Option Investor
Newsletter

Daily Newsletter, Tuesday, 9/12/2017

Table of Contents

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

Market Wrap

September to Remember

by Jim Brown

Click here to email Jim Brown

Most Septembers are remembered because of their bearish volatility.

Market Statistics

This September may be remembered for its record highs. All the major indexes closed at new highs with the exception of the Russell 2000. The Dow only squeezed out a 0.44-point win but it was still a new high. Apple was a big driver intraday with gains of more than $2 but the sell the news move appeared right on schedule.

McDonalds was the biggest drag and kept the index from higher highs. The burger chain fell $5 and erased 35 Dow points after an analyst warned same store sales could be light in Q3.


Data tracking firm M Science warned that McDonalds U.S. revenues and same store sales would miss estimates because of the two hurricanes. McDonalds has more than 2,000 stores in those two states but obviously not all of them were in the flood zones. The company also warned that higher gas prices would result in lower fast food sales for all chains. This is just an opinion by M Science and McDonalds has 36,899 stores. McDonalds did not respond to analyst calls.

The stock had broken out to a new high at $161.53 on Monday.


The economic reports did nothing for the market today. The NFIB Small Business Survey for August gained only a tenth of a point to 105.3. The internal components were relatively flat. The job-opening component declined from 35 to 31 and the earnings trends declined even further from -10 to -11. Those respondents expecting the economy to expand over the next six months were flat at 37%. The report was ignored.

The Job Openings and Labor Turnover Survey (JOLTS) for July was flat with June at a 4% job openings rate. Job openings rose only slightly from 6.116 million to 6.170 million. Hires also rose only slightly from 5.432 million to 5.501 million. Quits rose from 3.130 million to 3.164 million. Layoffs fell slightly from 1.806 million to 1.783 million. The report confirmed that employment was stable and employment was rising slowly and steadily. Since we already have the August data from ADP and the Nonfarm Payrolls, this report was also ignored.

The API Inventory report after the close showed a build of 6.181 million barrels of crude oil. However, gasoline inventories declined by 7.896 million barrels and the largest one week decline on record. Obviously, this was due to the refinery outages over the prior two weeks. Consumers were still burning gas but 31% of our refinery capacity was out at the peak.

The calendar for the rest of the week is led by the price indexes on Wed/Thr. The Fed will be hoping for signs of inflation other than the sharp rise in fuel prices. The Fed is not expected to hike rates at the September 20th meeting. There is a zero percent chance according to the fed funds futures.


This is a quadruple witching option expiration and volume will be higher over the next three days. With the strong gains over the last couple of days, many option holders have probably already cashed out of their positions. This could limit volatility from expiration pressures for the rest of the week.


The big news today was obviously the Apple product announcement. As expected, they announced the iPhone 8, 8+ and the iPhone X, which is called the iPhone 10 with X the Roman numeral for ten. CEO Tim Cook said it was the biggest leap forward in innovation since the release of the original phone 10 years ago. The X has a superfast 6-core processor. The phone does not have fingerprint ID and instead relies on facial recognition technology to unlock the phone. During the on stage demo, the recognition failed and the presenter had to switch to another phone to continue the demo. That is going to be a worry for buyers. What if my phone suddenly forgets my face and I cannot get the phone to open?

They announced Apple TV 4K, which is an update of their set top box that can stream 4K movies. They also confirmed it will come with an Amazon Prime app so Prime members can stream their Amazon shows in 4K on the Apple TV device.

Probably the most talked about device was the new Apple Series 3 Watch. It comes in two models cellular and non-cellular. The cellular version can make and receive calls, send messages and do almost everything the iPhone can do. Somewhere Dick Tracy is smiling. Apple said they guarantee at least 18 hours of battery life even though it is an LTE speed cellular phone. The cellular version is $399 and the standard version is $349. Apple said they are now the largest watch manufacturer in the world, watch sales rose 50% over the last year and the watch now has a 97% customer approval rating. This new cellular watch is getting a lot of buzz and it could catapult watch sales significantly into a major revenue center.

The iPhone 8 starts at $699 and the 8+ at $799. They have significantly faster processors and Apple claims they have longer battery life. The iPhone X starts at $999 with 64gb of memory and has the option for 256gb of memory. All three phones offer wireless charging where you just lay the phone down on a charging pad. They are using the standard Qi standard and that appears to put to rest the worry they were going to require Apple licensed charging products with some kind of change to the Qi parameters.

T-Mobile offered a $300 trade-in for any iPhone 6 or newer. Sprint CEO Marcelo Claure said if you can find a better price anywhere, Sprint would match it.

