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Newsletter

Daily Newsletter, Saturday, 9/2/2017

Table of Contents

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

Market Wrap

No Guarantee

by Jim Brown

Click here to email Jim Brown

Past performance is no guarantee of future results.

Weekly Statistics

Friday Statistics

Everyone expecting the typical August decline was frustrated when the minor 2.5% dip turned into a rebound that took the markets back to their highs. August has been down 5 of the last 7 years and up only 5 of the last 20 years. Those numbers have changed to 5 of 8 and 6 of 21 after the Nasdaq had its best week since the election.

The Nasdaq gained 87 points of 1.4% for the month but the index gained 207 points or 3.3% since the Tuesday morning low. That turned the markets around from weakness to strength as investors bought growth stocks instead of value stocks. Big cap techs and biotechs were the favorites with financials giving an assist on Friday.


Friday was a busy day for economics. The Nonfarm Payrolls were the big headline when they missed the consensus estimates. August produced 156,000 jobs compared to estimates for 185,000. However, August typically misses estimates for a variety of reasons including families trying to cram in a vacation and get the kids back into school. People put off looking for a job until after Labor Day. August headline numbers are normally revised higher by an average of 40,000 jobs.

Revisions to prior months were both negative. June was revised down from 231,000 to 210,000 and July was revised down from 209,000 to 189,000. The pace of job creation has slowed slightly with the three-month average now 185,000. The challenge is the lack of qualified applicants. There are plenty of job openings as we saw in the last JOLTS report with 6.163 million openings. Unless you want to work in a bar, restaurant or construction, the requirements are a higher level of education and computer literacy on a higher level. Being able to type misspelled Facebook posts in a hurry is not a qualification.

The unemployment rate rose one tenth to 4.4% with the broader U6 rate at 8.6%. Only 77,000 people joined the labor force in August compared to 355,000 on average over the prior two months.

Goods producing industries, including construction, manufacturing and mining/energy added 70,000 jobs. Private services added 95,000 but a big drop from the 179,000 in July. Government posted a loss of 13,000 jobs. Healthcare added 16,600 jobs and that sector will continue to grow as the baby boomers gradually lose their health.

The disaster on the Gulf coast will be a hit to jobs in the short term as companies that were damaged lay off workers until they can rebuild. In the long term, it will add to jobs because the rebuilding effort will last for years.


The drop in government payrolls caused a tick lower in the Atlanta Fed real time GDPNow forecast for Q3. The forecast is now 3.2% growth but we still have all the reports in September to factor into the mix.


The ISM Manufacturing Index surprised with a stronger than expected reading. The index rose from 57.2 to 58.8 compared to analyst estimates for a decline to 56.2. This was the highest reading since 2011. Customer inventories declined from 49.0 to 41.0 suggesting stronger orders in the future. The rise in manufacturer inventories from 50.0 to 55.5 will add to GDP growth for Q3. Twelve of the 18 industries reported growth and only 4 reported a decline in orders. Those were food/beverage, metals, apparel and furniture.

Order backlogs rose from 55.0 to 57.5 and the highest level since March. New orders eased off some from the 63.5 high in June but remained over 60 for the third consecutive month.

The hurricane will weigh on the manufacturing sector initially as plants in Texas recover. However, there could be a shortage of raw materials, especially chemicals used in the manufacture of plastic items. Long term, there will be higher demand for products as damaged items are replaced.



One area where manufacturing could surge immediately is autos. Analysts believe between 500,000 and one million cars/trucks have been destroyed by the flooding. The cars are not recoverable because they will quickly rust and mold. Insurance companies will take months to process all the claims but 30-60 days from now, there will be a surge in new car purchases.

Progressive, said they have as many as 500,000 insured cars in the flood area. They do not know how many of them were actually in the flood but the stock is getting hammered by investors fleeing a normally strong company.

Warren Buffett's Geico Insurance unit also has 500,000 insured cars in the area. Buffett said earlier in the week it would be some time before they knew how many claims would be generated. He said they had plenty of capital and would not cause any problems other than a temporary drop in earnings.

He may also have exposure through his reinsurance units, General RE and Berkshire Hathaway Reinsurance. They provide backup insurance for the other front line companies.


The final reading on Consumer Sentiment for August dipped slightly from the initial number at 97.6 to 96.8. That was still well above the 93.4 in July and the largest monthly gain since December. The present conditions component declined from 113.4 to 110.9. The expectations component rose sharply from 80.5 to 87.7. Business sentiment rose from 50 to 56. Overall economic expectations rose from 48 to 54. The hurricane will likely depress sentiment slightly in September but it should rebound quickly once the headlines disappear.


Construction spending for July declined -0.6% after a -1.4% drop in June. Analysts were expecting a 0.5% rise. This was the third decline in 4 months and spending is now 5.6% below July 2016 levels.

The calendar for next week is busy but there is only one report that traders will be watching with interest. The Fed Beige Book report on each of the Fed districts always draws attention but after the strong ISM report on Friday, there is little worry there will be any negative surprises.

There is a lot of Fedspeak this week. Apparently the Fed heads are getting it out of the way before the quiet period begins ahead of the Sept 20th FOMC decision.


