Option Investor
Newsletter

Daily Newsletter, Tuesday, 9/26/2017

Table of Contents

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

Market Wrap

Easy Come, Easy Go

by Jim Brown

Click here to email Jim Brown

The Dow spiked 73 points at the open but it quickly evaporated.

Market Statistics

The Dow rose on the strength of Apple and declined on the weakness in McDonalds. Apple added 18 Dow points and McDonalds subtracted 20 Dow points. This was the Dow's 4th consecutive loss after 9 consecutive days of gains. Intraday, Janet Yellen was alternately dovish and hawkish in her speech and that confused the market. I am paraphrasing, "Maybe we need more policy accommodation, no wait, maybe we need to continue hiking rates, the Fed really does not know what inflation is doing." The Dow closed 85 points below its intraday high.


The economic news was mixed without any high profile reports. State personal income for Q2 rose +0.7% after a +1.0% in Q1. Utah and Nevada had the highest growth at 1.3% and 1.1% respectively, thanks to high activity in the construction business. The two worst performing states were Iowa and Nebraska because of losses by farmers.

The Case Shiller 20-City Home Price Index rose 5.8% for July, up from 5.7% in June. This was the first gain in prices in four months. Housing inventory is currently at 4.2 months, up from the decade low of 3.5 months back in January.

New home sales fell from 580,000 in July to 560,000 in August. The median sales price fell from $326,500 to $302,100. New homes under $300,000 accounted for more than 50% of sales. The inventory on the market rose from 5.7 months to 6.1 months. There are 284,000 homes listed for sale, up 3.6% from July and 17.8% from August 2016.


Consumer confidence for September declined slightly from 120.4 to 119.8. The present conditions component declined from 148.4 to 146.1 and the expectations component rose from 101.7 to 102.2. Those respondents who thought jobs were plentiful declined from 34.4% to 32.6%. Respondents expecting to buy a car declined from 12.9% to 12.1%. Homebuyers declined from 7.3% to 6.9% while potential appliance/TV buyers rose from 50.5% to 54.0%.


The Richmond Fed Manufacturing Survey for September rose from 14 to 19 and the highest level since February. New orders rose to 20 and the highest level since April. Backorders fell from 11 to 8 and the lowest level in 3 months. Employment fell 2 points to 15. Overall, the report suggests activity remains sluggish but increasing slowly.



After the close, the API inventory report showed oil supplies unexpectedly fell by 761,000 barrels. Gasoline inventories rose 1.5 million barrels but distillates fell by 4.5 million barrels. There is a strong recovery cycle in progress on refined products and exports are increasing significantly with Brent prices $5 over WTI prices.

Crude prices were up on worries the Kurdish election results could create some oil production and transport problems in Iraq. Some Iraqi oil is transmitted through Kurdistan and the Kurds took control of some northern Iraq oil fields when they were threatened by ISIS and Iraq could not defend them. The results from the Kurdish vote on independence on Monday have not been announced but it is widely expected to be overwhelmingly in favor of creating a new country.

Turkey, Iran and Iraq are very hostile to that outcome and Iraq is threatening military action, demanding airports be immediately returned to Iraqi military control and they are demanding all money from oil revenues to be returned to Iraq. Iran setup missile batteries on the border. Turkey is threatening to move troops into the region to overthrow any rebellions. They are also threatening to prevent any oil from flowing across the Kurdistan border into Turkey. Iraq has halted international flights into the region. The Kurdish government is democratic and the surrounding countries are afraid a vote to create a new country could cause unrest in the neighboring countries which are ruled by dictatorial regimes, with the exception of Iraq.


The calendar for Wednesday does not have any market moving events. The Pending Home Sales Index is informational but normally ignored. The oil inventories could lift energy stocks if the EIA report shows a decline in inventories.


There were a few earnings events today and Darden Restaurants (DRI) reported before the bell. The company reported earnings of 99 cents that beat estimates by a penny. Revenue of $1.94 billion barely beat estimates of $1.93 billion. They guided for the full year for earnings of $4.38-$4.50. However, shares declined on weak same store sales of 1.7%, which missed estimates for 2.1%. Olive Garden sales rose 1.9% compared to estimates for 2.5%.


