials were up 1.2%, food and beverages +0.4%, sporting goods +0.3% and food service and bars +0.3%. The decliners were electronics and appliances -0.5%, gasoline stations -0.4% and clothing -0.2%. This was good news but it was ignored because of the retail earnings disaster in progress.

The NAHB Housing Market Index rose from 64 to 68 with buyer traffic component edging up slightly from 48 to 49. The component for current single-family sales rose from 70 to 74 and the six-month outlook rose from 73 to 78. Despite the high prices for homes, there are still a lot of buyers.

Low mortgage rates and strong employment are the main drivers. Builders are having trouble keeping up with demand because they do not want to end up with a lot of excess inventory if the trend changes. They are managing their production, which is smart because that allows prices and profits to rise.


Business inventories rose 0.5% in June after a 0.3% rise in May. Analysts were expecting 0.4%. Because the report is lagging for the June period, it was ignored.

Import and export prices rose +0.1% in July after a -0.2% decline in June. The gain matched estimates. This was the first gain in 3 months and second in five months. Transportation fuels rose 0.5% after a -2.6% decline in June. This was due to a 2.5% rise in prices for imported oil. The report was ignored.

After the bell, the API Crude Inventories were released and showed a decline of -3.6 million barrels for the week ended on the 11th. Gasoline inventories rose 301,000 compared to expectations for a decline of -1.5 million.

Oil prices declined for the day because OPEC production rose 172,600 bpd in July. Total daily production rose from 32.696 mmbpd to 32.869 mmbpd. If the EIA numbers on Wednesday show a big decline we could see prices rise slightly. Libya reported some of their production was offline due to worker stoppages. That should help the overall glut if it last for several weeks.


The calendar for Wednesday is headlined by the FOMC minutes at 2:PM. Analysts will be combing over them with a fine toothcomb looking for clues about potential actions at the September meeting. Quantitative tapering is sure to be mentioned.


Dow component Cisco Systems reports after the close and Wal-Mart reports before the open on Thursday. That suggests there could be some Dow volatility on Thursday. Alibaba also reports before the open on Thursday and that report is already generating a lot of buzz.


Alibaba is growing faster than Amazon. Alibaba ships an average of 12 million packages a day compared to Amazon's 3 million. China has 143 cities with a population of more than 10 million and the U.S. only has 10 cities. Those stats came from David Seaburg at Cowen & Co. Twice in the last months I have tried to initiate a position on Alibaba and both times, I was stopped out on the dips below $150. I seriously considered adding another one tonight to hold over earnings but the premiums are too expensive and the risk too great. Alibaba traded more than 150,000 option contracts per day.


The biggest hit to the market came from Home Depot even though they beat on earnings, revenue and guidance. The company reported earnings of $2.25 compared to estimates for $2.22. Record revenue of $28.11 billion beat estimates for $27.83 billion. Same store sales rose 6.3% and easily beating estimates for 6.3%. They guided for full year revenues to rise 5.3% and earnings growth to rise 13% to $7.29. Back in May, they raised guidance for an 11% earnings increase to $7.15. The company is also in the middle of a $7 billion share buyback program. Home Depot is regarded as Amazon proof because you can't order plywood, concrete and roofing materials and have Prime deliver it to your jobsite for free in two days. The number of customer transactions rose 2.7% and the average ticket rose 3.6% to $63.05.

I am seriously confused by the drop in HD shares. Some analysts were warning that the housing boom was going to slow and that would hurt HD sales. Currently there are supply shortages of construction materials and as I mentioned earlier in the NAHB report, builders are actually seeing a rise in sentiment. HD tried to talk down those fears saying spending on home improvement is actually rising. They also said the demand from contractors remained strong.

I would be a buyer of HD on any further decline. Support is $146 and should the market turn negative, we could see that level again.


Advanced Auto Parts (AAP) reported earnings of $1.58 and revenue of $2.26 billion. Analysts were expecting $1.67 and $226 billion. Same store sales were flat. For the same quarter last year, the company reported $1.90 in earnings and $2.26 billion in revenue. Apparently, the earnings juggernaut has lost an axle. They guided for the full year for same store sales to decline 1% to 3%. They also guided for a reduction in operating income of 200 to 300 basis points. Analysts were expecting $6.36 and $9.54 billion. Shares crashed 20% on the news.


