Option Investor
Newsletter

Daily Newsletter, Thursday, 8/17/2017

Table of Contents

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

Market Wrap

Down On Trump

by Thomas Hughes

Click here to email Thomas Hughes

Introduction

The market fell more than 1% on growing concern the Trump agenda has been derailed. His response to the Charlottesville events led to an exodus of advisers, the implosion of his advisory councils, the possibility of fracture within the administration and put his pro-growth/tax-reform agenda at risk. The market is not happy with what it is hearing and seeing and so sold off hard in response. Today's action was broadly negative, all 11 S&P sectors moved lower.

International indices were a bit mixed but largely in the red. Asian indices were closer to flat than not with losses in the range of -0.25%. European indices were more firmly negative with losses in the range of -0.5% to -0.75%. The dovish tone to the FOMC minutes, compounded by today's release of ECB minutes, has put global traders on edge; maybe the economy really isn't doing as well as the aggregate of data says it is? A terror attack in Barcelona did not help matters, reports say 13 were killed and several dozens more were injured.

Market Statistics

Futures were negative this morning but nothing like what occurred during the open session. The futures trade indicated an open only a few points below yesterday's close but it did weaken a little after the data and going into the open. At the open the indices started off with small losses as indicated. A quick bounce to test for resistance was met by selling, slow steady selling, that lasted all day. The indices hit intraday support 5 times on the way down but each time failed. By the end of the day the broad market had shed more than -35 points and closed with a loss of -1.54%%.

Economic Calendar

The Economy

There was a fair amount of data today beginning with the weekly jobless claims. Initial claims fell by -12,000 to hit 232,000. This is just above the long term low, looking at recent trends it is possible a new low could be set in the next few weeks or so. The previous week's data was not revised. The four week moving average of claims also fell, by -500, to hit 240,500. On a not adjusted basis claims fell -6.6% versus expectations for a drop of only -1.7%. On a year over year basis not adjusted claims are down -9.8%. The down trend in initial claims may be over but it is clear that at least for now claims will trend at or near the long term low and consistent with labor market health.


Continuing claims fell by -3,000 to hit 1.953 million, last week's data was revised higher by 5,000 more than offsetting the decline. The four week moving average of claims fell by -6,000 to hit 1.960 million and has now rolled over and pointing lower. These figures have topped out over the past few weeks as initial claims began to move lower. If initial claims continues to fall this is likely to fall as well. Regardless, continuing claims is trending near historic lows and is consistent with labor market health.

The total number of Americans receiving unemployment benefits fell by -18,618 to hit 1.952 million. This is a four week low and consistent with seasonal and long term trends. The total number of claims should continue to fall over the next 2 months or so while the economy enters the fall hiring season. Downside target for the total claims is near 1.5 million and would be an all time low.


Philly Fed's Manufacturing Business Outlook Survey came in a bit below expectations but still strong at 18.9. This is a -0.6% drop from the previous month and the 13 month of positive reading. The 6 month forward outlook index gained 5.4% to hit 42.3%. Within the report new orders gained 2.1 to hit 20.4 while shipments rose from 17 to 29.4 and employment held steady. Within the employment segment hours worked and wages both increased.


Industrial Production rose at a rate of 0.2% in July after rising 0.4% in June. Output fell by -0.1%. Capacity utilization came in at a rate of 76.7% and is still running about -3% below the long running average.

The Index of Leading Indicators came in positive for the 12th month in a row. The index rose by 0.3% in July after rising 0.6% in June and 0.3% in May. The Coincident and Lagging Indices both rose as well, by 0.3% and 0.1%. Economists at the Conference Board say the index indicates a possible expansion of growth in the second half of the year, basically now.


