Option Investor
Newsletter

Daily Newsletter, Monday, 9/11/2017

Table of Contents

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

Market Wrap

Irma!

by Thomas Hughes

Click here to email Thomas Hughes

Introduction

Hurricane now Tropical Storm Irma is doing her best, clean up time starts tomorrow. If you are reading this it means I didn't lose power, yet. Asheville, NC is not directly in the line of fire but definitely close enough to experience strong winds and heavy rains.

Today's trading was dominated by news coming out of Florida and Georgia as market watchers try to handicap the damages and their effect on the economy. JP Morgan says Irma is a top 5 costly storm, Moody's says the combined costs of Harvey and Irma will top $200 billion. Oh, and the S&P 500 closed at a new all time high.

In Remembrance of September 11

International markets were also able to move higher. Asian indices moved higher on a stronger dollar and slightly relaxed trading rules for the yuan. The PBC says it is planning on removing requirements for foreign-exchange risk reserves freeing up capital for the system. In Europe indices moved higher on a weaker dollar and no flare-ups on the Korean peninsula as well as support from US market action. Indices in both Asia and Europe gained more than 1%.

Market Statistics

Futures trading was positive all morning as relief over Hurricane Irma began to creep into the market. Yes, there is a lot of damage but its a lot better than it could have been, considering the size, strength and affected area. There was no economic data this morning and no earnings reports to affect sentiment so trading was steady going into the open. At the open the indices posted gains in the range of 0.5% and extended that to more than 1% by early afternoon.

Economic Calendar

The Economy

No data today and not a whole lot this week although a few key releases are scheduled. The most important are probably the PPI and CPI. Both are expected to rise a modest amount, 0.2% and 0.3%, but not enough to alter the FOMC outlook. After that retail sales on Friday may move the market if it provides a substantial surprise.

Moody's weekly Survey of Business Confidence fell a surprising -2.3% to 30.5. This is just off the lowest reads of the year and a bit of a surprise. Mr. Zandi comments that one-off declines like this have happened other times this year with sentiment recovering in the following weeks. He also notes that declines are mostly outside the US and that business is, in general, upbeat. Looking at the chart, to my eye there is a definite down trend in near term sentiment that needs to be watched. A continued decline could signal trouble.


The earnings cycle is about to get started again although we are at least a month away from the next “season”. Based on the latest reports earnings outlook for the 3rd quarter has fallen to a new low while forward and full year outlook have improved. The S&P 500 is now expected to post earnings growth of 4.9% for the third quarter. This is down from near 7.5% at the start of the quarter. Eight of the 11 S&P sectors are expected to show growth although 9 of the 11 have been revised lower over the past month. If the season unfolds according to trend we can expect to see the final rate come in closer to 10%.


Looking forward 4th quarter estimates have risen to 10.4% which helped lift full year outlook to growth of 5.6%. Looking out to next year expectations remain robust with double digit growth expected all year. First quarter estimates is near 10.5%, second quarter near 10.25%.


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The Dollar Index

The dollar got a lift on a double dose of good news, albeit sentiment driven and likely short term in effect. On the one hand North Korea did not fire anymore missiles this weekend and on the other damage from Irma is much less than feared. This combination helped lift the dollar versus the Euro and Yen, resulting in a 0.45% gain in the Dollar Index. The index created a medium sized green candle and may continue higher in the near. The risk is that the index is in a marked down trend and facing not one but two reads on inflation that could further weaken rate hike expectations. The index faces resistance at $92 and $92.50 that could turn into bearish entry points.


The Gold Index

The price of gold fell in tandem with the dollar's rise, shedding more than -1.20% by settlement time. Today's move is a fall from resistance at $1,250 but resistance is likely tested again. Sentiment has a lot to do with the decline and will likely (could easily) shift again in the coming days. For one thing North Korean didn't just give up their missile testing fun, they'll be back. For another the PPI/CPI is not expected to support the dollar which will in turn help support gold.

The Gold Miners ETF GDX fell -2.5% on the fall in gold, roughly halving the distance between Friday's close and the short term moving average. The ETF appears to have peaked near the top of the long term trading range with a chance of moving lower. Today's action is supported by the indicators which are consistent with the top of the range. A move down to the short term moving average, near $23.75, would equal a -10% correction in the ETF following a near 20% increase. The risk is that CPI and PPI data could alter this outlook, also that North Korea will launch another missile.


The Oil Index

Oil prices rose more than 1.20% in today's session as clean up from the two hurricanes gets underway and OPEC begins talking up prices again. The latest news is that three top OPEC producers are talking about extending the production caps. Whether or not they go through with it, it is likely this talk will help support the market. Up to and until an extension happens or WTI is trading at resistance levels. WTI is now trading at $48 with resistance target near $50. Longer term fundamentals remain skewed toward the supply side.

