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Daily Newsletter, Saturday, 9/9/2017

Table of Contents

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

Market Wrap

One Week Down

by Jim Brown

Click here to email Jim Brown

There are only three weeks left in September and several critical events have passed.

Weekly Statistics

Friday Statistics

The biggest problems on our wall of worry for September evaporated after the House and Senate both passed the compromise proposal to fund the government for three more months and temporarily suspend the debt ceiling for the same period and allocated $15.3 billion to Hurricane Harvey relief. The government shutdown can was officially kicked down the road to December 15th. President Trump signed the bill Friday afternoon. The market should have rallied on that news but there were plenty of undercurrents that produced a drag on stocks.

The Dow opened negative and eventually gained 61 points by mid morning but barely avoided closing negative after Apple shares fell -$2.63 to subtract 18 Dow points. The Nasdaq added to the decline with a -51 point drop on the Nasdaq 100 as the big cap tech stocks fell hard.


Friday's economic reports failed to interest the market. Wholesale Trade for July rose 0.6% after a 0.7% rise in June. Because it was a lagging report for two months ago, it was ignored.

Consumer Credit for July rose by $18.5 billion after an $11.8 billion rise in June. However, June's total was the smallest gain since December. The trailing 6-mo average is $15.65 billion. I suspect July was a rebound from an accounting challenge in June. Because this was a July number, it was ignored.

The calendar for next week is devoid of any market moving reports. The price indexes will be the most important because of the Fed's desire to see some rising inflation. They will get their wish in next month's reports because of the hurricane-induced spike in fuel prices.


The yield on the ten-year treasury fell to 2.037% intraday before rebounding slightly at the close. Everyone wants to short treasuries but everyone that does loses money. The current flight to safety should continue as long as North Korea is launching missiles.

The Dollar Index fell to 91.35 and the lowest close since January 2015. The declining dollar is going to be beneficial to corporate earnings since roughly 50% of S&P-500 sales are overseas. The sharp rise in the euro is helping this earnings trend.




You cannot turn on radio or TV without seeing news on Hurricane Irma. The storm is expected to make landfall in Florida late Saturday night at Cat 4 intensity. Islands in its wake have been devastated with 80%-90% of structures demolished. This will be a major storm. Because Florida is hit more often than Texas, the response is significantly different. People have fled and emergency crews are staffed and waiting.

The market was ignoring its approach other than pounding insurers early in the week and rewarding Home Depot (HD) and Lowes (LOW). Both companies have delivered at least 1,000 truckloads each of relief supplies to local stores and have prepositioned hundreds more to rush into the areas that are hit the worst. These companies have turned hurricane response into a science.

Currently, Jose is a cat 4 storm but it is expected to turn north and back out to sea. Hurricane Katia made landfall in Mexico on Friday.


Earnings are definitely over. There are only two companies with any investor interest for next week. Those are Cracker Barrel and Oracle. This is why portfolio managers use September to restructure their positions. They analyze the recent earnings and guidance and then add/subtract positions to profit from Q3/Q4 earnings and the start of the best six months of the year on November 1st.


Kroger (KR) reported earnings on Friday of 47 cents and that beat analyst estimates for 39 cents. Revenue rose 3.9% to $27.6 billion, which barely beat estimates for $27.49 billion. Same store sales rose 0.7% compared to estimates for 0.4%. The company guided for same store sales of 0.5% to 1.0% for the rest of 2017. They guided for earnings of $2.00-$2.05 and analysts were expecting $1.98. Analysts said the revenue growth guidance was weak and shares were hammered for a 7% drop.


Part of Kroger's problem came from a blog post by Target (TGT). The retailer said it was discounting thousands of products in an effort to move away from excessive promotions. They are moving towards the Wal-Mart model of "everyday lowest price" but insisted they would still offer specials on the "right products at the right time." Target shares fell -2%, Costco -1.2% and Wal-Mart -1.5%.

Obviously, these major chains are getting ready for the price war with Amazon and Whole Foods. They should not be worried because even with the recent price cuts at Whole Foods they are still significantly more expensive. The price cuts ranged from 1% to 9% and only on some items. Once Amazon begins offering larger discounts to prime customers, it may become more competitive.