CoreLogic is predicting $40 billion in damage for Harvey but insured losses of only $25 billion. Most standard homeowner policies do not cover floods so they will not have to pay claims. The bulk of insured losses will be to businesses and personal auto policies, which normally cover water damage. The actual wind damage was severe in Rockport, a town of 10,000 but was minimal in the Houston area where the majority of the damage was flooding.

Allstate (ALL) has the second-largest homeowner insurance coverage in Texas with a 13% market share. They would cover the first $500 million themselves but have reinsurance for everything over that amount.


There was some good news for Houston on Saturday. Hurricane Irma's mostly likely track has turned north of Puerto Rico and Cuba and will likely hit the East Coast and not enter the Gulf of Mexico. The track could still change but this is the most likely path as of 5:PM on Saturday. This is a category 3 storm with 120 mph winds but is expected to strengthen when it reaches the warmer shallow water.


Apple (AAPL) confirmed its September 12th product announcement and product leaks are becoming a daily event. The names of the new phones were leaked by case manufacturers. There will be an iPhone 8, iPhone 8 Plus and the iPhone Edition, which will be the $1,000 OLED version. Those names came from 9to5Mac, a company that routinely provides quality product leaks. However, iCulture disputed that Edition name claiming it will be called iPhone X. Apple is jumping from the 7 to 8 rather than have the "S" model revisions because they believe the changes are too dramatic for it to be just an upgrade. The screens have been reformatted with no home button and they have wireless charging among some other new features.

Apple shares have been listless for the last couple days. They typically decline a couple days before the announcement on a sell the news trade. With the event still a week away, it is a little early for the weakness but the trend is so well known, there are probably sellers jumping the gun. Apple shares did close at a new high for the last three days but only with minor gains.


Dow (DOW) and DuPont (DD) completed their merger and the combined companies now trade under the symbol DWDP and the name DowDuPont. The new company replaced DuPont in the Dow as of Friday. They announced the merger in December 2015 and the combined companies will eventually break apart into three separately traded entities. That split is expected to happen over the next 18 months and will separate the agriculture, materials science and specialty products divisions.

Dan Loeb of Third Point is on a mission to force DowDuPont to split into more than three companies with the specialty products division alone splitting into four companies because of the diversity of their products. The combined companies have a market cap of $156 billion. Once shares have found a range and built some history, I would be a long-term buyer because the splits will create future value.


Lululemon (LULU) reported earnings of 39 cents that beat estimates for 35 cents. Revenue rose 13% to $581.1 million and beat estimates for $567.0 million. Same store sales rose 7%. The company said analysts warning that athleisure was fading was a misrepresentation. The company is succeeding because they have expanded from yoga pants into multiple lines of attire including a new line of bras that have been successful. They have also been successful in other sports lines including running clothes. Cowen reiterated an outperform with a $68 price target. Shares rose 7%.


Palo Alto Networks (PANW) reported adjusted earnings of 92 cents that beat estimates for 79 cents. The company beat its own guidance for 78-80 cents. Revenue rose 27% to $509.1 million, which also beat estimates for $488 million. Palo Alto guided for 2018 for revenue of $2.125-$2.165 billion and the first time to break $2 billion. They guided for earnings of $3.24-$3.34. Analysts were expecting $2.13 billion and $3.27. They added 3,000 customers in the quarter, the most ever, to total 42,500. Free cash flow was $190 million with $2.2 billion cash on hand. They also announced the CFO was retiring. Shares rallied $14 on the report.


Ambarella (AMBA) reported adjusted earnings of 48 cents that beat estimates for 44 cents. Revenue rose to $71.6 million and beat estimates for $70.7 million. They guided for Q3 for revenue of $87.5-$90.5 million and analysts expected $88.8 million. During the conference call, the CFO warned that revenue could be impacted by lower prices, which cuts market share for the higher priced drones with Ambarella video. They also warned there was a shortage of memory components that could impact camera build schedules. Shares were knocked for a 22% loss.


Nutanix (NTNX) reported a loss of 33 cents that beat estimates for 38 cents. Revenue of $226 million beat estimates for $218 million. The cloud vendor guided for current quarter revenues of $240-$250 million and well over estimates for $232 million. They guided for a loss of 37 cents that matched estimates. Shares spiked $2 at the open but fell back to close flat.


The Q2 earnings cycle is over. Only 2 S&P companies are left to report and those are this week. Of the 498 companies reported, 73.3% have beaten on earnings and 59.2% have beaten on revenue. The blended earnings growth for Q2 was 12.1%. There have been 66 guidance warnings and 45 guidance raises. The forward PE is now 17.9 and the highest since the financial crisis rebound. Hewlett Packard, HD Supply and Dell Technologies are the big dogs for the week.


Stifel's John Baugh wrote that all types of building supply companies could benefit from the hurricane. His best picks were Home Depot (HD) and Lowes (LOW) saying HD saw $550 million in increased sales from Hurricane Sandy. The gains were weighted in the first two quarters but carried on for the next two quarters as well.

