Option Investor
Newsletter

Daily Newsletter, Thursday, 9/21/2017

Table of Contents

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

Market Wrap

Quiet Market Mulls Rate Hikes

by Thomas Hughes

Click here to email Thomas Hughes

Introduction

The FOMC has indicated a December hike likely and the market quietly accepted the news. There was some mild intraday volatility but nothing to write home about, the market is treading water near its all time highs and the outlook is good. Today's economic data was positive and in support of expanding growth, reinforcing the idea of a December hike and the possibility GDP could expand above 3%.

International markets were quiet as well. In Asia eyes were on the BOJ which decided to hold rates steady and gave no indication of future policy action. Indices in the region were flat on the day with China closing with small losses and Japan with small gains. European indices were also flat but mostly in the green. Shares were supported by positive economic outlook and the possibility of a weaker euro.

Market Statistics

Futures trading was calm and quiet indicating little to no change at the open. There was a little movement with the release of data but not substantial, the open was however a little more active. Selling hit the market with the opening bell and drove the broad market down by about 8 points or -0.30%. This brought the SPX down to just below 2,500 where it created a neat little double bottom ad bounced back to near break even. It proceed to trend sideways near the high of the day until mid afternoon when prices dipped to test support, confirmed and bounce back to close near the middle of the days range.

Economic Calendar

The Economy

Jobless claims are already showing improvement following the two hurricanes. Initial claims fell -23,000 on top of a downward revision of -2,000 to hit 259,000. This level is still elevated but down substantially from a few weeks ago and well on the way to returning to more normalized levels. The four week moving average gained 6,000 to hit 268,750 and is at a +1 year high. Looking at the numbers I expect the average to begin falling next week. On a not adjusted basis claims rose by 0.006% versus an expected 8.8% and are up 3.2% over last year. Claims will likely remain elevated for another week or two but look like the surge won't last much longer than that, barring another storm of course.


Continuing claims rose by 44,000 and are now showing effect of hurricane related job loss. That being said the impact of 2nd week filers appears to be muted compared to that of initial claim filers indicative of employees getting back to work. The previous week's figure was revised down by -8,000, the four week moving average rose by 6,500 to hit 1.953. All in all this figure is showing an increase but not a very significant one, and one that will likely subside very soon.

The total number of claims has not yet been affected by the storm data, that will come next week. This week's data shows a continuation of near term and long term trends, falling by -114,202 and better than expected. This figure shows further improvement within the labor market, not much more to say about it than that.


The Philly Fed Manufacturing Business Outlook Survey shows a broadening of growth within the sector and region. And also an increase in pricing pressure. The activity index increased by 5 points to 23.8 while the future outlook index gained nearly 13 points to approach the all time high. The activity index has been positive for 14 months showing sustained expansion within the sector. The new orders index rose by 9, the shipments index by 8 and both the delivery and unfilled orders indices remained positive indicative of growing back log. Employment fell slightly but remains positive and expansionary.


The Index of Leading Indicators confirms growth and the possibility of expansion within the economy. The index rose by 0.4% in August and has been positive for 13 months. Economists at the Conference Board say the index is pointing to continued growth that may even have a moderate pick up. Tomorrow's data is Flash PMI for both the manufacturing and services sectors.


The Dollar Index

The Dollar Index gave up some of its gains in today's trade. While the dollar made advancements against the yen, hitting a two month high, it fell against the euro which is also expected to receive support from its central bank. The FOMC statement was bullish for the dollar but not really more than expected with the caveat that expected ECB action will continue to erode strength in the dollar. Looking back to yesterday's statement and press conference I thought it was scary when they said they don't know why inflation is running so low, sounds like they aren't really in control. Considering the data and in particular the indications of growth given by the Leading Indicators I'll not be surprised when we see inflation begin to spike. For now it looks like the DXY may remain within the near term range, near long term lows, between $91 and $92.50.


The Gold Index

The reaction in gold to the FOMC meeting was more decisive. Firming forward rate hike expectations sent the metal crashing to support at $1,300 and through it to trade near $1,290. Now that gold has broken support there is risk it will fall further with possible targets as low as $1,250 with nearer targets at $1,280 and $1,265. That being said there is still support from safe haven seekers and a chance the dollar will not be able to strengthen substantially.