Equifax (EFX) shares fell $19 after announcing they had been hacked and information on 143 million customers had been stolen. There were some unusual trades to go along with the news. Only a couple days after the hack was discovered, several officers sold $1.8 million in shares. They sold at roughly $145 per share. This immediately caused concerns but Equifax said, "three executives sold a "small percentage of their shares" but they "had no knowledge of the cyberattack."

Also, Equifax put options trade an average of only 13 contracts per day. For the entire month of July there were only 260 put contracts traded. However, several days after the cyberattack was discovered, 2,600 of the September $135 puts were purchased for about 65 cents each. That was an investment of roughly $156,000. After Friday's stock drop, those were worth about $12 each. That is about $3.2 million. Obviously, that trader will be getting a visit from the SEC.

Equifax created a website where you can see if your data was part of the data stolen. However, you have to click through a link that says you agree not to sue them or participate in a class action suit. Otherwise, there is no way to know if your data was stolen. They are taking a lot of heat on that attempt to skirt legal responsibility.


American Outdoor Brands (AOBC), formerly Smith & Wesson, reported earnings after the close on Thursday and paid the price on Friday. They reported adjusted earnings of 2 cents that missed estimates for 11 cents. A year ago, they earned 62 cents. Revenue of $129 million missed estimates for $148 million. For the current quarter, they guided for earnings of 7-12 cents and revenue of $140-$150 million. The company said sales of firearms had continued to decline under a Trump presidency. There is no urgency to buy a gun since there are no prohibitions on the horizon. Shares fell 18%.


Finisar (FNSR) reported earnings of 40 cents that matched analyst estimates. Revenue was $341.8 million and beat estimates for $341 million. They guided for revenue of $322-$342 million and earnings of 27-33 cents. Analysts were expecting 50 cents and $370 million.

The problem gives us some insight on Apple's production problems. Finisar is widely believed to be providing the 3D sensing unit for augmented reality and facial recognition in the iPhone X, 9, Edition or Pro, whatever it ends up being called. Finisar said a "large cell phone customer in the US" required some adjustments to the VCSEL array that is part of the 3D sensing. The CEO was questioned on the call if they had missed the order from Apple with the adjustments to the array. The CEO said, no, sales were just pushed forward a quarter and we are ramping up production now. The shortage of these parts could be part of Apple's production problem.


Apple (AAPL) is scheduled to announce their new products on Tuesday. The Wall Street Journal was out with a warning on Friday that shipments of the new phone were going to be delayed even further. Besides the 3D sensor, the WSJ said there were production issues with the OLED screens, which are made by Samsung. I cannot believe Apple would put its future in the hands of its biggest competitor. Reportedly, the fingerprint scanner has been dropped in favor of an infrared facial recognition feature. The warning from the WSJ caused Apple shares to fall -$2.63. We have been hearing these warnings for the last six months but coming this close to the announcement it caused a lot of concern.

There are analysts worried the Apple product launch could be a disappointment for the market. Boris Schlossberg, from BK Asset Management, warned a disappointing announcement could drag the entire market lower because Apple is the largest stock in the S&P, Dow and Nasdaq indexes. A sharp decline could impact the entire market. Apple shares do have a habit of selling off in the 3-4 weeks after a product launch. However, Apple is expected to announce 3 iPhones, 4K Apple TV and a new stand alone Apple Watch. Hopefully something will produce some excitement.


Somebody is really bullish on silver. Somebody bought 19,500 contracts of the January 2019 $25 LEAP calls on the SLV ETF. The trade went off at 47 cents or roughly $916,500. With the ETF at $17 today, that would take a 50% rally to end in the money in 2019. The ETF did trade as high as $48 in 2011 and it will eventually trade there again. Whether it will do it before January 2019 is the $916,000 question. Unless this investor has some inside information about an impending shortage of silver, this is probably a hedge against some other position. Gold and silver spike on geopolitical events and North Korea will be a festering sore for the foreseeable future. Once this trade began showing up in the news, open interest quickly spiked to 33,000 so the followers were definitely active.