The Dollar Index

The Dollar Index dipped a bit but losses were minimal. The index fell -0.10% on the FOMC's dovish tone but were supported in the end by an even more dovish tone from the ECB. Today's ECB minutes released dashed hopes the central bank would begin a taper soon, weakening the euro and offsetting weakness in the dollar. The index remains within its near term consolidation zone and appears to be setting up for another move lower. Resistance is just above the current level near $94, support is just above $93. A break below resistance would be bullish near term but face additional resistance at the short term down trend line. A break below support would be trend following and bearish with down side target near $92 in the near to short term.


The Gold Index

Spot gold moved up nearly a full percent on growing unease over antics in Washington. The metal moved up above $1290 but gains were capped at $1295. The move was also supported by dollar softness although that support was minimal. In the near term gold prices could continue to pressure resistance at $1295-$1300, a break above which would be bullish.

The Gold Miners ETF GDX tried to move higher along with the underlying metal but could not do it. The ETF opened with a small gain but right at resistance and then sold off from there to close with a small loss. It looks like the sector is still trapped within the near term range with little sign of breaking out. The indicators are pointing higher so resistance may be tested but they are still not showing any kind of strenghth. A break above resistance would be bullish but near term only, next resistance is near $24. A failure to break may result in a return to support at $22.50 or $22.00 in the near term.


The Oil Index

Oil prices gained about 0.35% following yesterday's report of falling US stockpiles. The move was capped however by other signs of increasing US and global production, and ongoing supply/demand imbalances. WTI gained about $0.15 to trade near $47 but still looks like it may trend lower over the near term.

The Oil Index continues to fall on declining forward earnings outlook driven by sluggish economic growth, dovish central bank minutes and falling oil prices. The index shed more than -1.6% today bringing the week's fall to near -5%. It has just crossed below my support target at 1,080 and looks like it could go lower. The indicators are both pointing lower suggesting a move down to next support is possible. I am still bullish for the long term due to positive forward earnings growth outlook, nearer term I remain cautious while waiting for signs of a bottom I still think is coming. That being said prices are starting to look pretty good.


In The News, Story Stocks and Earnings

Walmart reported before the bell beating on the top and bottom lines. Revenue grew 2.1% over last year, driven by a 60% increase in on line sales, but was not enough to satisfy investors. Forward guidance was also weak despite another quarter of increasing US comps and drove shares down by more than -2% in the premarket. The stock opened with a gap lower but buyers stepped in to drive prices up from there and create a green bodied candle.


Ross reported after the bell and delivered a nicer report. The company also beat on the top and bottom line with the difference of issuing strong forward guidance. The company says gains were driven by a 4% increase in comp store sales, double the expectations, and an unexpected increase in operating margins. Forward guidance is now in a range matching consensus, shares jumped 10% on the news.


Applied Materials also reported after the bell and also beat on the top and bottom lines. The company says semiconductor sales have risen 46% versus the year ago period. Total sales growth is up 33% which, with the addition of an increase in margin, to an 86% increase in EPS. Forward guidance has been raised above consensus and shares jumped close to 3%.


The Indices

The indices began the day with only marginal losses indicated but momentum began to build quickly and it lasted throughout the day. The fact that tomorrow is OPEX certainly added to today's volatility as traders fought hard to unwind positions. Today's move was led by the Dow Jones Transportation Average which lost -2.40%. The index created a log red candle moving down from the short term moving average and crossing below the long term moving average. The indicators are mixed and do not indicate a sharp move lower at this time. MACD is showing a small bullish peak with momentum on the wane and near zero, stochastic is still pointing firmly up with only a hint of %K rolling over. The index may continue to move lower but I would expect it to find strong support a little below today's close near the long term up trend line.


The NASDAQ Composite made the second largest gain today, about -2.0%. The tech heavy index created a long red bodied candle moving down from the short term moving average but closing above last week's low and well above the long term moving average and up trend lines. The indicators are mixed but rolling over into a bearish signal that could lead to further downside. MACD is most firmly bearish and indicates momentum is on the rise. A break below today's low would be bearish near term with downside target near 6,100.