The iPhone 8 models can be ordered on Sept 15th and be available on Sept 22nd. The iPhone X cannot be ordered until Oct 22nd and will be available on November 3rd. This caused an immediate sell the news drop in the stock. Apple was expected to sell 84 million phones in Q4 and not having the X until a month into the quarter and probably in lower quantities, could really put a crimp in Apple's sales forecasts. However, late in the afternoon they affirmed their current guidance saying they had planned for these dates in their original Q4 guidance.

The late ship on the X confirms all the rumors over the past months about low yields and multiple manufacturing issues. The big question now is whether they can get those issues fixed in time to produce a sufficient quantity in Q4. They also risk consumers holding off on buying the model 8 versions and waiting on the model X, which may or not be available in Q4. That could derail the normal iPhone upgrade process. There is also the price at $1,000 that could sour buyers on having to spend that much money on a phone regardless of how cool it is. Apple has some hurdles to overcome over the next four months. Shares rallied to $164 during the presentation but declined to $158.77 after the delivery delay was announced. Since Apple shares typically decline in the 3-4 weeks after a normal announcement, they could decline even more this year because of the uncertainty. The October 160 puts had volume of 10,255 contracts and the 155 puts traded 12,154 contracts. A lot of traders are betting on that decline.


With no earnings to report, it was a slow news day except for the Apple product announcement. Nordstrom (JWN) spiked 10% after the close after a report the Nordstrom family was close to choosing private-equity firm Leonard Green & Partners to help fund about $1 billion in a buyout to take the company private. Reportedly, the Nordstrom family has been talking to banks to line up an $8 billion loan to finance the deal. Family members own just over 30% of the stock. At the close the company had a $7 billion market cap.


Also after the close, Reuters warned that Harvey and Irma would hit apparel retailers harder than restaurants and other retailers. Analysts cut same store sales estimates from a +0.6% rise to +0.1% because of the storms. Dunkin Donuts could lose $17 million in sales if their stores were closed for a week and that would be 10% of their quarterly estimates. Bojangles (BOJA) could be hit the worst because the southern cooking stores are located in the South. Canaccord said more than 80% of their stores are in the storm-hit areas.


A Gordon Hasket analyst said Wal-Mart and dollar stores would only see a modest decline because the stocking up on supplies ahead of the storms and then replenishing items after the storms would offset the days the stores were closed. They said home improvement stores like Home Depot were much better positioned and same store sales could rise 3.5% to 4.0% in Q3/Q4.


Foursquare, a location data tracking company, said foot traffic at Whole Foods rose 25% in the week after Amazon completed the acquisition. Everyone wanted to see what was different and how much prices had changed. Amazon cut prices on some items by as much as 43%. The key will be the prices a month from now.

Reportedly, Amazon had more than 2,000 Whole Foods branded items on its website during the first week. One Click Retail said Amazon sold more than $500,000 of Whole Foods items sold through Amazon Fresh, Prime Pantry and Prime Now websites. Another report said Amazon sold out of the majority of the top 400 Whole Food branded items.


Disney (DIS) said it was delaying the release of "Star Wars: Episode IX" by 7 months until December 2019. The delay came after the studio said it had hired J.J. Abrams to direct and co-write the ninth film in the Star Wars series. Abrams directed "The Force Awakens" and created more than $2 billion in box office revenues. He had previously said that would be his only film. Apparently, large sums of money changed his mind. Disney shares gained 80 cents but they are a long way from recovering the loss from their profit warning last week.


The lithium miners have been on a tear this week after China said it was going to ban gasoline powered cars in the years ahead. China is not alone. At least 8 other countries are considering gasoline bans. Those include Britain with a 2040 date, France 2040, India 2030 and Norway 2025. Germany, Austria, Denmark, Ireland, Japan, the Netherlands, Portugal, Korea and Spain are still determining target dates for a ban on sales. OPEC are you listening?

Albemarle (ALB) and Sociedad Quimica Minera De Chile (SQM) shares are soaring on the news. The Lithium ETF (LIT) is also on fire.





Markets

This is the fourth longest period in history of the markets without a 5% decline and it does not appear we are going to get one in September. However, this is September and market direction can change at any time. The new highs today were encouraging but two days does not make a trend.

The removal of the political hurdles went a long way towards removing some of the clouds over our future. President Trump is preparing a full court press with a full roadshow on tax reform and that will produce market lift in anticipation of an eventual compromise over the next 90 days. Some people do not believe tax reform will happen but the republicans have to do it or there will be a lot fewer republicans after the 2018 elections.