North Korea was widely expected to launch a new ICBM on Saturday but it has not happened. Analysts believe the delay could be due to a strong period of solar storms last week that are hitting the earth's protective atmosphere this weekend. Because the missile travels outside the atmosphere, the guidance and electronics can be impacted and cause a malfunction. If North Korea wants a valid test, they need to wait a couple days until the solar activity has faded.

This Korean missile threat scenario is ridiculous. They have been preparing for the last two weeks to launch this missile. If we suspected them of bad intentions, it would be extremely easy to just launch a single cruise missile to eradicate it whenever a Korean missile reached the launch pad. They are never going to be a real threat as long as it takes them two weeks to get a missile ready to launch. Once they can launch an accurate ICBM from a mobile launcher they will be a threat. That assumes Kim Jong-Un is ready to commit country suicide. If they ever did attack somebody with a nuclear weapon, North Korea's military targets would be decimated in return and that would include Kim.

Crude prices rallied to $49 midweek for multiple reasons. Saudi Arabia said it would cut export allocations by 350,000 bpd beginning in October. They are trying to counteract the weak demand season with less oil hitting the market. Secondly, Hurricanes Irma and Jose are killing the shipping lanes from the Middle East. Tankers headed for the U.S. are faced with these two major storms right in their path and they have been there for more than a week. Tankers will have to loiter in place in the eastern Atlantic until the storms run their course. I am sure there are quite a few trailing Jose just far enough behind the storm to stay out of danger. This is going to cause a major traffic jam when they approach the Gulf ports all at once. Imports as reported by the EIA on Wednesday are going to take a sharp drop over the next couple weeks and then see a sharp rebound when all those tankers appear.

U.S. production fell -8% from 9.53 mmbpd to 8.781 mmbpd last week. Imports fell from the 8.15 mmbpd average to 7.08 mmbpd. Gasoline demand fell -700,000 bpd to 9.163 mmbpd. The drop in production is of course temporary and more than likely has already been recovered or at least will be by the end of next week.

Analysts were also concerned that Irma would not make the turn north into Florida and continue on a straight line to the oil patch offshore from Louisiana. There was no guarantee it would turn as expected. When that turn became more likely on Friday, crude prices collapsed.

Baker Hughes rig counts showed a decline of 3 oil rigs but a gain of 4 gas rigs. Offshore rigs remained unchanged at 16 and a multiyear low.





Markets

The four-day rally from last week ended on Monday with the S&P hitting the resistance high at 2,480. The index ended with a 15-point loss for the week at 2,461. Despite the decline, the S&P is just one good day away from a new high. With the political deadlines pushed out into December, the biggest challenge will be normal portfolio manager restructuring in September.

The second challenge will be the weakness in the big cap tech stocks. It may only be temporary because we have seen the dips bought many times. However, they do have a lot of accumulated profits that managers may want to capture before year-end. Doing it now and shifting into other positions before November, would be a wise strategy. While they could go higher, there is little reason to risk the existing gains. There is always the threat of an Apple disappointment on Tuesday. Even without a disappointment, shares typically decline over the next 3-4 weeks after an announcement.

The S&P chart is neither bullish nor bearish. The minor 15-point decline for the week after a 52-point gain the prior 4 days is just a normal blip. The S&P would have to decline below 2,440 again to turn the chart bearish and even then, that is only about a 2.5% decline from the highs.


The Dow remains the weakest index with strong resistance at 21,900 and again at 22,000. Support is 21,600, 21,500 and 21,300. The Dow is suffering from the 30 stock curse. Individual stocks were lifting it back in July/August and now individual stocks/sectors are weighing on the index. Note that the breadth was negative with 20 out of 30 stocks negative and overpowering the five big gainers at the top.

The uptrend support is critical. If that were to break, it could trigger some additional selling from investors unsure if they want to hold over September volatility.



The Nasdaq Composite closed at a new high on Monday but ended with a 75-point loss for the week. The 38-point decline on Friday was directly related to the sharp losses in the big cap techs. Nvidia closed at a two-week low as did Tesla. Apple was the big drag with a $2.63 drop on Friday and a $6 drop for the week.