He said flooring companies like Mohawk (MHK) and Lumber Liquidators (LL) could see a surge in demand from ruined carpets and warped flooring. He also discussed USG (USG) and Eagle Materials (EXP) because of wallboard and sheetrock demand from water damage. Both companies have larger exposure to the south. He warned that Aaron's (AAN), Conn's (CONN) and Rent-A-Center (RCII) could be hurt because of store closures and from people failing to make payments on waterlogged furniture and electronics. The companies have insurance on the furniture in case it is damaged but there would still be a protracted loss process.

A Wells Fargo analyst warned about expecting too much on the auto replacement scenario. He did the math and said he expects 115,000 new cars to be sold in the Houston area. Group 1 Automotive (GPI) has 23 locations. Autonation (AN) has the second most dealerships in the area at 14. However, not everyone can afford a new car and with the average age of a used car at 11 years, consumers are only going to get a small insurance check for their destroyed car. It will not be enough to actually replace the car with something similar to what they owned because high demand will lift prices on used cars. The auto manufacturers and rental companies have said they are going to ship thousands of "off lease" and end of life rental cars to Houston in hopes of finding a hot market for used cars.

WTI prices fell early in the week as refineries began to go offline and it was apparent inventories were going to rise sharply without offsetting refinery demand. As news of some refinery restarts hit the market on Thursday, prices began to rise off the lows but the inventory reports over the next two weeks are not going to be pretty. Some refineries have restarted, some will be back online within two weeks but a couple could be offline for a month.


The gasoline shortage was very bad in Texas. On Wednesday, there were only 13 stations in the Houston area with gasoline. On Saturday morning, there were more than 100. Tankers are coming in from all along the coast to cover the shortage. Maps from http://tracker.gasbuddy.com/.

Wednesday Gasoline Availability

Saturday Gasoline Availability

Natural gas prices rose sharply the last two days because some of the Gulf production has been offline because of Harvey and the injections into storage have been low. The injection last week was only 30 Bcf to bring the total to 3,155 Bcf. That is only 8 Bcf over the five-year average and -239 Bcf below year ago levels. The ramp of LNG production for export plus the accelerating conversion from coal to gas for electric generation, is consuming more gas per day than in the past. We have plenty but at the recent $2.85-$2.90 average price there is no real incentive to drill. Producers are drilling at a slow pace to save money and just replace the gas lost to production/depletion. Active gas rigs have been flat around 180 for months. Once gas demand pushes prices back over $3.50 the activity will increase.




Markets

The markets are rebounding on the idea that the disaster could unite lawmakers in Washington. The odds are good they will try to package the budget bill, debt ceiling increase and hurricane relief all in one bill. Some would not want to vote for it because of the items in the budget portion but they would be afraid to vote against any bill that has hurricane relief in the tile. This is an opportunity for lawmakers on both sides to get some of what they want while accepting some items they do not want. It would be a win-win for everyone to get it passed early while the disaster is on everyone's mind and still in the headlines.

There is also the North Korean problem. Investors have realized there are no options except for bad ones. Outside countries cannot attack because Kim Jong-Un is holding a trump card with 21,000 artillery pieces aimed at Seoul South Korea with 20 million people in the cross hairs. Japan, the U.S. and the UN can whine all they want but their only option is more sanctions. That takes the North Korean headlines out of the equation for the market. There may be continued knee jerk reactions to headlines but there is no option for action.

Unfortunately, we learned over the weekend that North Korea warned the missile test over Japan was only a prelude to an attack on Guam. They also released a photo of what they said was a thermonuclear warhead they were planning on using on their ICBMs. North Korea actually demonstrated loading the bomb into a nose cone of their Hwasong-14, which can hit the USA. More concerning for those that understand the threat, the Korean Central News Agency warned the "thermonuclear nuke with great destructive power can be detonated even at high altitudes for a super powerful Electromagnetic Pulse (EMP) attack." North Korea has reportedly completed preparations for a high yield nuclear test at the Punggye-ri test site. The test is expected on September 9th, which is the country's anniversary.


The S&P rebounded 48 points from Tuesday's low at 2,428 and stopped just short of new high resistance at 2,480. That was a 2% rebound in four days. As we move into the most volatile month of the year, that prior resistance high could be a formidable wall or eventual support if there is a sudden post holiday sprint higher.

With volume of only 5.1 billion shares on Friday, the conviction was light. We had a three-day weekend for headlines to appear. Earnings are over with only 2 S&P companies left to report. This will be a week for direction to appear and the 2,480 level will be the line in the sand.


The Dow rallied again in a thin market thanks to financials and a broad cross section of companies with only a few losers. The peak at 22,038 came about 12:30 and the index faded as the day progressed with a sharp 32-point decline in the last few minutes. That was probably profit taking from the four days of gains ahead of the weekend event risk.

Resistance is now 22,000 and initial support back at 21,775. The Dow rebounded 365 points in four days from Tuesday's opening low at 21,673 to Friday's high at 22,038. That is a good run and was enough to turn the index positive for the month with a 57-point gain for August as of Thursday's close.



The Nasdaq Composite rebounded 207 points from Tuesday's opening low at 6,228 to Friday's record high close at 6,435. That is a 3.3% rebound in only 4 days. That moved the Nasdaq from a bearish chart to a bullish chart if the index can break over the intraday high from July 27th at 6,460.84. There is always the possibility for a double top to form if that resistance holds.