The Oil Index gained a little more than 0.75% to create a medium sized green candle. This candle is moving up from support levels above the short term moving average and supported by the indicators. The index appears to be consolidating above resistance turned support with an eye on testing resistance at the long term moving average. A break above this level, near 1,140, would be bullish and possibly indicate the reversal I've been anticipation is in process. Next target for resistance is near 1,160, support is 1,120 near term.


In The News, Story Stocks and Earnings

Insurers across the property and casualty space rose in response to Irma's passing. The major catalyst was a downgrade of damage estimates from $200 billion to only $50 billion by a major disaster modeling firm. According to their statement the damage could be far less even than $50 billion. Universal Insurance has the largest exposure to Florida and posted the largest gain in today's trading, more than 16%. The move did not close the gap formed last week with Irma's approach.


Home Depot and Lowes gave up some of their pre-Irma gains but are still up on expected revenue gains driven by the storm and Hurricane Harvey. Home Depot shed about -1% in a move that confirms near term support as well as long term resistance. Long term resistance is at the all time high, near term support is just below that near $158. The indicators are bullish and showing some strength so I would expect to see the stock test the all time high again, at least.


The VIX fell more than -10% to approach potential support at the $10 level. Today's candle is medium and red with a visible lower shadow suggesting that there is some support present at or near $10. The indicators are mixed at best and indicative of directionless trading and range bound markets. A move to $10 looks likely, beyond that is dependent on news. Considering it is still several weeks before earnings or the next round of macro data, and that there is an FOMC meeting between now and then, the VIX may remain elevated in the near term.


The Indices

Today's trading is brought to you by the number 1, as in the market moved higher by 1%. Action was light in volume but broad in nature with advancers outnumbering decliners by roughly 4 to 1. The days leader is the Dow Jones Industrial Average with a gain near 1.15%. The blue chips created a medium sized green bodied candle moving up off the short term moving average and crossing above the long term up trend line. The indicators are still a bit mixed but consistent with support at this level and in the early stages of a strong trend following signal. MACD is making a zero line crossover today, stochastic is set up to confirm but has yet to do so. Upside target is in new all time high territory, near 22,250 and 22,500.


The NASDAQ Composite made the 2nd largest gain, 1.13%, and came within spitting distance of a new all time high. The tech heavy index created a medium size green candle moving up from support near the short term moving average and looks like it will test the all time high. The indicators are a little mixed but set up and rolling into a trend following signal. The risk at this time is resistance at the all time high. A break above that level would be bullish with upside target near 6,600 in the near term.


The S&P 500 closed with the largest gain today, 1.08%, and set a new all time closing high. The indicators are mixed but like with the Dow and NASDAQ set up for a strong trend following entry signal. Today's resistance is the current all time intraday high, a break above which would be bullish.


The Dow Jones Transportation Average closed with a gain of 1.06%. The transports created a medium sized green candle extending the break above resistance and bounce from the short term moving average. The indicators are both bullish and moving higher, and both showing some strength; MACD is on the rise and hitting a new peak today, stochastic is moving higher and crossing above the upper signal line. There may be resistance at 9,500, a break above there would be bullish at the current all time high.


When I was organizing my thoughts to write tonight's conclusion I had one that ran like this. I'm a market watcher, I've been watching the market a long time, I watch for a very specific signal and that signal is here. . . If I'm not bullish now what am I doing?

This is what I am seeing in the charts. The indices suffered a small correction in the past month that resulted in a test of support. This support is, in most cases, a combination of short and long term moving averages and trend lines that combine to form strong and what could be called key support. The indices have consolidated along those support levels and begun to move higher. The indicators have confirmed these moves with not one, but multiple trend following entry signal and are now setting up to confirm again. I could be wrong but it would be more wrong not to follow the signal as I see it. I am bullish.

Until then, remember the trend!

Thomas Hughes


New Option Plays

Steady Growth

by Jim Brown

Click here to email Jim Brown

Editors Note:

Steady growth and low volatility is a plus in today's markets.

It is tough finding play candidates on a day like Monday where the majority of the stocks you want to play are up $3 to $4 on the short squeeze. I elected to go with a minor gainer with a strong chart and low volatility.