As I wrote earlier, if managers decide it is time to rotate out of big cap techs, the market is going to have a bad month. Despite the recent weakness, I do not expect that to happen. Those stocks have the highest growth rates and with the exception of Amazon, the strongest earnings. There may be some selling but others are probably looking for a dip to establish positions.

Support is around 6,200 followed by 6,100. We just need to keep our fingers crossed that this pattern does not turn into a double top. Note that this is the third time in 2017 where big declines turned into several weeks of choppy trading and consolidation before a new rally appeared.




The Russell rallied for 7 consecutive gains and has been consolidating those gains and holding above the 1,400 support level for the last four days. The 1,399.43 close on Friday was close enough to 1,400 for me.


September is normally the most volatile month of the year. That is because normally there are budget battles in Washington that only get solved at the last minute. The new fiscal year starts on October 1st. September is also portfolio-restructuring month. Second half lows typically occur in late September and the first two weeks of October. Now that the political cloud has been lifted, I would like to think the rest of September will only be choppy rather than directionally bearish. There is no guarantee historical trends will be followed or that some new headline will not appear to disrupt the market.

I would recommend keeping some cash in your account just in case a buying opportunity appears.

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


Every week when I click on this survey, I am always surprised by the results. The indexes were down for the week but bullish sentiment rose 4%. This survey does end on Wednesday so only two negative days had been seen when it closed. The bullish number is still almost 10% below normal. 71% still believe the market is not going higher.



Oppenheimer's chief investment strategist John Stoltzfus said on Friday, the North Korea problem and political issues will not derail the rally. He expects another 7% gain into year-end. "We do not believe we are headed into a period which will see the markets turn chaotic from here to the end of the year." "We also do not expect the market to take off in a straight line higher."

Stoltzfus is predicting the S&P will end the year at 2,650. Out of 16 top strategists, he is the second-biggest bull. He believes the passage of a tax cut and some infrastructure spending could see his target reached earlier or even surpassed.

His views are not shared by everyone. CNBC did an online survey asking if visitors expected the market to rally 7% by the end of December. Only 32% said yes.

CNBC Chart


Fundstrat Global Advisors co-founder, Tom Lee, is predicting the market will decline 5% over the next 30 days. He blamed risk aversion in the credit markets and a bond bubble. He said investors are also worried the Trump tax reform program will suffer the same defeat as the Obamacare repeal. Since investors are already factoring in some additional earnings from tax reform, that would be negative for the market. He warned that investors were betting on President Trumps 15% corporate tax rate and anything other than 15% would be market negative. Paul Ryan has already said there is no hope for 15% with 20% to 25% more likely. Once that is factored into the outcome, earnings estimates will be revised lower. He also warned of deterioration in market internals with fewer stocks supporting the indexes.


Since the election, the markets have rallied strongly. With average gains of about 7% per year, they are well over average. This is why we could see some negative portfolio adjustments in September. There is a significant amount of uncaptured gains.

Gains since the election:

Dow 19%
Nasdaq 23%
S&P-500 15%
Russell 17%


FlightRadar24 posted this picture of flights leaving Florida on Friday. Everyone with a plane was headed elsewhere on Friday to avoid the storm. These are ONLY flights leaving Florida from airports between Miami and Orlando. There were 332 departures. Flights Out



 

Enter passively and exit aggressively!

Jim Brown

Send Jim an email

 

"Political correctness is tyranny with manners."

Charlton Heston


 


Index Wrap

Wall of Worry?

by Jim Brown

Click here to email Jim Brown
The September wall of worry is rapidly crumbling.

They say the market likes to climb a wall of worry over the back of the bears but the wall for September is crumbling into a minor incline. The removal of the budget battle and debt ceiling debate and the associated fear of a government shutdown eliminated two major bricks in the wall of worry. The only material event left in September is the Fed announcement they are going to begin tapering QE on September 20th. That is so well telegraphed there may not be any market consequences.

There is also the potential for another North Korean missile event but that has also been widely predicted thanks to satellite photos showing preparations for a missile launch. As long as the US and its allies do not react badly to the event, it will be just another opportunity to buy a dip.