The Gold Miners ETF GDX fell nearly -2% to hit support at the long term moving average. Today's action created a gap lower that was met by buyers and forming a green bodied candle. Support is now at the long term moving average, a break below which would be bearish. The indicators are bearish, pointing lower and gaining strength suggesting that support will at the least be tested further. A break below the moving average would have targets near $22.50, $22 and $21. A bounce from the moving average would confirm support but face resistance at $24 and $25. Longer term it looks like the ETF will remain range bound.


The Oil Index

Oil prices pulled back from yesterday's highs but remains above $50. The price is supported by hopes OPEC will give signs of extending the production cut tomorrow at their Vienna meeting, it is being weighed down by US and global production levels. US production is now reported to have regained pre-Harvey levels and there are no major disruptions in global supply. Without OPEC I see little reason for prices to move higher save a possible pick up in demand as economic expansion continues.

The XOI continues to move higher, supported by rising oil prices and forward earnings outlook. The index gained a half percent today and set a new 5 month high. I think I can safely say now that the sector has fully reversed. I don't know that it's time to add to positions right now, but future dips and tests of support will be buying opportunities. Next target for resistance is near 1,200, first target for support is near 1,160.


In The News, Story Stocks and Earnings

Google announced plans to expand on its smartphone business. The Internet behemoth is purchasing portions of HTC's business including employees and teams working on the Pixel smartphone. The deal is worth $1.1 billion and does not include an equity stake in HTC which will continue with its other operations pending a possible IPO(?). In the statement Google said it was investing for the long run. Shares of Google gained about 0.40% and confirmed support at the short term moving average. The stock is consolidating above long term support with indicators showing bullish crossovers and looks like it will move higher.


Micron reports after the bell tomorrow. The company is expected to post strong earnings driven by double digit growth in DRAM chips that is not expected to abate until 2019. Today the stock traded in a tight range just shy of the 3 year high. Price action is bullish over the short term and supported by the indicators. Nearer term it is in consolidation at recent highs with the possibility of extending the run higher. A beat on earnings with positive outlook could drive the move. Upside target would be near $42.


The VIX shed another half percent to close below 10. The index created a small doji candle testing resistance at the 10 level and confirming for the 2nd day in a row. The indicators are bearish, pointing lower and gaining strength suggesting the index will continue to fall. Downside target is near recent and long term lows in the vicinity of 8.90. This action is consistent with a calm market and bullish conditions if not a rise in the corresponding SPX.


The Indices

Today's action was largely to the downside but only marginally and not indicative of imminent doom. The indices are quietly churning at their highs, calmly processing yesterday's FOMC announcement and preparing for the onset of peak earnings season. The Dow Jones Transportation Average led with a small gain, about 0.15%, and set a new high. This is a new two month high and supported by the indicators so a move up to test the all time high looks likely. A break to new all time highs would be trend following and bullish.


The tech heavy NASDAQ Composite made the largest decline, about -0.50%, in a small test of support at the short term moving average. The indicators are bullish but rolling over, consistent with the near term top and suggestive that support will be tested and/or a consolidation range has been reached. Support is just below the 2,400 level near the the short term moving average, a break below there would be bearish in the near term with target near 6,250. A bounce would be bullish and trend following with upside target in new all time high territory.


The SPX closed with a loss of -0.30%. The broad market created a small red bodied candle just under the all time high and completely within yesterday's candle. The index appears to have crested a near term top and the indicators are in support. Near term support is at 2,500 for now. If it moves lower next support is likely to found at the short term moving average 2476, or -1%. A bounce from either level would be trend following and bullish.


The Dow Jones Industrial Average created a small bodied red candle closing at the low of the day and posting a loss of -0.23%. Today's action created a new all time high at the open that was met by light profit taking. The indicators remain bullish although they do show a little weakening in the near term. Without major resistance it is possible this index could continue to drift higher in the near term. If not, support is near 22,200.


