Option Investor
Newsletter

Daily Newsletter, Monday, 9/18/2017

Table of Contents

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

Market Wrap

Waiting For The Fed

by Thomas Hughes

Click here to email Thomas Hughes

Introduction

Global markets moved higher in anticipation of this month's FOMC meeting. There is little to no expectation for a rate hike but considerable expectation the committee will signal the beginning of balance sheet reduction. Looking at the CME's Fed Watch Tool there is a bigger chance of a rate reduction than a hike, about 1.5%. There is also some expectation for comments on forward rate hike timing, the state of the economy and/or longer term outlook for inflation. Needless to say there is a great chance for moves in the dollar and equities markets.

International markets moved higher in the Monday session. Gains were not big but were broad across regions and sectors. In Asia the mainland Chinese Hang Seng index led with a gain near 1.25% while in Europe gains were in the range of 0.3% to 0.6%.

Market Statistics

Futures trading indicated a positive open all morning although bullish optimism moderated into the opening bell. There were no noteworthy earnings releases or economic reports to affect early trading. The open was a bit on the busy side. The indices opened with small gains and then extended those to near 0.35% within the first 30 minutes of trading. This peak turned out to be intraday high for the broad market which spent the remainder of the day trending sideways at that high. Which by the way is a new all time high.

Economic Calendar

The Economy

While there were no economic reports in the early hours there was one release after the open of trading. The NAHB Home Builder Sentiment Index came in at 64 for the preliminary September reading, down -0.3% from last month's revised 67. This reading is at the low end of the 12 month range. Within the report the current index came in at 70 and the future outlook index at 73 while the traffic of buyers index came in at a miserable 47.


Moody's Survey of Business Confidence came in at 30.7 this week, up 0.2% from last week. Mr. Zandi describes this as “snapped back...” but I don't really see that. Regardless, the reading remains strong and steady for the year. Sentiment in the US is the strongest as it has been while that in South American is weakest and consistent with an economy that is barely growing.


Earnings estimates for the 3rd quarter continue to decline. Third quarter earnings growth for the S&P 500 is now expected to be 4.5%, down -0.4% from last week. Eight of the 11 S&P sectors are expected to show earnings growth, led by Energy, while 10 of those 11 sectors have had their outlooks reduced since the beginning of the quarter. In terms of price to earnings the forward P/E continues to rise, is at a long term high and well above the 3 and 5 year averages.


Looking out to the longer term growth is still in the forecast but it too is getting downgraded. Fourth quarter 2017 is projected at 11.2% with full year 2017 at 9.6%. Full year 2018 is still expected to see double digit growth but now only 10.9%. The first and second quarter of 2018 are only expected to post growth in the range of 10.2% which means we can expect to see growth expand into the end of the year.


There is a bit of economic data this week aside from the Fed. Topping the list is a bundle of housing data including starts, permits and existing home sales. Thursday is the Philly Fed Manufacturing Business Outlook Survey and Leading Indicators, then on Friday Markitt's Flash PMI for manufacturing and services.

The Dollar Index

The Dollar Index held steady in today's trade, gaining about 0.20% in a move creating a small green candle. Today's action is sideways from Friday and within the near term consolidation range, just above long term support. The index is trading near long terms on a decline in forward FOMC outlook that may have hit bottom. With the committee expected to indicate the onset of balance sheet reduction and/or give hints to inflation/rate hike outlook anything short of dovishness is likely to put a bid into the dollar. A bounce from this level would be bullish but may only indicate the beginning of sideways trading within a range. First target for resistance is near $92.70 and then $93.50. Support is near $91.00 and the long term low, a break below which would be trend following and bearish.


The Gold Index

Gold prices fell a little more than -1.0% on rising dollar and lack of geopolitical catalyst. Spot price is now hovering around $1,310 with eyes on the Fed. If the meeting is net dovish and the dollar falls gold could easily rise to retest recent highs. If the meeting is net hawkish then a break below $1,300 comes into play.