We are moving into the most volatile month of the year when portfolio managers restructure their portfolios after Q2 earnings and before the best six months of the year, which begin on November 1st. While I would like to believe the Nasdaq will continue higher, the minor weakness in the big cap techs on Friday and the minor decline in the Nasdaq 100 Index, give me a reason to be cautious. I believe it was just weekend event risk caution but we should always be aware of resistance after a big move.





The small cap Russell 2000 is outperforming the rest of the market. The Russell has been up for 7 consecutive days and broke through resistance at 1,388 and 1,400. This should be bullish for market sentiment. The Russell was being lifted by biotechs and financials.


The major indexes were bearish heading into last week. The NK missile over Japan was an opportunity for the bears to seize control and force the market lower. They were unable to do it and once investors realized there was no option to deal with NK they bought the dip. Add in the expectations for a bipartisan budget, debt ceiling, hurricane relief bill in Washington and constant chatter about tax reform and suddenly the bears were running for cover.

This is going to be a pivotal week. If those talking points remain at the front of the conversation, the market could move higher. However, if lawmakers start talking down a combination bill and the threat of a government shutdown increases then the market will take note. The president has had a good week with the disaster headlines taking precedence over political headlines. If he can stay out of trouble and continue pressing his agenda, the market would react positively.

We are entering the most volatile month of the year but every seasonal trend has failed in 2017. I would be thrilled if this one failed as well.

If you like the market commentary you have been receiving and you are on a free trial then now is the time to subscribe. Do not wait until you miss a newsletter to decide you want to take the plunge.

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Random Thoughts


The market has returned to its highs but the number of bulls is shrinking. On a contrarian basis that is bullish but it is still concerning. 75% still believe the market is not going higher.



Effective Tuesday there is a big change in the way trades are settled. Starting Tuesday trades will be settled in 2 days instead of 3. A trade executed on Tuesday will be settled on Thursday. This applies to stocks, corporate and municipal bonds, unit investment trusts and financial instruments composed of those security types. The EU, Hong Kong and South Korea have already switched. Canada, Mexico and Peru will also switch on Tuesday.

Proceeds from a transaction will be available for withdrawal two days after the trade rather than three.

Visit the T2 settlement website for a complete list of the changes.


Dr David Cass interviewed Warren Buffet. There are some really interesting thoughts in the entire interview. In one response he refers to winning the "Ovarian lottery."

Cass: How has your understanding of markets contributed towards your political views?

WB: I would not say knowledge of markets has. My political views were formed by this process. Just imagine that it is 24 hours before you are born. A genie comes and says to you in the womb, "You look like an extraordinarily responsible, intelligent, potential human being. Going to emerge in 24 hours and it is an enormous responsibility I am going to assign to you - determination of the political, economic and social system into which you are going to emerge. You set the rules, any political system, democracy, parliamentary, anything you wish, can set the economic structure, communistic, capitalistic, set anything in motion and I guarantee you that when you emerge this world will exist for you, your children and grandchildren. What’s the catch? One catch - just before you emerge you have to go through a huge bucket with 7 billion slips, one for each human. Dip your hand in and that is what you get - you could be born intelligent or not intelligent, born healthy or disabled, born black or white, born in the US or in Bangladesh, etc. You have no idea which slip you will get. Not knowing which slip you are going to get, how would you design the world? Do you want men to push around females? It is a 50/50 chance you get female.

If you think about the political world, you want a system that gets what people want. You want more and more output because you will have more wealth to share around. The US is a great system, turns out $50,000 GDP per capita, 6 times the amount when I was born in just one lifetime. But not knowing what slip you get, you want a system that once it produces output, you do not want anyone to be left behind. You want to incentivize the top performers, do not want equality in results, but do want something that those who get the bad tickets still have a decent life. You also do not want fear in people's minds - fear of lack of money in old age, fear of cost of health care. I call this the "Ovarian Lottery". My sisters did not get the same ticket. Expectations for them were that they would marry well, or if they work, would work as a nurse, teacher, etc. If you are designing the world knowing 50/50 male or female, you do not want this type of world for women - you could get female. Design your world this way; this should be your philosophy. I look at Forbes 400, look at their figures and see how it has gone up in the last 30 years. Americans at the bottom are also improving, and that is great, but we do not want that degree of inequality. Only governments can correct that. Right way to look at it is the standpoint of how you would view the world if you did not know who you would be. If you are not willing to gamble with your slip out of 100 random slips, you are lucky! The top 1% of 7 billion people. Everyone is wired differently. You cannot say you do everything yourself. We all have teachers, and people before us who led us to where we are. We cannot let people fall too far behind. You all definitely got good slips.

Cass: What was the most difficult negotiation you were ever involved in? How did you develop your strategy going in?