The indices have broken to new highs and are now consolidating at those highs. The FOMC meeting confirmed forward economic outlook, as did today's data, and that outlook has been dimmed a bit in terms of long running inflation expectations. This adds up to economic growth, earnings growth, low inflation and ultimately low interest rates regardless of a hike or two. I am still firmly bullish for the long term. In the near term I am cautiously and selectively bullish, watching the rotation and waiting for earnings season.

Until then, remember the trend!

Thomas Hughes


New Option Plays

Trend Change?

by Jim Brown

Click here to email Jim Brown

Editors Note:

The market finally suffered some growing pains. Is this a trend change? S&P futures are down -6 and falling as I type this. There is a good possibility we are going to get some of that historical September volatility just because the markets are extended from their recent gains. Profit taking is normal and I would love to have a dip to buy just not today. Weekends still have event risk.



NEW DIRECTIONAL CALL PLAYS

No New Bullish Plays


NEW DIRECTIONAL PUT PLAYS

No New Bearish Plays



In Play Updates and Reviews

Resistance Held

by Jim Brown

Click here to email Jim Brown

Editors Note:

The S&P fought resistance at 2,508 intraday for four days and resistance held. The S&P fell back to prior resistance at 2,500 with a 7-point loss. The Dow's streak ended at 8 days with a minor 53-point loss. AAPL, PG and JNJ erased 40 Dow points. The Nasdaq fell hard with a 33 point loss led by APPL, TSLA and NVDA. We were due for some profit taking.



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


ABBV - AbbVie Inc
The long call position was entered at the open.

VAR - Varian Medical
The long call position was stopped at $105.65.

DVMT - Dell Technologies
The long call position was stopped at $75.85.



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:

The company declared a dividend of 13.2 cents payable Oct 25th to holders on Oct 3rd.

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.

Update 9/19: The company said the FDA had approved their PD-L1 IHC 28-8 PharmDX cancer diagnostic test for additional typed of cancers.

Position 9/13/17:

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


ABBV - AbbVie - Company Profile

Comments:

No specific news. Shares were flat on the day despite the weak market and more than 7 million shares traded. Company was mentioned on CNBC as having a very strong outlook.

Original Trade Description: Sept 20th.

AbbVie Inc. discovers, develops, manufactures, and sells pharmaceutical products worldwide. The company offers HUMIRA, a biologic therapy administered as a subcutaneous injection to treat autoimmune diseases; IMBRUVICA, an oral therapy for the treatment of patients with chronic lymphocytic leukemia; and VIEKIRA PAK, an interferon-free therapy, with or without ribavirin, for the treatment of adults with genotype 1 chronic hepatitis C. It also provides Kaletra, an anti- human immunodeficiency virus(HIV)-1 medicine used with other anti-HIV-1 medications as a treatment that maintains viral suppression in HIV-1 patients; Norvir, a protease inhibitor indicated in combination with other antiretroviral agents to treat HIV-1; and Synagis to prevent RSV infection at-risk infants. In addition, the company offers AndroGel, a testosterone replacement therapy for males diagnosed with symptomatic low testosterone; Creon, a pancreatic enzyme therapy for exocrine pancreatic insufficiency; Synthroid to treat hypothyroidism; and Lupron, a product for the palliative treatment of prostate cancer, endometriosis, and central precocious puberty, as well as for the treatment of patients with anemia. Further, it provides Duopa and Duodopa, a levodopa-carbidopa intestinal gel to treat Parkinson's disease; Sevoflurane, an anesthesia product for human use; and ZINBRYTA, a subcutaneous treatment for relapsing forms of multiple sclerosis. The company sells its products to wholesalers, distributors, government agencies, health care facilities, specialty pharmacies, and independent retailers from its distribution centers and public warehouses. AbbVie Inc. has collaboration agreements with C2N Diagnostics; Calico Life Sciences LLC; Infinity Pharmaceuticals, Inc.; M2Gen; and Principia Biopharma Inc. Company description from FinViz.com.

A lot of companies have 1-2 real drugs in the pipeline that may be approved. Several companies have one drug that could be a blockbuster and reach $1 billion in sales annually. AbbVie has multiple blockbusters in the pipeline and dozens of other drugs already in the market.