Dick's Sporting Goods (DKS) reported earnings of 96 cents compared to estimates for $1.00. Revenue of $2.16 billion missed estimates for $2.17 billion. Same store sales rose +0.1% and missed their own guidance for 2%-3% growth. They guided or full year earnings of $2.80-$3.00 per share and well below estimates for $3.64. The CEO created an investor panic when he said the retail industry is in "panic mode" and currently undergoing the "perfect storm." With more than 6,300 retail store closures already announced in 2017, traditional retailers are struggling to maintain traffic to mall based stores. He said stores are trying to win over customers with "irrational prices" and "unpredictable promotions." He said Dick's was going to be aggressively promotional the rest of the year and double down on their best price guarantee. If anyone is selling it for less they will match those prices.


Coach (COH) reported earnings of 50 cents that beat estimates for 49 cents. Revenue of $1.13 billion missed year ago numbers and estimates for $1.15 billon. Same store sales increased in the "mid single digit range" and beat estimates for 3.6%. So why did they not just say what their SSS were? I do not trust these earnings number games. They guided for next year for earnings growth of 10-12% to $2.35-$2.40 and $5.8-$5.9 billion. Analysts were expecting $5.03 billion and $2.40 on earnings. Shares fell -23% on the questionable numbers.


Urban Outfitters (URBN) bucked the trend when they reported earnings of 44 cents compared to estimates for 37 cents. This report was still significantly below the 66 cents in the year ago quarter. Revenue was $873 million, down from $891 million but neat estimates for $862 million. Same store sales declined -4.9%, because of "negative retail store sales" but offset by online sales. Shares rose $3 in afterhours.




Markets

The major indexes opened the day higher but the selling was immediate. The Dow was up 35 points at the open but declined 67 points intraday before rebounding slightly to close with a 5-point gain. I would say there was a lack of conviction but actually conviction appears to be strong on both sides. Sellers are waiting in volume at the intraday highs but buyers are eagerly jumping into the dips. When the Dow can trade just under its recent high and only move 67 points intraday, the buyers and sellers appear equally matched.

The three big gainers offset the three big losers and traders fought to a draw. Real support is still 21,500 with short term resistance 22,000 and new high resistance at 22,120.



The S&P traded in a very narrow 7-point range and most of that came from the early morning futures spike. Like the Dow it is evenly matched between buyers and sellers. Even the retail implosion at the open failed to push it materially lower. Support is 2,463 and resistance 2,467. That is microscopic for the S&P and suggests any material event that pushes the index one way of another could trigger a directional move.


The Nasdaq Composite has declined from high to low, -247 points and rebounded to recover about half of those points. The FANG stocks mostly decline with the exception of Apple. I am not counting that 25-cent gain on Facebook.

Resistance remains about 6,340 and initial support just over 6,200 followed by 6,100.




The Russell 2000 was the weakest index once again and it is well below the critical support at 1,400. Retail stocks were the main reason the Russell declined but it has been the weakest index for the last couple weeks.


A Bank of America survey out today found that 46% of retail traders believe the market is overvalued. That means any future rally will be powered by the 54% who still believe there is life left.

The S&P futures are flat as I type this so there is no rush to sell overnight. With North Korea reconsidering its plans and saying it is no longer going to fire missile at Guam, the biggest risk for Wednesday is the FOMC minutes.

Even though the buyers and sellers are evenly matched, I am still concerned about the normal Aug/Sep weakness and the political battles in mid September over the budget and debt ceiling. If you can deal with that small of a window then trade away but try to trade in the direction the market is moving. Today there was no direction.

I apologize for the shortness and the lateness of the commentary tonight. The grandkids spent the weekend with us and brought all their grade school bugs with them. I caught an ugly one.

Enter passively, exit aggressively!

Jim Brown

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New Option Plays

No Direction

by Jim Brown

Click here to email Jim Brown

Editors Note:

As we move farther into the normally weak Aug/Sep period there is no market direction. The Dow and S&P traded in very tight ranges on very weak volume of 5.3 billion shares. The market appears to be evenly matched between buyers and sellers but that could change in an instant. There is no reason to add plays when there is no direction.