WB: Only really learned negotiations from my dad. People have different styles of negotiation. I do not want to be in a negotiation where it "has to end" at some point. I do not want them to have me by the throat while I have them by the throat. Either we give up or one strangles the other. My style is different from most peoples, just say what I do. If you do that throughout your life then stick to it. I can walk away from anything. I say I will pay $X, and normally this is the best deal. I do not want to lowball, then you counter, and get to $X anyway. You spend time and money doing that. I just say what I will pay, and that works fine once you establish a reputation. You do not want to get in a negotiation that you cannot afford to walk away from. Bargaining with people you love is a terrible mistake. It is destructive. The most powerful force in the world is unconditional love.

Full Interview




 

Enter passively and exit aggressively!

Jim Brown

Send Jim an email

 

"Twenty years from now you will be more disappointed by the things that you didn't do than by the ones you did do. So throw off the bowlines. Sail away from the safe harbor. Catch the trade winds in your sails. Explore. Dream. Discover."

Mark Twain


 


Index Wrap

Dramatic Difference

by Jim Brown

Click here to email Jim Brown
The prior week was positively boring but conditions changed in a hurry.

I wrote last week that watching the market was like watching grass grow it was moving so slow on abnormally low volume. That changed in a hurry on Tuesday. The major indexes gapped significantly lower on the news North Korea had fired a missile over Japan. Everyone was worried there would be a military response. When the U.S. and Japan resorted to yet another strongly worded press release, investors instantly realized there was no military option. North Korea had called their bluff and gotten away with it.

Add in the positive expectations for legislative action after the Harvey disaster and suddenly investors were not worried about a government shutdown at the end of September. Markets rallied with the Nasdaq rebounding 3.3% to a record high in only 4 days.

I would be the first in line to warn that volume was very light at 5.1 billion shares on Friday after a similarly light week and that the Dow and S&P stopped exactly at strong resistance. I am not saying the market cannot continue higher. The market can move in either direction at any time to confound even the most astute market watchers. However, we are entering the most volatile month of the year and normal trading will resume late next week.

Despite the Nasdaq making a new high and the Dow and Nasdaq rebounding to prior resistance, there were some dramatic changes in the market internals. The S&P advance/decline line set a new high for this cycle. We have been watching this closely over the last month as it weakened. The new strength suggests the rally has more room to run.


Given the strength of the Nasdaq with a 3.3% rebound in 4 days, you would have expected the Nasdaq A/D line to breakout as well. However, the Nasdaq internals were very negative heading into the week and that is what allowed the short covering to lift the index so quickly. The A/D line is going vertical but it has a ways to go for a breakout. This means there was some divergence in the Nasdaq stocks. This was not a broad based rally but one led by a small subset of the population. Those laggards are either going to join the party or the generals are going to realize they are leading the charge by themselves.


Strangely, the Dow A/D line did set a new high even though the Dow index was the laggard of the big three indexes. The Dow posted minor gains the last three days with lackluster afternoon trading. Apparently, it was enough to have the majority of the Dow stocks participate at least a little.


Despite the rally, the S&P Bullish Percent Index only rebounded from 63% to 66.4%. This is the percentage of S&P stocks with a buy signal on a Point and Figure chart. This means either we have a lot of room to run OR a lot of S&P stocks are not participating. It is a reason why we should be cautious about jumping into new long positions next week.


The rebound turned the charts from bearish to bullish but there is still the problem of strong resistance at 2,480 on the S&P. Even if we do get through that level, there is extremely strong resistance at 2,500. Only a very few analysts have yearend targets at 2,500 or above. The vast majority are expecting something from 2,350 to 2,450. This means the 2,500 level could be the bell that is rung at the top of the market.

Conversely, the best six months of the year begin on November 1st. If the markets can hold at this level through the normally volatile September period, we could see all those analysts resetting their yearend targets a lot higher. This is going to be a pivotal week and September is going to be a pivotal month. How we end this month will have a lot of bearing on how we end the year.


The Dow is lagging the Nasdaq and S&P with resistance at 22,000. The historic high is 22,118 with the intraday high at 22,179. The Dow chart has a very good chance of scaring investors with a double top formation at those highs. Whether it actually turns into a market top or becomes just a stutter step on the way to higher highs, we should know soon. It will only take a couple more days of gains to put the Dow into those resistance zones, assuming it can break through 22,000.


The 207-point Nasdaq rebound from Tuesday's opening low has stretched the index into overbought territory. With decent resistance at 6,460, it will be a tough test unless the market surges out of the gate on Tuesday after the event risk fades. A Tuesday short squeeze could accomplish the task but there are still two days of weekend left and plenty of time for negative headlines. The Nasdaq chart also have the potential for a double top formation. However, if you look at the pattern from June, the same formation existed and the Nasdaq broke out. If that were to happen again in September, the short covering would be fierce.


The Russell 2000 rebounded sharply but it has a ways to go before it can retest the highs at 1,452. After 7 consecutive days of gains, it is due for a rest.


The FANG stocks grouped tightly together with the exception of Facebook. The big caps rallied over the last three days but faded on Friday afternoon. This could have been profit taking ahead of the weekend or simply a realization they had rebounded too quickly.


I am neutral for next week. Tuesday volume will be very light but normal volumes should begin to return on Wednesday. There is a light economic calendar but the House and Senate will resume their session and with only 12 days to conclude a budget, debt ceiling and hurricane relief, the headlines will be flowing fast. September is normally the most volatile month of the year but none of the seasonal trends have been followed this year.