AbbVie was a spinoff from Abbott Laboratories in 2012 and they are doing great. In the first quarter they reported earnings of $1.28, that rose 11.3% and beat estimates by 2 cents. Revenue of $6.5 billion rose 10.1% and that was higher than three of its biggest competitors Amgen, $2.8 billion, Biogen $5.5 billion and Celgene $3.0 billion.

Earnings are expected to continue growing with analyst estimates for 14% annual growth over the next five years. AbbVie guided for 13% to 15% in 2017. Despite the earnings growth the stock only trades at a PE of 11.

Shares dipped back in May when Coherus won a court battle invalidating one of AbbVie's patents on Humira, their biggest drug. However, AbbVie said it was not a problem because there were 61 other patents on the drug and they would fight it in the courts until 2020. The first trial is not even scheduled until 2019. Amgen won FDA approval for a biosimilar but AbbVie said it would not happen until 2020 at the earliest.

The company's confidence that there would not be a biosimilar drug until 2021-2022 matched analyst estimates. This is a steep uphill battle for anyone trying to copy this drug.

The company's other drugs are going to be cash cows. Imbruvica generated $1.8 billion in sales in 2016 and could reach $7 billion annually over the next couple of years. Venclexta was approved in 2016 for leukemia and sales could peak at $3.5 billion a year. An experimental cancer drug called Rova-T could hit $5 billion a year when approved. A psoriasis drug called risankizumab could produce $4 billion a year and arthritis drug upadacitinib could peak at $3.5 billion. Given all these cash flow giants in the pipeline, I am amazed the company only trades at a PE of 11.

The company recently received a favorable opinion on MAVIRET, a once daily Hep-C drug, from the European Medical Agency and the CHMP. This is an 8 week cure for Hep-C that will compete with Gilead's products. AbbVie has declared war on the Gilead Sciences Hep-C franchise. Mavyret has a 97.5% cure rate and only costs $13,200 for four weeks of treatment compared to Gilead's newest drugs at $25,000 for four-weeks. Most patients are cured in 8 weeks but some have to continue for 12 weeks. Gilead's Harvoni was initially $96,000 for a 12-week treatment.

Estimated earnings date is Oct 27th.

I would not normally pick a stock with the strong gains over the prior two weeks. However, the outlook for AbbVie is so strong that I believe they will move higher. After the $14 gain in early September, the stock pulled back for a week. Shares are starting to pick up again and I think we should buy this dip. The options are cheap so the risk is minimal.

Position 9/21/17:

Long Nov $90 call @ $1.81, see portfolio graphic for stop loss.


ALB - Albermarle - Company Profile

Comments:

No specific news. We finally saw a down day after 8 days of gains. The decline was minimal in a weak market.

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.

Update 9/18/17: 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.

Position 8/22:

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


CAT - Caterpillar - Company Profile

Comments:

CAT reported a global increase in machine sales of 11% for August, down 1% from July. Total sales in Asia and the Pacific surged 44%, down 1% from July. Despite the minor declines, the business is very strong. Shares only declined 6 cents in a weak market.

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.

Update 9/18/17: 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.

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 dipped sharply at the open to stop us out at $75.85.

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:

Closed 9/21: Long Dec $80 call @ $2.40, exit $1.68, -.72 loss.


SWK - Stanley Black & Decker - Company Profile

Comments:

No specific news. Shares declined slightly in a weak market.

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. Shares only declined 10 cents in a weak market so maybe the sellers are running out of stock.

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. The biotech sector crashed and VAR lost $2.35 to stop us out. Shares had been struggling at resistance for over a week so this was not unexpected.

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:

Closed 9/21: Long Nov $105 call @ $1.75, exit $3.90, +$2.15 gain.


VIX - Volatility Index - Index Profile

Comments:

Unbelievable. All the major indexes declined and the VIX fell 11 cents. The VIX traded under 10 for the 43rd day this year. I lowered the exit target because volatility is shrinking fast.

We still have plenty of time. North Korea, Iran and Venezuela are 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 declined with the market despite news they would not be hurt by the Obamacare repeal bill.

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)

MNK - Mallinckrodt - Company Profile

Comments:

No specific news. Another minor rebound from Monday's historic low close.

Original Trade Description: August 19th.

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.

Position 9/19/17:

Long Jan $30 put @ $2.30, see portfolio graphic for stop loss.




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