The Gold Miners ETF GDX fell about -1.75% in response to the weakness in gold prices. The ETF created a small gap lower, opening at the short term moving average and falling from there. The move appears to be bearish with the caveat gold prices could swing the other way very easily. The indicators are moving lower following bearish crossovers and consistent with lower prices. Longer term the ETF is in a trading range and likely moving lower to retest support within that range. First target was the short term moving average but that has already been exceeded, next target is the long term moving average near the $23 level.


The Oil Index

Oil prices were a little volatile today. The price of WTI flirted with $50 in early trading then fell about -1% only to claw its way back to break even and above $50 by settlement time. The move is driven by demand buying in the post-storm clean-up period along with last week's fall in rig counts and some hope of OPEC extending the production cap. There may still be resistance at $50 but it looks like prices are going to test it in the least. A firm move above $50 will be bullish with upside target near $55.

The Oil Index gained a little more than 0.30% and broke out to a new 4 month high. The index is moving higher in tandem with rising oil prices and supported long term by forward earnings growth outlook. Today's move is highly encouraging for the energy bulls but does not yet signal full correction. A firm move higher with a retest of support, or a test of support and firm break of resistance, would do the trick. Until then I am bullish but still very cautious.


In The News, Story Stocks and Earnings

Banking stocks were among today's leaders. Increasing yield in the 10 year treasury and a steepening of the yield curve bode well for profitability. The SPDR Banking ETF KBE and Financial Sector ETF XLF were both up more than 1% in today's session, led by the banks. The KBE is moving up off the short term moving average and looks like it will easily test the current all time high near $25.50. Today's move confirms continuation of the move begun 2 Friday's ago with the bounce from the long term moving average. Near term projection is equal to the distance between the two moving averages, $0.70, or $25.40. The indicators are both moving higher after trend following bullish crossovers and support such a move.


Caterpillar was upgraded to a buy this morning by UBS. The analysts say the earnings upcycle will continue to drive cash and returns for investors. They also say the current cash position is under appreciated. Shares of the stock gapped up by 2% and set a new all time high.


The VIX fell another -0.5% to set a one month low below my 10.25 support target. The fear index appears to be subsiding to recent lows consistent with the S&P 500's rise to new highs. The indicators are consistent with a move lower, downside targets are 9.50 and 8.80.


The Indices

Today's action was mostly bullish and resulted in new all time highs for most major indices. One exception is the Dow Jones Transportation Average which lost -0.33% and created a medium sized red candle. The transports appear to be consolidating above a new support level so today's move is not too concerning. The indicators are consistent with this showing some near term weakness and should be watched. Near term support is near 9,500, a drop below which could go as low as the short term moving average at 9,360. A move higher would be bullish and trend following with upside target near the current all time high.


The days biggest gainer is the Dow Jones Industrial Average with a gain near 0.25%. The blue chips created a small green bodied candle and set another new all time high. The index is continuing a trend following bounce and looks like it will go higher. The indicators continue to rise in support of this move with stochastic showing strength with a bullish cross of the upper signal line. Upside target is in the range of 22,500 to 22,600 in the near term.


The S&P 500 made the 2nd largest gain, 0.17%, and created a small doji candle. The index is moving higher following a trend following bounce of the short term moving average and looks like it could go higher. The indicators are bullish in support of this move with only a slight down tick in stochastic %K to indicate any kind of weakness. Upside target is 2,550.


The NASDAQ Composite made the smallest gain, just under 0.10%. The tech heavy index created a small to medium sized doji candle setting a new all time intraday high but not a closing high. The indicators are bullish and in support of a break to new highs with the caveat that MACD momentum is showing a bit of weakening. A fall from this level may find near term support at 6,400 or just below that near the short term moving average. A move higher would be trend following and bullish with targets near 6,700.