NEW DIRECTIONAL CALL PLAYS

A - Agilent Technologies - Company Profile

Agilent Technologies, Inc. provides application focused solutions to the life sciences, diagnostics, and applied chemical markets worldwide. Its Life Sciences and Applied Markets segment offers liquid chromatography systems and components; liquid chromatography mass spectrometry systems; gas chromatography systems and components; gas chromatography mass spectrometry systems; inductively coupled plasma mass spectrometry instruments; atomic absorption instruments; microwave plasma-atomic emission spectrometry instruments; inductively coupled plasma optical emission spectrometry instruments; laboratory software and informatics systems; laboratory automation and robotic systems; dissolution testing; vacuum pumps; and measurement technologies. The company's Diagnostics and Genomics segment provides reagents, instruments, software, and consumables; arrays for DNA mutation detection, genotyping, gene copy number determination, identification of gene rearrangements, DNA methylation profiling, and gene expression profiling, as well as sequencing target enrichment services; and equipment focused on production of synthesized oligonucleotides for use as active pharmaceutical ingredients. Its Agilent CrossLab segment offers GC and LC columns, sample preparation products, custom chemistries, and various laboratory instrument supplies; and startup, operational, training, and compliance support, as well as asset management and consultation services. The company markets and sells its products through direct sales, electronic commerce, resellers, manufacturers' representatives, and distributors. It has a collaboration agreement with University of Leuven to focus on detecting genetic abnormalities in cell-free DNA and embryo biopsies. Company description from FinViz.com.

Agilent reported earnings of 59 cents that rose 20.4% and beat estimates for 52 cents. Revenue of $1.11 billion rose 6.7% and beat estimates for $1.08 billion. They ended the quarter with $2.56 billion in cash and $1.8 billion in debt. Free cash flow was $228 million. They guided for revenues of $1.15-$1.17 billion for Q3 and earnings of 60-62 cents. Analysts were expecting $1.14 billion and 59 cents. The company raised guidance for the full year from $4.36-$4.38 billion to $4.435-$4.455 billion. Earnings guidance is now $2.29-$2.31, up from $2.15-$2.21. Analysts were expecting $2.22 and $4.39 billion.

Earnings expected on Nov 14th.

Shares spiked on the earnings and have been moving steadily higher. On Monday they gained $1 and closed at a new high. This stock may not be as "exciting" as Alibaba or Amazon but the options are cheap and they rarely decline.

Buy Nov $67.50 call, currently $1.78, initial stop loss $62.85.


NEW DIRECTIONAL PUT PLAYS

No New Bearish Plays



In Play Updates and Reviews

New High

by Jim Brown

Click here to email Jim Brown

Editors Note:

The S&P made a new high by 8 points but the Nasdaq fell 3 points shy. The Dow punched through 22,000 but still needs 62 points to make a new closing high. This was a monster short squeeze as weekend event risk evaporated when North Korea did not launch a new ICBM. Irma was not as bad as expected and the hit to the economy will be minimal while rebuilding will add to the GDP.

With the political hurdles removed, we could see additional gains but probably not in a straight line. This is still September with 3 weeks to go.



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


XRAY - Dentsply Sirona
The long call position was entered at the open.

HD - Home Depot
The long call position was stopped at the open.

SPY - S&P-500 ETF
The long put position was stopped at $249.25.



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

ALB - Albermarle - Company Profile

Comments:

No specific news. Major short squeeze. Shares spiked $5 on absolutely no news.

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. Only a minor gain in a bullish market. Curious, BBY did not see more buying.

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:

Decent gain to a new closing high ahead of their investor meeting on Tuesday. The company is expected to present a balanced view for the future but some on the street believe analysts are underestimating their earnings growth. It should be interesting. They are also participating in a Morgan Stanley conference on Wednesday.

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. Irma did not turn into as big a disaster as expected and shares fell sharply at the open to stop us out in the first 5 minutes.

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:

Closed 9/11: Long Nov $155 call @ $2.87, exit $6.85, +$3.98 gain.


SPLK - Splunk - Company Profile

Comments:

No specific news. Shares gained $1 but still below resistance.

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 pushed through resistance at the open but faded into the close.

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 pushed further past resistance but it was a minor 77 cent gain. We will take whatever we can get.

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 crashed on the big short squeeze in equities. I considered closing the position but this is a November option. We still have plenty of time. North Korea is still a factor and could erupt at any time.

This is the fourth longest period in history of the markets without a 5% decline. While it does not look likely today, it could happen at any time.

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.


XRAY - Dentsply Sirona Inc - Company Profile

Comments:

No specific news. Shares continued to post gains in their two week long rebound.

Original Trade Description: Sept 9th.

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.

Position 9/11/17:

Long Jan $60 call @ $2.70, see portfolio graphic for stop loss.



BEARISH Play Updates (Alpha by Symbol)

DIA - Dow ETF - ETF Profile

Comments:

The Dow rallied to just below horizontal resistance at 22,100 and pushed through downtrend resistance. This was a major short squeeze and not thousands of investors deciding to buy stocks. I considered closing the position but because it is a spread, we are only down slightly and our risk is minimal to hold the position until the Dow makes a new high.

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 experienced a monster short squeeze and we were blown out of this position in the first 5 minutes of trading. We still have the DIA and VIX positions as insurance against an unexpected decline.

This has not been a normal September and with the political hurdles removed, there could be further gains ahead.

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:

Closed 9/11/17: Long Oct $243 put @ $3.65, exit $1.50, -2.15 loss.




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