NEW DIRECTIONAL CALL PLAYS

No New Bullish Plays


NEW DIRECTIONAL PUT PLAYS

No New Bearish Plays



In Play Updates and Reviews

No Follow Through

by Jim Brown

Click here to email Jim Brown

Editors Note:

The futures were up strongly overnight but faded into the open on the Home Depot earnings. Despite strong gains by Boeing and Apple, the Dow barely managed to close positive. There was also a $1 billion buy on close imbalance on the NYSE that failed to lift the index.

The Russell was the biggest loser again and the Nasdaq failed to break through resistance after the majority of the big cap stocks fell into negative territory.

%IMG20%



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


CAH - Cardinal Health
The long put position was entered at the open.



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

Credit spreads and naked puts = OptionWriter

Long term option investments = LEAPS Investor

3-6 month Option Trades = Ultimate Investor

Iron Condors = Couch Potato Trader

Long and short equity trades = Premier Investor



BULLISH Play Updates

AAPL - Apple Inc - Company Profile

Comments:

Apple shares continued to move higher after SEC filings showed Berkshire Hathaway increased its stake to $18.8 billion or 2.3% of the company. David Tepper's Appaloosa Management also said they increased their stake in the company.

Original Trade Description: Aug 12th.

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. Company description from FinViz.com.

Earnings Oct 31st.

We exited a position on Apple just prior to earnings. The report was strong and shares spiked $9 at the open the following day. After 9 days of trading they have been higher and lower but they refuse to give up their gains. Shares were up $2 on Friday when the rest of the big cap market was flat.

The reason Apple may have less risk than the rest of the market is the expected production announcement in September. They are expected to announce 2 new iPhone 7s and the iPhone 8/Pro plus some other upgrades. This is going to be a major product announcement that could propel Apple to $200 over the next six months. We know Apple shares normally ramp into an announcement and then decline shortly thereafter on a sell the news event. We will decide a couple days ahead of the announcement if we want to hold over.

I am using the November strikes because that is after earnings and the options should hold their value more in case of market volatility than an option that expires before earnings. Just because we buy more time does not mean we have to use it. I am recommending a spread because of high option premiums.

Update 8/14/17: BlueFin Research, as reported in Barrons, claims the production ramp for iPhones in Q3 is at record levels with 53 million phones expected. They will be split between the 7s, 7s Plus and the iPhone 8/Pro with the iPhone 8 only 5-6 million of that total. That will change in Q4 to 44 million of the model 8 with 30 million a quarter for the rest of 2018. They did not disclose sources but it is believed they are basing their estimates on the component quantities being shipped to manufacturers.

Aetna (AET) and Apple held talks last week with Aetna wanting to offer the Apple Watch either free or discounted to all 23 million of its members. They currently offer the watch to their 50,000 employees as part of a fitness program.

Another news story said that Google is paying Apple a license fee of up to $3 billion for 2017 to remain the default search engine on Apple devices. That would equate to 5% of Apple's total annual profit and 25% of their earnings growth. That is the largest contributor to the growth in service revenues. Bernstein said Google pays a fee to Apple of 34% of whatever it earns from ads delivered to Apple users. That is huge!

Position 8/14:

Long Nov $160 call @ $8.05, see portfolio graphic for stop loss.
Short Nov $175 call @ $2.72, see portfolio graphic for stop loss.
Net debit $5.33.


MMM - 3M Co - Company Profile

Comments:

The company declared a quarterly dividend of $1.175 per share, payable Sept 12th to holders on Aug 25th. 3M has paid uninterrupted dividends for more than 100 years.

Original Trade Description: Aug 9th.

3M Company operates as a diversified technology company worldwide. The company's Industrial segment offers tapes; coated, non-woven, and bonded abrasives; adhesives; advanced ceramics; sealants; specialty materials; separation and purification products; closure systems for personal hygiene products; acoustic systems products; automotive components; and abrasion-resistant films, and paint finishing and detailing products. Its Safety and Graphics Business segment provides personal protection products, traffic safety and security products, commercial graphics systems, commercial cleaning and protection products, floor matting, roofing granules for asphalt shingles, and fall protection products. The company's Health Care segment offers medical and surgical supplies, skin health and infection prevention products, inhalation and transdermal drug delivery systems, dental and orthodontic products, health information systems, and food safety products. Its Electronics and Energy segment provides optical films; packaging and interconnection devices; insulating and splicing solutions; touch screens and touch monitors; renewable energy component solutions; and infrastructure protection products. The company's Consumer segment offers sponges, scouring pads, high-performance cloths, repositionable notes, indexing systems, home improvement and care products, protective materials, and consumer and office tapes and adhesives. Company description from FinViz.com.