The key points to watch this week will be the potential breakout or failure by the S&P at 2,480 and 2,500. Those levels could negate the impact of the Nasdaq on the market direction.

Enter passively and exit aggressively!

Jim Brown

Send Jim an email


New Option Plays

Buy the Unreasonable Dip

by Jim Brown

Click here to email Jim Brown

Editors Note:

This company was hammered unfairly after earnings. I mentioned on Tuesday, I would be a buyer once Best Buy found a bottom.



NEW DIRECTIONAL CALL PLAYS

BBY - Best Buy - Company Profile

Best Buy Co., Inc. operates as a retailer of technology products, services, and solutions in the United States, Canada, and Mexico. The company operates through two reportable segments, Domestic and International. Its stores provide consumer electronics, such as home theater, home automation, digital imaging, health and fitness, and portable audio products; computing and mobile phones, including computing and peripherals, networking, tablets, smart watches, and e-readers, as well as mobile phones comprising related mobile network carrier commissions; and entertainment products, such as gaming hardware and software, movie, music, technology toy, and other software products. The company's stores also offer appliances, which include refrigeration and laundry appliances, dishwashers, ovens, coffee makers, blenders, etc.; and other products comprising snacks, beverages, and other sundry items. In addition, it provides services, such as consultation, design, delivery, installation, set-up, protection plan, repair, technical support, and educational services. The company offers its products through stores and Websites under the Best Buy, bestbuy.com, Best Buy Mobile, Best Buy Direct, Best Buy Express, Geek Squad, Magnolia Home Theater, Pacific Kitchen and Home, bestbuy.com.ca, and bestbuy.com.mx brand names, as well as through call centers. It has approximately 1,200 large-format and 400 small-format stores. Company description from FinViz.com.

On August 29th, Best Buy reported earnings of 69 cents that beat estimates for 63 cents. Revenue of $8.9 billion also beat estimates for $8.7 billion. Same store sales rose 5.4%. They raised full year guidance for revenue to rise 4% compared to prior guidance for 2.5%. Operating income is expected to rise 4.0-9.0% compared to prior guidance of 3.5-8.5%. Shares were crushed for a $9 loss on the news.

There was no specific reason except that Best Buy had been doing so well and the stock was trading at a record high. Analysts came out after the crash saying the selloff was overdone because the Apple product announcement in mid September would create additional store traffic the rest of the year and likely boost earnings.

Sometimes events cause unexpected reactions. Given their earnings beat, strong comps and raised guidance, I think we should buy the dip. Support has appeared at $54 and the next move should be positive as saner investors realize this is a bargain.

Earnings Nov 24th.

Buy Dec $57.50 call, currently $2.50, initial stop loss $52.25.


NEW DIRECTIONAL PUT PLAYS

No New Bearish Plays



In Play Updates and Reviews

Nothing Decided

by Jim Brown

Click here to email Jim Brown

Editors Note:

The Dow and S&P rallied exactly to strong resistance and then faded into the close. There was not enough conviction or volume to push those indexes to a new high and the Nasdaq was only able to extend its gains by 6 points. The magic of a low volume market, few negative headlines and month end cash flows managed to lift the markets out of their slump but the stall at resistance suggests there are still a few traders that are not convinced the markets are going higher. Next week should be interesting.



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



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:

The names for the new Apple phones leaked according to 9to5Mac. The three phones to be announced are reportedly iPhone 8, 8 Plus and iPhone Edition for the OLED model. This came from manufacturers of the case you buy to put on your phone. They had to change the names of the models their cases fit to correspond with Apple's new names.

The Nasdaq was up strong again and Apple only gained 5 cents. I am going to tighten the stop loss again. The stock normally fades a couple days before the announcement and we want to exit on any weakness.

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!

Update 8/24: Apple announced it was building a $1.3 billion data center in Iowa that would create 10,000 jobs during construction and 550 permanent jobs when completed. They received $208 million in tax breaks from the State of Iowa. The center will be in Waukee, which is close to Des Moines. The center will be powered entirely by renewable energy. Apple users better hope for lots of sun if they are using Siri, iMessage, Apple Music and other Apple services that will operate from this center. Construction will begin in 2018 and the center will open in 2020.

Update 8/28: Apple said it was holding a new product launch event on Tuesday September 12th. The company is expected to announce three new phones. They will be the iPhone 7, 7s and iPhone 8/Pro. They could also announce a new watch and a 4K Apple TV.

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.


ALB - Albermarle - Company Profile

Comments:

No specific news. A monster gain of $2.37 to move closer to resistance at $120.

Original Trade Description: Aug 21st.