The charts continue to look bullish and price action continues to confirm. The caution for today is that action is still light and the FOMC meeting is this week. That being said I remain bullish for the near and long term. The FOMC may induce volatility with their statement or their actions but the bottomline remains this; economic and earnings trends are positive and the outlook for both is positive so there is little reason to fear major correction or reversal at this time. A dip, particularly going into earnings season, would be another buying opportunity in my opinion. Until then I remain bullish for the near and long term.

Until then, remember the trend!

Thomas Hughes


New Option Plays

Generic Onslaught

by Jim Brown

Click here to email Jim Brown

Editors Note:

Having a blockbuster drug is great until your patents expire. Mallinckrodt lost 11 patents on its largest selling drug Inomax.



NEW DIRECTIONAL CALL PLAYS

No New Bullish Plays


NEW DIRECTIONAL PUT PLAYS

MNK - Mallinckrodt - Company Profile

Mallinckrodt public limited company develops, manufactures, markets, and distributes branded and generic specialty pharmaceutical products and therapies in the United States, Europe, the Middle East, Africa, and internationally. The company's Specialty Brands segment markets branded pharmaceutical products for autoimmune and rare diseases, including the specialty areas of neurology, rheumatology, nephrology, ophthalmology, and pulmonology; and immunotherapy and neonatal respiratory critical care therapies, as well as analgesics and hemostasis products, and central nervous system drugs. This segment offers Acthar, an injectable drug for various indications, such as neurology, rheumatology, nephrology, and pulmonology; Ofirmev, an intravenous formulation of acetaminophen for pain management; Inomax for inhalation; Therakos, an immunotherapy treatment platform; and Exalgo, a form of hydromorphone. It is also developing StrataGraft, a full-thickness product for severe burns and other complex skin defects. Its Specialty Generics segment provides specialty generic pharmaceuticals and active pharmaceutical ingredients (APIs) consisting of hydrocodone and hydrocodone-containing tablets; oxycodone and oxycodone-containing tablets; methylphenidate HCl extended-release tablets; and other controlled substances, including acetaminophen products. The company markets its branded products to physicians, pharmacists, pharmacy buyers, hospital procurement departments, ambulatory surgical centers, and specialty pharmacies. It distributes its branded and generic products through independent channels, including wholesale drug distributors, specialty pharmaceutical distributors, retail pharmacy chains, hospital networks, ambulatory surgical centers, and governmental agencies; and APIs directly or through distributors to other pharmaceutical companies. Company description from FinViz.com.

MNK is in trouble from multiple angles. Early this month a District Court invalidated 11 patents for the drug Inomax as competing companies prepare to launch generic copies. MNK said they planned to appeal but the patents expire anyway next October so it is only about 12 months before the onslaught of generic copies. Inomax represents 15% of revenue for MNK. The next generic challenge for MNK is the drug Acthar, which accounts for more than 50% of their revenue.

MNK is also under investigation on its marketing of opioid medications. States are becoming stricter about how companies sell these drugs off label. For instance, if a drug is approved for post surgical pain and the company also markets it for back pain or arthritis that is called off label. It is an effort to convert an entirely new class of patients into addicts.

Nobody knows if MNK is guilty of anything but the Missouri Atty General is expanding their probe.

Earnings Nov 7th.

Shares have been declining for months but they accelerated after the court ruling on Sept 1st. They closed at a historic low on Monday.

The November options just appeared today and the premiums are high and wide. I am going to reach out to the January puts. Just because we are buying time does not mean we have to use it.

Buy Jan $30 put, currently $2.25, initial stop loss $37.75.



In Play Updates and Reviews

Caterpillar and Boeing

by Jim Brown

Click here to email Jim Brown

Editors Note:

The Dow continued its consecutive gains thanks to CAT and BA. Caterpillar was upgraded and its gains added 17 points to the Dow. Boeing is on a streak with a $4 gain and added 28 Dow points. The financials including GS, JPM and AXP added another 31 points. The S&P spiked to 2,508 intraday but pulled back to nearly 2,500 at the close. The big cap techs were mixed again and the Nasdaq 100 lost 7 points while the Composite gained 6 points.