The markets are funny about direction most of the time. When the wall of worry is the steepest they tend to do well. When there are no apparent obstacles and everyone expects them to simply move higher, many times the opposite occurs.

This is based on investor expectations. If the majority of investors expect smooth sailing to a new high, then those investors are probably already invested. There are very few investors left to buy and the rally fizzles. When everyone is worried about multiple events confronting the market they tend to be in cash or short. When the market suddenly moves higher, it causes them to chase stocks and race to cover shorts.

Today we are faced with no material obstacles. Investors would like to see a tax reform plan but the timing on that is probably late November, if at all. It is not a market mover today.

This means there is a limited number of things that can produce a market rally. We are also in September, normally the most volatile month of the year, and the period when portfolio managers tend to restructure portfolios to take profits and position themselves for the best six months of the year that begins on November 1st.

We need to carefully watch market direction over the next several weeks to determine if the dip buyers are alive and well and what level the sellers are watching for an opportunity to short the market.

Despite everything I just wrote, there was abnormally high activity in SPY calls last week as in hundreds of thousands of new calls being bought. In one trade there were 140,000 September $249 calls purchased with the SPY at $246. Two days later that position had been closed. Even the big money is unsure of market direction.

I showed last week that the A/D line on the major indexes was improving. That improvement has begun to fade. The Dow peaked on Monday and faded the rest of the week. The MACD is on the verge of turning bearish again. The Nasdaq also peaked and the vertical move from the prior two weeks failed.

The small cap and mid cap A/D lines were mirror images of the Nasdaq.



The S&P was the strongest index and the A/D line finished at a new cyclical high. This is 500 blue chip stocks so this is a narrower representation of market breadth. The Nasdaq has roughly 3,000 stocks of all sizes and quality so it is a better representation of market health.


The percentage of S&P stocks over their 200-day average declined to 64.4%, which seems to contradict the stronger breadth on the S&P. This indicator declined for the month of August and has held at this level for two weeks. If this percentage begins to decline further, it would be a sign of shrinking breadth.


The correlation between the High Yield bond ETF and the S&P is currently .94% and holding at recent highs. Investors are pouring money into high yield bonds at almost the same rate as equities in the S&P. Historically this has a very good correlation and the S&P normally follows the HYG. We want the HYG to continue higher.


Facebook continues to be the outperformer among the FANG stocks but Netflix surges slightly after T-Mobile said they were including a Netflix subscription with some of their mobile plans. Amazon and Google are still struggling.


Another challenge for the Nasdaq is some growing weakness in the semiconductor sector. The chip stocks almost always lead the Nasdaq and the sector is declining ahead of the Apple product announcement on Tuesday.


The S&P came to a dead stop at the resistance at 2,480 and then faded for four days. The 19-point decline is not material, UNLESS, it continues. The index is only one good day away from a new high so it would be silly to say the chart is bearish. We need the late August uptrend to continue but there are problems under the hood. The big cap tech stocks are weakening and that is weighing on the S&P.


The Dow is struggling and is currently about 320 points below its recent high. The resistance at 22,000 was solid and the 21,900 level is also a factor. Support is 21,600, 21,500 and 21,300. The breadth on the Dow was negative 2:1 on Friday.


The Nasdaq closed at a new high on Monday but faded the rest of the week. Friday's close was the low close for the week. Uptrend support at 6,300 needs to hold or we could have a breakdown to 6,100, which is major support and should see significant buying. The 6,200 level may not hold if it is tested again because the actual level is rather undefined.


I am not predicting a decline for this week or a rally. I think the market needs to consolidate for a few days and get used to the idea of not having a wall of worry to climb. Now that we are well away from the Labor Day holiday and business should be back to normal, portfolio managers will be making decisions about what they want to hold until year-end. That could create some volatility.

Enter passively and exit aggressively!

Jim Brown

Send Jim an email


New Option Plays

Distribution Change

by Jim Brown

Click here to email Jim Brown

Editors Note:

Dentsply Sirona earnings were weaker than expected but there was a reason. The company is moving from one distributor to multiple distributors as of September 1st.