Albemarle Corporation develops, manufactures, and markets engineered specialty chemicals worldwide. The company offers lithium compounds, including lithium carbonate, lithium hydroxide, lithium chloride, and lithium specialties and reagents for applications in lithium batteries, high performance greases, thermoplastic elastomers for car tires, rubber soles and plastic bottles, catalysts for chemical reactions, organic synthesis processes, life science, pharmaceutical, and other markets; cesium products for the chemical and pharmaceutical industries; and zirconium, barium, and titanium products for pyrotechnical applications. It also manufactures cesium products for the chemical and pharmaceutical industries; and zirconium, barium, and titanium products for various pyrotechnical applications, including airbag igniters; and performance catalyst solutions, such as polymer catalysts, curatives, organometallics, and electronic materials for polyolefin polymers, packaging, non-packaging, films, injection molding, alpha-olefins, electronic materials, solar cells, polyurethanes, epoxies, and other engineered resins markets. In addition, the company offers bromine and bromine-based solutions for fire safety, chemical synthesis, mercury control, water purification, beef and poultry processing, and various other industrial applications, as well as for the oil and gas well drilling, and completion fluids applications. Further, Albemarle Corporation provides clean fuels technologies, which is primarily composed of hydroprocessing catalysts; and heavy oil upgrading, which is primarily composed of fluidized catalytic cracking catalysts and additives for application in the refining industry. It serves petroleum refining, consumer electronics, energy storage, construction, automotive, lubricants, pharmaceuticals, crop protection, food safety, and custom chemistry services markets. Company description from FinViz.com.

With production of electric cars exploding with more than 1 million expected to be manufactured in 2018, the demand for Lithium-ion (Li-ion) rechargeable batteries is also exploding. When Tesla's Gigafactory reaches full production in 2020 of 35 gigawatt-hours, that will be more battery capacity than the entire world produced in 2014. Tesla has blamed the battery shortage for misses in auto production and they are already planning on building a second Gigafactory. The demand for lithium is suddenly huge and Albemarle is already responsible for 35% of global production.

They reported Q2 earnings of $1.13, up 22%, that beat estimates for $1.11. However, revenue of $737.3 million missed estimates for $740.6 million. They guided for full year earnings of $4.20-$4.40, a 21% rise and revenue of $2.90-$3.05 billion. The revenue miss was due to a divestiture of a specialty chemicals business and currency exchange issues. They repurchased $250 million in stock in the first 6-months of 2017 and paid dividends of $69.8 million.

Next earnings Nov 6th.

Shares declined after the revenue miss but rebounded exactly from long-term uptrend support.

Position 8/22:

Long Oct $120 call @ $1.75, see portfolio graphic for stop loss.


CAT - Caterpillar - Company Profile

Comments:

No specific news. Nice gain to another new high.

Original Trade Description: Aug 29th.

Caterpillar Inc. manufactures and sells construction and mining equipment, diesel and natural gas engines, industrial gas turbines, and diesel-electric locomotives for heavy and general construction, rental, quarry, aggregate, mining, waste, material handling, oil and gas, power generation, marine, rail, and industrial markets. Its Construction Industries segment offers backhoe, compact, track-type, small and medium wheel, knuckleboom, and skid steer loaders; small and medium track-type, and site prep tractors; mini, wheel, forestry, small, medium, and large track excavators; and motorgraders, pipelayers, telehandlers, cold planers, asphalt pavers, compactors, road reclaimers, and wheel and track skidders and feller bunchers. The company's Resource Industries segment provides electric rope and hydraulic shovel, landfill and soil compactor, dragline, large wheel loader, machinery component, track and rotary drill, electronics and control system, work tool, hard rock vehicle and continuous mining system, scoop and hauler, wheel tractor scraper, large track-type tractor, and wheel dozer products; longwall, highwall, and continuous miners; and mining, off-highway, and articulated trucks. Its Energy & Transportation segment offers reciprocating engine powered generator set and engine, integrated system, turbine, centrifugal gas compressor, diesel-electric locomotive and component, and other rail-related products and services. The company's Financial Products segment offers finance for Caterpillar equipment, machinery, and engines, as well as dealers; property, casualty, life, accident, and health insurance; and insurance brokerage services, as well as purchases short-term trade receivables. Its All Other operating segments provides parts distribution and digital investments services. Company description from FinViz.com.

CAT has been alternately ignored or talked down for the last couple years but the shares keep rising. Part of the recent gains came from the guidance. The company has been bitten by the global slowdown in construction since the financial crisis. Then it was hit by the slowdown in the energy sector. Every expected rebound falied to appear and CAT continued to give cautious guidance. That changed over the last several months.

The global economy is rebounding. There are massive construction projects now underway in China and Asia. The Eurozone is also seeing a resurgence in consrtuction. Commodity metals are booming and mines are reopening shuttered capacity and opening new mines. Everything is suddenly positive for CAT.

In December they guided for full year 2017 revenues of $38 billion "as a reasonable midpoint expectation." Analyst estimates for earnings of $3.25 were "too optimistic" according to CAT.

In January they guided for $36-$39 billion in revenue and $2.90 in earnings.

In April they guided for $38-$41 billion in revenue and $3.75 in earnings.

In July they guided for $42-$44 billion in revenue and $5 in earnings.

In April they guided for revenue from construction at flat to 5%. In July they guided for 10% to 15% growth.

In April they guided for revenue from mining at 10% to 15%. In July they guided for 20% to 25% growth.

In April they guided for energy revenue at flat to 5%. In July they raised it to 5% to 10%.