The market was positive but it was impacted by Friday's option expiration cycle and settlements today. The Monday after an expiration is rarely directional.



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


SWK - Stanley, Black & Decker
The Long call position was entered at the open.



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

A - Agilent Technologies - Company Profile

Comments:

No specific news. Minor gain but holding at the highs.

Original Trade Description: September 12th.

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.

Position 9/13/17:

Long Nov $67.50 call @ $1.70, see portfolio graphic for stop loss.


ALB - Albermarle - Company Profile

Comments:

Shares exploded higher by nearly $4 after the company said it had developed a new technology to produce lithium in Chile without requiring additional brine pumping. They are planning to boost production by 80,000 metric tons a year on a sustainable basis. Their lithium business rose 36% in Q2 and they are targeting 50% market share of the industry.

These gains are getting ridiculous and I am sure glad I did not close this position on the initial breakout.

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. Shares erased their late week rebound with a 1.5% decline.

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:

UBS upgraded CAT from neutral to buy and raised the price target from $116 to $140. The analyst said the growing cash position, rising earnings and revenue projections were all bullish. CAT is expected to produce $10 billion in free cash flow over the next two years and return most of that to investors. UBS said a survey of 50 mining companies found that 60% expected to hike new equipment budgets in 2018 and 50% expect to rebuild their entire fleet.

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.

Update 9/13/17: In Tuesday's investor day meeting the new CEO said they were targeting $55 billion in revenue in 2018 with margins of 14%-17% compared to 12% in 2017. That would take them back to 2014 levels before the bear market in commodity/energy began. That is 28% above 2017 levels. He was careful not to call it a target but said that level was achievable if the current rebound in mining, energy and construction continued.

Position 8/30/17:

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


DVMT - Dell Technologies - Company Profile

Comments:

No specific news. Shares consolidating ahead of the Toshiba vote on Wednesday.

Original Trade Description: Sept 13th.

Dell Technologies Inc. provides a range of technology solutions worldwide. It offers client computing devices, including desktop personal computers, notebooks, and tablets; rack, blade, tower, and hyperscale servers for enterprise customers; value tower servers for small organizations, networks, and remote offices; networking solutions; and storage solutions, including storage area networks, network-attached and direct-attached storage, and backup systems. It also sells peripherals, including monitors, printers, projectors, and other client and enterprise peripherals, as well as third-party software products. In addition, the company offers support and extended warranty, enterprise installation, and configuration services; and infrastructure and security managed, cloud computing and infrastructure consulting, and security consulting and threat intelligence services. Further, it provides application services, such as application development, maintenance, migration, management, and consulting, as well as package implementation, testing and quality assurance functions, business intelligence and data warehouse solutions; business process services comprising back office administration, call center management, and other technical and administration services; and system and information management, and security software services. Additionally, the company offers financial services, including originating, collecting, and servicing customer receivables primarily related to the purchase of its products. It serves corporate businesses; educational institutions, government, healthcare, and law enforcement agencies; small and medium-sized businesses; and consumers directly, as well as through retailers, third-party solution providers, system integrators, and third-party resellers. The company was formerly known as Denali Holding Inc. and changed its name to Dell Technologies Inc. in August 2016. Company description from FinViz.com.

Dell suffered from years of banner growth that set it up for years of disappointments when that growth slowed. Dell created a new market niche when it started in 1984 and but by the early 2000s there were dozens of copycat clones. The PC revolution had stalled by 2010 as tablets and smartphones stole market share. Michael Dell organized a buyout and took the company private. They eventually acquired EMC in August 2016 and by doing so returned to the public market as Dell Technologies. Shares closed at a new high on Wednesday.

In its first year as a new public company they paid down $9.5 billion in debt and completed three major divestitures. They created a $35 billion revenue channel and added 10,000 business customers for the year.

They recently signed a long term deal in partnership with GE that is one of the largest non-governmental contracts in Dell or EMC history. Under the agreement Dell becomes the sole source IT infrastructure supplier to GE. The Dell Technologies family of businesses includes Dell, Dell EMC, Pivotal, RSA, SecureWorks, Virtustream and VMware. It stands as a $74 billion market leader with the industry's most expansive portfolio from the edge to the data center to the cloud.