NEW DIRECTIONAL CALL PLAYS

XRAY - Dentsply Sirona Inc - Company Profile

DENTSPLY SIRONA Inc. designs, develops, manufactures, and markets various dental and oral health products, and other consumable healthcare products primarily for the professional dental market worldwide. It operates through two segments, Dental and Healthcare Consumables; and Technologies. The company provides dental consumable products, including endodontic instruments and materials, dental anesthetics, prophylaxis pastes, dental sealants, impression materials, restorative materials, tooth whiteners, and topical fluoride products; and small equipment products comprising dental hand pieces, intraoral curing light systems, dental diagnostic systems, and ultrasonic scalers and polishers. It also offers dental laboratory products, such as dental prosthetics that include artificial teeth, precious metal dental alloys, dental ceramics, and crown and bridge materials. In addition, the company provides dental equipment, such as treatment centers, imaging equipment, and computer aided design and machining systems for dental practitioners and laboratories; and dental implants and related scanning equipment, treatment software, and orthodontic appliances for dental practitioners and specialists, and dental laboratories. Further, it offers healthcare consumable products, such as urology catheters, various surgical products, medical drills, and other non-medical products. DENTSPLY SIRONA Inc. markets and sells its dental products through distributors, dealers, and importers to dentists, dental hygienists, dental assistants, dental laboratories, and dental schools; and urology products directly to patients, as well as through distributors to urologists, urology nurses, and general practitioners. Company description from FinViz.com.

Dentsply reported Q2 earnings of 65 cents that missed estimates by a penny. Revenue of $992.7 million missed the estimate for 1,004 million. Sales in the U.S. fell 9.7% but sales in Europe rose 2.5%. They guided for the full year for earnings of $2.65-$2.75.

The stock was crushed on the miss with a $9 drop over the following week.

However, there was a reason for the miss. Effective September 1st, they moved from a single distributor to multiple distributors. The existing distributor slowed purchases in the quarter in order to reduce inventory before the change in the distribution model.

The CEO said "In September, we should begin to benefit from the expanded distribution of our equipment in North America which should drive growth in the back half of this year and beyond. As we work through the distribution transition and integration initiatives, we are strengthening our foundation for the future. We believe that this should translate into more consistent growth and strong double digit earnings growth in the back half of the year creating momentum exiting the year going into 2018."

Shares have begun to rebound and should return to their highs on the "double digit earnings growth" guidance.

Earnings Nov 8th.

There are no Nov/Dec options. I am using the January but just because we buy time does not mean we have to use it.

Buy Jan $60 call, currently $2.35, initial stop loss $54.85.


NEW DIRECTIONAL PUT PLAYS

No New Bearish Plays



In Play Updates and Reviews

Big Cap Techs

by Jim Brown

Click here to email Jim Brown

Editors Note:

The big cap tech stocks posted major losses and the Nasdaq closed at the low for the week. Considering the budget/debt ceiling deal was passed by the House and Senate, the market should have performed better. The big cap techs declined sharply and Apple nearly drug the Dow into negative territory.

This could have been simply weekend event risk selling but the A/D line has been weakening and this could be a longer-term period of weakness. We are in September, a month known for weakness and portfolio restructuring.



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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BULLISH Play Updates

ALB - Albermarle - Company Profile

Comments:

No specific news. Still holding just under 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.


BBY - Best Buy - Company Profile

Comments:

No specific news. Minor weekend event risk profit taking.

Original Trade Description: Sept 2nd.

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.

Position 9/5/17:

Long Dec $57.50 call @ $2.59, see portfolio graphic for stop loss.


CAT - Caterpillar - Company Profile

Comments:

Minor gain in a weak market. CAT was named to the Dow Jones sustainability indexes in both the USA and World. This was the 18th time to be included.

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:

No specific news. Lowes said it has already shipped 1,600 truckloads of supplies to Florida. I could not find a number for HD but normally they run about the same. This is going to give a big boost to Q3/Q4 earnings.

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.