On July 25th, 3M reported earnings of $2.58 that missed estimates for $2.59. Revenue of $7.81 billion missed estimates for $7.88 billion. The company guided for full-year earnings of $8.80-$9.05. Traders were in knee-jerk mode and the stock fell $14 on the news.

The miss was minimal and the company did increase earnings 22.6% for the quarter. They reported organic growth of 3.5% and reaffirmed their full year estimate for 3-5% organic growth. There is nothing wrong with this company.

Expected earnings Oct 24th.

Shares have recovered half of their post earnings losses and the dip over the last couple of days has weakened the option premiums to allow us to enter. Resistance is $212.

Bear in mind that the market is struggling and it would not be a surprise to see further declines in the Dow. Today's rebound from the opening drop was encouraging enough for me to take a chance on 3M because MMM shares have already been hit. They could look like a safe port in the coming storm.

If the market does extend its rebound, 3M could be a Dow leader again.

Position 8/10/17:

Long Oct $210 call @ $2.91, see portfolio graphic for stop loss.


VAR - Varian Medical Systems - Company Profile

Comments:

No specific news. Shares continue to rebound in a weak market.

Original Trade Description: Aug 2nd.

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. Company description from FinViz.com.

Expected earnings October 26th.

On July 26th, Varian reported earnings of $1.04 that beat estimates for 95 cents. Revenue of $662.4 million just barely missed estimates for $663.2 million due in part to currency translation issues. They sell their high dollar imaging systems all over the world.

The guided for the current quarter for earnings of $1.15-$1.23 and analysts were expecting $1.18. This should have been positive but the stock fell $6 because of the minor revenue miss.

If the market is going to be historically weak in August, shares that have already been beaten up will fare better than the rest of the market. I am choosing the $105 strike instead of the $100 strike for reduced cost/risk going into August.

Position 8/3/17:

Long Nov $105 call @ $1.75, see portfolio graphic for stop loss.


VIX - Volatility Index - Index Profile

Comments:

No material decline after the market gave back its opening gains.

Plenty of time with our November option. We still have to get past the budget battle and the debt ceiling fight.

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 $20 to exit.



BEARISH Play Updates (Alpha by Symbol)

CAH - Cardinal Health - Company Profile

Comments:

No specific news. The post earnings decline continued in a weak market.

Original Trade Description: July 29th.

Cardinal Health, Inc. operates as a healthcare services and products company worldwide. The company's Pharmaceutical segment distributes branded and generic pharmaceutical, over-the-counter healthcare, specialty pharmaceutical, and consumer products to retailers, hospitals, and other healthcare providers. It offers distribution, inventory management, data reporting, new product launch support, and contract pricing and chargeback administration services to pharmaceutical manufacturers; pharmacy and medication therapy management, and patient outcomes services to hospitals, other healthcare providers, and payers; consulting, patient support, and other services to pharmaceutical manufacturers and healthcare providers. This segment also operates nuclear pharmacies and cyclotron facilities that manufacture, prepare, and deliver radiopharmaceuticals, as well as operates direct-to-patient specialty pharmacies; offers logistics, marketing, and other services; and repackages generic pharmaceuticals and over-the-counter healthcare products. The company's Medical segment distributes a range of medical, surgical, and laboratory products and services to hospitals, ambulatory surgery centers, clinical laboratories, and other healthcare providers, as well as to patients in the home. This segment also develops, manufactures, and sources medical and surgical products comprising surgical drapes, and gowns and apparel; exam and surgical gloves; fluid suction and collection systems; cardiovascular and endovascular products; and wound care and orthopedic products, as well as assembles and offers sterile and non-sterile procedure kits. In addition, it offers supply chain services, including spend, distribution, and inventory management services to healthcare providers; and post-acute care management, and transition services and software to hospitals, other healthcare providers, and payers. Company description from FinViz.com.

Cardinal reported earnings of $1.31 that beat estimates for $1.24. Revenue of $33.0 billion beat estimates for $32.7 billion. While the company may be winning some market share from McKesson, the cost of the wins means lower margins.