The Dell PowerEdge server is now the largest selling X86 server in the world and Dell is also number one in global workstation shipments and global monitor shipments.

For Q2, they reported adjusted earnings of $1.88 and revenue of $19.3 billion, up 48% from Q2-2016 and +8.3% from Q1-2017.

Expected earnings December 7th.

Shares rallied after earnings and then plateaued at $75 for over a week. They began moving up again this week to close at a new high. With business booming and Q3 normally a strong quarter, they could continue to move higher.

Position 9/14/17:

Long Dec $80 call @ $2.40, see portfolio graphic for stop loss.


SWK - Stanley Black & Decker - Company Profile

Comments:

No specific news. Shares broke through resistance and closed at a new high.

Original Trade Description: Sept 16th.

Stanley Black & Decker, Inc. provides tools and storage, commercial electronic security, and engineered fastening systems worldwide. Its Tools & Storage segment provides corded and cordless electric power tools and equipment, including drills, wrenches and drivers, grinders, saws, routers, and sanders; pneumatic tools and fasteners, such as nail guns, nails, staples, and anchors; lawn and garden products comprising trimmers, mowers, edgers, and related accessories; home products, such as vacuums, paint tools, and cleaning appliances; power tool accessories that include drill and router bits, abrasives, and saw blades; measuring, leveling, and layout tools; planes, hammers, demolition tools, knives, saws, chisels, and industrial and automotive tools; and storage products, such as tool boxes, sawhorses, medical cabinets, and engineered storage products. The company's Security segment offers alarm monitoring, video surveillance, fire alarm monitoring, systems integration, and system maintenance services; markets asset tracking, infant protection, pediatric protection, patient protection, wander management, fall management, and emergency call products; sells automatic doors, commercial hardware, locking mechanisms, electronic keyless entry systems, keying systems, and tubular and mortise door locksets. Its Industrial segment sells fastening products and systems comprising stud welding systems, blind rivets and tools, blind inserts and tools, drawn arc weld studs, plastic and mechanical fasteners, self-piercing riveting systems, nut running systems, micro fasteners, high-strength structural fasteners, and hydraulic tools and accessories; sells and rents custom pipe handling, joint welding, and coating equipment; and provides pipeline inspection services. Company description from FinViz.com.

With two disasters already and three more hurricanes heading for U.S. shores, there is going to be a significant jump in the number of tools sold over the next quarter. Investors have already lifted SWK to a new high but shares are holding right at the breakout level. The three new hurricanes are likely to give it that additional lift and produce a breakout.

For Q2, the company reported earnings of $2.01 that beat estimates for $1.96. Revenue of $3.229 billion also beat estimates for $3.17 billion. For the full year they guided to earnings of $7.18-$7.38, up from prior guidance of $7.08-$7.28. This is before the hurricane demand so guidance should rise again with the next earnings. Organic revenue is expected to rise 10% to 13% for 2017.

Earnings Oct 26th.

I considered buying the short-term October $150 call for $1.95 with shares at $148. There are five weeks before expiration but without a strong rally, the premium could deflate quickly since it expires before earnings. I elected to go with the next available strike in January at $155. That is farther out of the money than I usually go but we will have an earnings premium in the option when we exit before earnings. That will keep premiums from deflating.

Position 9/18/17:

Long Jan $155 call @ $3.20, see portfolio graphic for stop loss.


TER - Teradyne - Company Profile

Comments:

No specific news. In the weekend newsletter, I commented that Friday's breakout gain should stick. That was hardly the case with a big -3.4% drop today. That resistance at $36 is proving tough to break.

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. Varian released a new software program that rapidly customizes treatment with High Definition Radiotherapy (HDRT).

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 .02 despite the new highs on the indexes.

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. Minor decline as the consolidation continues.

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.



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