If Janet Yellen produces another dovish Fed statement next Wednesday that would be another weight off the market even though that is a very minor weight today. If they announce a tapering of QE that is a wild card. It has been so telegraphed and expected, it should not move the market but we never know.

The S&P broke out to a new high on Monday and then extended that high today to close at 2,496. Unfortunately, that is only 4 points from 2,500 and what will likely be a selling point for all the algorithmic computers. Several analysts have upgraded their yearend targets well over 2,500 but that is still a large round number where computers are probably going to take profits. If by chance we do blow through 2,500 we could be off to the races. Craig Johnson at Piper Jaffray raised his price target on Monday to 2,575 saying there were more upside than downside catalysts.


The Dow closed over its prior high by a whopping 0.44 of a point. McDonalds and United Health were major drags. Apple could be a major drag over the next several weeks if their normal post announcement depression appears on schedule.

The banks were up today because interest rates were rising. The yield on the ten-year rose to 2.17%, up from a low of 2.034% last week.

The Dow needs to surge through the intraday high at 22,179 and add some gains to avoid forming a double top formation at 22,118.



The Nasdaq closed at a new high and only 6 points from a new intraday high over 6,460. The big cap techs are going to be Apple reactive over the next several days. If Apple fades, I would not be surprised to see the rest of the big caps fade. If the Nasdaq can push through 6,460, the next material resistance would be around 6,600. That is a long sprint and there would probably be several pauses along the way.




The broadest of the market indexes, the Russell 3000, rallied to a new high but came to a dead stop at uptrend resistance at 1,476. This index IS the market. If it can push through that level, the rest of the indexes will follow suit.


At the risk of jinxing the market, there are very few obvious roadblocks in our future. There could always be new ones appear and that could include something like a new missile launch from North Korea even though I think traders would immediately buy the dip.

The problem for me is that when everything starts looking too bullish, I feel like there is something I am missing or there is a Black Swan event just around the corner. However, I am going to remain long until proven wrong.

We had an Irma induced problem with the newsletter on Monday. Thomas is in North Carolina and experienced internet problems because of the remnants of Irma. The newsletter failed to go out on Monday night and the problem was not corrected until late on Tuesday. I apologize for the problem but I have learned after doing this for the last 20 years that sometimes "stuff happens" and we just have to deal with it and go on.

Enter passively, exit aggressively!

Jim Brown

Send Jim an email

 

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

subscribe now

 


New Option Plays

Repeat Recommendation

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.

This is a repeat play from the Monday newsletter that did not go out.



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

Rally Continues

by Jim Brown

Click here to email Jim Brown

Editors Note:

The Dow, Nasdaq, S&P and Russell 3000 all made new highs today. The Dow only pulled out the win by 0.44 of a point but it was still a new high. McDonalds was the biggest drag. The S&P is stretching its gains with another 8-point day.

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


No Changes



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

Credit spreads and naked puts = OptionWriter

Long term option investments = LEAPS Investor

3-6 month Option Trades = Ultimate Investor

Iron Condors = Couch Potato Trader

Long and short equity trades = Premier Investor



BULLISH Play Updates

ALB - Albermarle - Company Profile

Comments:

The spike yesterday and today was on news that China, France, India, Norway and Britain are considering banning gasoline and diesel cars. Germany has also discussed that option. This would greatly expand the demand for lithium, a major commodity mined by ALB.

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:

The Apple products have been announced and this will be a windfall for Best Buy. The new phones are expensive and buyers will want to visit a store for their purchase in order to get all the accessories like the wireless charging pads, air pod earphones, cases to protect the expensive phones and to physically look at the colors and options. Best Buy will make a lot of money from this product release.

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:

The investor meeting must have gone well with shares gaining more than $2. They are also participating in a Morgan Stanley conference and the RBC Industrials 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.


SPLK - Splunk - Company Profile

Comments:

No specific news. Shares are still holding 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 finally closed above resistance but only barely.

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 continued to move higher on no news. New closing high.

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 declined only .15 despite the market rally. Apparently, quite a few people do not expect the rally to continue.

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 rise and it has been 3 weeks.

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 a new closing high by about 0.44 of a point. The prior intraday high at 22,179 is the next target but we still have to be wary that this is not a double top in progress.

I have 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 intraday 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.




If you like the trade setups you have been receiving and you are on a free trial then now is the time to subscribe. Don't wait until you miss a newsletter to decide you want to take the plunge.

subscribe now