The S&P 500 made the third largest decline today, just over -1.54%. The broad market index created a long red candle moving down from the short term moving average and closing below last week's low. The indicators are a bit mixed but generally bearish and consistent with an additional move lower. Downside target is less than a half percent below today's close near the long term uptrend line near 2,420. A break below this may find support at the long term up trend line.


The Dow Jones Industrial Average made the smallest decline, a wee -1.24%. The blue chips created a medium sized red candle moving down to cross below the short term moving average and halt at the long term up trend line. The indicators are more firmly bearish here than in the other indices and suggest that support at the trend line will be tested if not broken. A break below the trend line will be bearish for the short term with downside target near 21,200.


The indices moved lower and once again it didn't seem like panic selling, or that the bull market was falling apart. Today's move was deep but not so deep as to indicate major shift in sentiment, just enough for the market to let us know that maybe now is a good time to take profits on positions in the money and wait for the latest round of political hooplah to blow over. Forward outlook for earnings is still positive, forward outlook for economic growth is still positive, when those things change I will too. Until then I remain bullish for the long term and waiting for my next good entry signal.

Until then, remember the trend!

Thomas Hughes


New Option Plays

Are You Suicidal?

by Jim Brown

Click here to email Jim Brown

Editors Note:

Unless you have a financial death wish, Friday may not be a good day to enter new positions. With the Dow down -274, Nasdaq -123 and S&P -38, Friday could either be a monster rebound as shorts get squeezed or a follow through day where we see new lows. Given the location on the calendar, the lack of upside catalysts and the political upheaval in progress, my vote would be for another decline but that is just an opinion not a guarantee.

In 2017, we have not had a follow through day after a big decline. Each drop has been followed by a neutral day or a rebound. Eventually these trends end and a real decline appears. The big cap techs imploded and all closed at the lows for the day. Nobody was jumping in at the last minute in expectations for a Friday rebound.

We are biased to the downside in our portfolio and one more big drop would take us out of the SPY, DIA puts and possibly the VIX calls. It would also put the S&P and Dow at initial support and then we could start looking for upside positions.



NEW DIRECTIONAL CALL PLAYS

No New Bullish Plays


NEW DIRECTIONAL PUT PLAYS

No New Bearish Plays



In Play Updates and Reviews

Negative Reaction

by Jim Brown

Click here to email Jim Brown

Editors Note:

The market responded negatively to the political headlines but it was due for a decline. We should not get too excited over the big decline because the last two weeks of August are normally lower. The severity of the drop was due to the constant hysteria in the press over the potential collapse of the presidential agenda. If you think about it, the agenda was already highly doubtful. We are just entering a traditionally weak period in the market and the political events were the catalyst that triggered the exits.

The S&P fell -1.5% and closed at a 5-week low. This is still just a minor decline from the market peak and we could easily hit primary support at 2,420 on Friday with just another 10-point drop. If we were to blow though that level it could be a long drop since 2,330 is the next major support. The 2,350 level could be a pause point but it may not be strong support.



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


No Changes



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Long and short equity trades = Premier Investor



BULLISH Play Updates

AAPL - Apple Inc - Company Profile

Comments:

No specific news. Shares crashed $3 with the market.

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:

No specific news. Shares down with the market.

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 spiked at the open but faded slightly with the 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:

Big 32% spike but the market decline was steady not hectic. If we crash again on Friday, I would expect the VIX to move much higher.

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 market helped to accelerate the decline.

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 fell -274 points as the impact of the presidential politics began to hit home. I remarked yesterday the chart could easily turn into a double top.

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.


IBM - International Business Machines - ETF Profile

Comments:

No specific news. Shares crashed with the Dow to an 18-month closing low.

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.


SPY - S&P-500 ETF - ETF Profile

Comments:

Monster decline of 40 S&P points, -1.55% and a new 5-week low. If we have another day like today we could hit our exit target on Friday.

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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