After the devastation in Houston, there were new estimates from analysts today for 17% or higher revenue growth in construction equipment.

Shares spiked at the open to a new high before fading slightly with the market. I believe revenue estimates will continue to rise because they are running out of year and their conservative guidance will have to become more accurate.

Earnings October 24th.

CAT is reactive to Dow movement but shares have ignored the recent Dow weakness. Today's close at $116.01 is a record high.

Position 8/30/17:

Long Nov $120 call @ $2.75, see portfolio graphic for stop loss.


HD - Home Depot - Company Profile

Comments:

Stifel said HD should benefit more than Lowes from the hurricane rebuilding effort. After Hurricane Sandy they saw a $550 million positive impact which was weighted to the first two quarters but was still flowing in the next two quarters.

Original Trade Description: Aug 26th.

The Home Depot, Inc. operates as a home improvement retailer. It operates The Home Depot stores that sell various building materials, home improvement products, and lawn and garden products, as well as provide installation, home maintenance, and professional service programs to do-it-yourself, do-it-for-me (DIFM), and professional customers. The company offers installation programs that include flooring, cabinets, countertops, water heaters, and sheds; and professional installation in various categories sold through its in-home sales programs, such as roofing, siding, windows, cabinet refacing, furnaces, and central air systems, as well as acts as a contractor to provide installation services to its DIFM customers through third-party installers. It primarily serves home owners; and professional renovators/remodelers, general contractors, handymen, property managers, building service contractors, and specialty tradesmen, such as installers. The company also sells its products through online. It operates through approximately 2,278 stores, including 1,977 in the United States, including the Commonwealth of Puerto Rico, and the territories of the U.S. Virgin Islands and Guam; 182 in Canada; and 119 in Mexico. Company description from FinViz.com.

Home Depot and Wal-Mart have two of the best responses to national disasters. When a storm is named and the track is posted, both companies immediately begin to route truckloads of supplies to the affected areas.

Home Depot activated its Hurricane Response center in reaction to Harvey and truck loads of buliding supplies, generators, roofing materials, etc were already headed to Texas before the storm ever made landfall. Home Depot has been responding to storms for more than 30 years and they know exactly what products will be in high demand.

Home Depot has four distribution centers that support hurricane response. Once a storm forms they rush trucks to the areas likely to be hit to prestock stores with disaster supplies. When people come to the stores to buy plywood, nails and supplies, it is already there in surplus quantities. As the storm nears landfall, the center guages severity, potential impact and they pre stage a number of preloaded trucks just out of the danger areas ready to rush in once the storm passes.

On a moderately strong hurricane, Home Depot can see a boost in revenue from $150 to $350 million over a three month period.

HD shares were hit with a post earnings decline not because the earnings were bad but because analysts were worried the home building boom would end soon. Home Depot beat on earnings, revenue and issued higher guidance.

If there is a port in the coming volatility storm, it should be Home Depot as they provide the supplies to rebuild the Texas coast.

Position 8/28/17:

Long Nov $155 call @ $2.87, see portfolio graphic for stop loss.


TER - Teradyne - Company Profile

Comments:

No specific news. Shares still fighting resistance at $36.

Original Trade Description: Aug 30th.

Teradyne is a leading supplier of automation equipment for test and industrial applications. Teradyne Automatic Test Equipment (ATE) is used to test semiconductors, wireless products, data storage and complex electronic systems which serve consumer, communications, industrial and government customers. Our Industrial Automation products include collaborative robots used by global manufacturing and light industrial customers to improve quality and increase manufacturing efficiency. In 2016, Teradyne had revenue of $1.75 billion and currently employs approximately 4,400 people worldwide. Company description from Teradyne.

For Q2 they reported earnings of 90 cents compared to estimates for 86 cents. Revenue of $696.9 million beat estimates for $684.2 million. They raised revenue guidance to $455-$485 million and analysts were expecting $445 million.

In just the last 30 days analyst estimates for Q3 have risen from 38 cents to 43 cents. Full year estimates have risen from $1.88 t $1.97 per share. Zacks rates the Electronics Testing Equipment sector as #6 out of 250 industry sectors. Every new electronic device manufactured needs a new set of testing equipment.

Earnings October 26th.

Shares have been stuck under resistance at $35 for six weeks and broke out today. Analysts believe they will continue higher and make new highs. The $36 level is the next resistance.

Position 8/31/17:

Long Oct $37 call @ .90, see portfolio graphic for stop loss.


VAR - Varian Medical Systems - Company Profile

Comments:

No specific news. Minor decline after the big gain on Thursday. Resistance at $106 is being tested.

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 25th.

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:

Volatility falling fast in a low volume, month end market. September, the most volatile month of the year, is just ahead.

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)

DIA - Dow ETF - ETF Profile

Comments:

The Dow came to a dead stop at downtrend resistance and the Dow is lagging the other indexes.

I am recommending we target 213.25 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.


SPY - S&P-500 ETF - ETF Profile

Comments:

Minor gain and another dead stop on resistance at 248. This will be an inflection point where it either fails or surges to new highs. The SPY is significantly outperforming the S&P. The SPY closed within 3 cents of a new high.

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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