The company said generic deflation and competition was depressing margins. They had previously guided lower for 2018 in April and did it again with earnings. For fiscal 2018 they guided for earnings of $4.85 to $5.10 and analysts were expecting $5.25. They also said earnings would be impacted by some "company discrete items" that could result in a profit decline for the drug business. They reemphasized that in the recent earnings report saying these actions will be detrimental in the short term but improve our trajectory in 2019.

Investors like it when companies build for the future but in the case of CAH, the short term including the rest of 2017 and 2018 is actually long term for traders. They bailed on the stock and it is still falling.

President Trump tweeted about lowering drug prices this morning and it is a good bet it will eventually happen in some form. Just talking about it is going to pressure CAH.

Expected earnings Nov 1st.

Position 8/15/17:

Long Sept $65 put @ 77 cents, no initial stop loss.


DIA - Dow ETF - ETF Profile

Comments:

The Dow gapped up 38 points after the strong overnight futures faded after HD earnings. The index then declined 67 points from its high intraday and closed flat at 22,000.

I am recommending we target 215.50 for an exit.

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. A minor decline back into the consolidation channel.

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 spiked $1.35 at the open but faded with the Dow to close with a loss.

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.

Update 8/5/17: Wedbush initiated coverage with a neutral rating saying IBM is going to face "structural headwinds" and free cash flow will continue to be consumed by "aggressive M&A." The analyst said the world has moved away from the labor intensive model of IT services with cloud computing and cloud software replacing those IT consultants. Legacy IT services contracts are going to see margins decline due to "pricing resets" and an industry wide "skills mismatch." He said IBM's lack of transparency about its current business models suggests they are lagging the evolution curve.

Update 8/7/17: A judge in Indiana ruled IBM must pay the state $78 million for failing to complete the automation of much of the state's welfare services system. The court case came after the state cancelled the $1.3 billion automation contract because of numerous complaints about long wait times, lost documents and improper rejections. An appeals court found that IBM had committed a material breach of its contract by failing to deliver improvements to the welfare system.

Position 7/31/17:

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


PCRX - Pacira Pharmaceuticals - Company Profile

Comments:

No specific news. Another minor rebound on no news> I considered closing it but with the futures negative and a lackluster day in the market, there may still be some weakness ahead.

Original Trade Description: August 7th.

Pacira Pharmaceuticals, Inc., a specialty pharmaceutical company, develops, manufactures, and commercializes proprietary pharmaceutical products primarily for use in hospitals and ambulatory surgery centers in the United States. It develops pharmaceutical products based on its proprietary DepoFoam drug delivery technology. The company's lead product includes, EXPAREL, a liposome injection of bupivacaine, an amide-type local anesthetic indicated for infiltration into the surgical site to produce postsurgical analgesia. Its development pipeline comprises DepoTranexamic Acid, a long-acting local antifibrinolytic agent, which is in Phase II clinical development for the treatment or prevention of excessive blood loss during surgery by preventing the breakdown of a clot; and DepoMeloxicam, a long-acting non-steroidal anti-inflammatory drug, which is in preclinical development for the treatment of acute postsurgical pain. Company description from FinViz.com.

Pacira reported a loss last week of 29 cents that missed estimates for 28 cents and was well over the 2 cent loss in the year ago period. Revenue of $70.9 million ros eonly 1.9% and misses estimates for $74 million. Rising revenues for their top product, Exparel, were offset by falling revenues elsewhere. Exparel revenues rose 6.1% but DepoCyte and other product revenues declined -81.1%. Research and development costs rose 10`% and G&A costs rose 9.4%. Revenues slowing and expenses rising are never a good combination.

The company reaffirmed their full year revenue guidance for Exparel in the range of $290-$310 million.

Shares declined to a 6 month low after earnings.

Expected earnings November 3rd.

The optimistic outlook faded in late July when a Phase III trial of Exparel did not produce the desired results in treatment of total knee arthoplasty or TKA. Pacira is trying to expand the uses for Exparel as a way of expanding sales. This was a blow for the stock in July and the weak earnings is causing further declines.

Support is well below at $30.

Position 8/8/17:

Long Sept $35 put @ $1.44, see portfolio graphic for stop loss.


SPY - S&P-500 ETF - ETF Profile

Comments:

Minor spike at the open on news North Korea had backed off its Guam threats. Shares finished flat with the markets.

I am recommending we target $241 for an exit.

August has been down 5 of the last 7 years and up only 5 of the last 20 years.

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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