Update 9/6/17: Home Depot has already sent 300 truckloads of supplies to Florida ahead of Hurricane Irma. They sent prepositioned generators, plywood, batteries, water, building materials, plastic tarps and hundreds of other items that experience has shown will be needed before and after a storm. CNBC had a reporter in a Home Depot store in Florida and there was a steady stream of customers rolling carts of supplies out the door. Irma and Harvey in the same quarter are going to cause a monster boost to sales and Q4 could be off the charts.

Position 8/28/17:

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


SPLK - Splunk - Company Profile

Comments:

Credit Suisse added SPLK to their "top picks" list with a price target of $80. Shares declined on Friday with a -1.24 drop on no other news.

Original Trade Description: Sept 6th.

Splunk Inc. provides software solutions that enable organizations to gain real-time operational intelligence in the United States and internationally. The company's products enable users to collect, index, search, explore, monitor, and analyze data regardless of format or source. It offers Splunk Enterprise, a machine data platform with collection, indexing, search, reporting, analysis, alerting, monitoring, and data management capabilities; and Splunk Cloud service. The company also provides Splunk Light, which offers log search and analysis for small IT environments; and Splunk Analytics for Hadoop, a software for exploring, analyzing, and visualizing data stored in Hadoop and Amazon S3. In addition, it offers Splunk Enterprise Security, which addresses emerging security threats; Splunk User Behavior Analytics that detects cyber-attacks and insider threats; and Splunk IT Service Intelligence, which monitors health and key performance indicators of critical IT services, as well as Splunk App for AWS to ensure cloud security and compliance; Splunk Stream to capture, analyze, and correlate network wire data; and DB Connect to get enterprise context; Palo Alto Networks App for Splunk to gain visibility to Palo Alto Networks firewalls; and Splunk App for Salesforce. Further, the company operates Splunkbase and Splunk Answers Websites, which provide an environment to share apps, collaborate on the use of its software, and provide community-based support, as well as offers application programming interfaces and software development kits. Additionally, it offers maintenance and customer support, training, and consulting and implementation services. The company serves cloud and online services, education, financial services, government, healthcare/pharmaceuticals, industrials/manufacturing, media/entertainment, retail/ecommerce, technology, and telecommunications industries. Company description from FinViz.com.

Splunk reported earnings on August 24th of 8 cents that beat estimates for 6 cents. Revenue of $280 million beat estimates for $268.8 million. The company guided for the full year for revenue of $1.21-$1.22 billion, up from prior guidance of $1.19 billion. Analysts were expecting $1.2 billion. Billings are projected to be $1.450 billion, up from $1.425 billion in prior guidance.

Revenue rose 31.8% and "billings" rose 32% to $303.4 million. For the current quarter, they guided for revenue of $307-$309 million and analysts were expecting $306.8 million. They added 500 customers in the quarter to bring the base to more than 14,000.

The company has finally caught fire with the corporate sector and 32% sales growth is huge. The CEO said sales in Europe, Middle East and Africa were surging.

Earnings Nov 23rd.

Shares spiked to $66 on the news and faded $2 on post earnings depression for about three days before rising again. They closed at a three month high on Wednesday and are very close to a historic high.

Most importantly, they did NOT decline on Tuesday and showed great relative strength.

Position 9/7/17:

Long Nov $70 call @ $2.80, see portfolio graphic for stop loss.


TER - Teradyne - Company Profile

Comments:

No specific news. Shares fell back to support with the Nasdaq weak.

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. Shares shook off the Thursday downgrade by BTIG and closed back over resistance.

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:

The VIX rose slightly as the Nasdaq imploded. September is the most volatile month of the year.

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, see portfolio graphic for stop loss.



BEARISH Play Updates (Alpha by Symbol)

DIA - Dow ETF - ETF Profile

Comments:

The insurance and financial stocks rebounded to keep the Dow positive but Apple was a major drag and the index barely closed in the green.

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.


SPY - S&P-500 ETF - ETF Profile

Comments:

The S&P posted a minor loss thanks to Equifax and the decline in the big cap tech stocks. The index is still holding near its recent highs.

I am recommending we target $242.75 for an exit.

September is the most volatile month of the year.

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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