FactSet (FDS) reported earnings of $1.90, beating estimates by a penny but significantly lower than the $3.55 in the year ago quarter. Revenue of $326.6 million rose 14% from the comparison quarter. The company added 115 clients to raise their total to 4,750. Users rose 2,800 to more than 88,800. Shares spiked $9 on the news.


After the bell Dow component Nike (NKE) reported earnings of 57 cents that beat estimates for 48 cents. Revenue of $9.10 billion narrowly beat estimates for $9.08 billion. Gross margins fell -1.8% to 43.7%. Inventories rose 6%. Revenue from North America declined -3% and the first decline in 10 quarters. Sales in Europe rose 5%, China 12%, Asia 6% and Middle East/Africa 4%. The company is suffering after Sports Authority and Sports Chalet filed bankruptcy earlier this year and eliminated two major outlet chains. Nike said sales revenue in Q3 would grow in the low single-digit range. Shares spiked immediately after earnings but finished the session down -$1.20.


Micron (MU) reported earnings of $2.02 that beat estimates for $1.84. Revenue of $6.14 billion rose 90.8% and beat estimates for $5.96 billion. Prices for DRAM rose 5% and NAND 3%. Volumes sold rose 8% and 5% respectively. Shares rose $1.30 in afterhours.


Twitter (TWTR) shares rose fractionally in afterhours after the company said it was testing a doubling of the characters in a tweet from 140 to 280. The company said it was starting with a random sampling of users in most languages. Twitter said it still wanted to focus on brevity in messages but some thoughts will not fit in 140 characters. Previously Twitter tested tweets as big as 10,000 characters but passed on that upgrade. The current test will run for an "unspecified number of weeks" in all languages except Chinese, Japanese and Korean.


Alibaba (BABA) said it was raising its stake to 51% in logistics unit Cainiao and would invest $15 billion to create a global logistics giant. Cainiao had been losing money and Alibaba already had a 47% interest. Alibaba said the goal was to build the most efficient distribution network in China and around the world. Cainiao had been under investigation by the SEC related to Alibaba accounting issues.




Markets

The market had several problems today and one of them was the biotech sector. The Biotech Index fell -1.1% to close at a four week low. This weighed on the Nasdaq and the Russell to some extent. The index has been declining since the high at the end of August.


The S&P continues to struggle to hold its gains but it is doing a good job. The index only posted a fractional advance but it is still clinging to the psychological 2,500 level. For three weeks now, the S&P has traded in a very narrow 18-point range with daily gains and losses of only 2-3 points. There are no sellers but buyers lack the conviction to push the index to a new high. It is as though everyone is just waiting for September to be over before they put new money to work.


The Dow struggled almost immediately after the 75-point opening spike. The prior winners were losers and losers were winners but not in big numbers. Apple rebounded with a nice gain to keep the index from closing significantly lower. McDonalds and the entire restaurant sector declined after the Darden earnings and weak guidance. The hurricanes in Texas, Florida and Puerto Rico are expected to depress restaurant sales for Q3 and investors are fleeing before the earnings.

Oil was flat for the day and energy stocks gave back some of their prior gains. I have to point out that only two Dow stocks gained or lost more than $1. There was no heavy selling and there were buyers nibbling on the dips but no volume on either side.

The Dow is slowly building new resistance at 22,350 after three days of testing that level and closing lower. Above that will be the round number resistance at 22,500.



The big cap techs were mostly positive but only slightly. There were no major gains or major losses. Everything was just trading in place while we wait for September to end. After the major drops on Monday, tech traders were probably still in shock.

Monday

Tuesday


The index traded down to 6,350 on Monday and rebounded. That rebound continued this morning but the index could not punch back through resistance at 6,400 and closed 25 points below its intraday highs.


The most bullish event for the day was the spike on the Russell 2000 to nearly 1,461 when prior resistance was 1,452. That was a major push after five weeks of decent gains. The Russell has outperformed the big cap indexes and is now at a breakout high. I have a hard time thinking this will continue without a pause because of the strength and duration of the recent rally. However, I am sure the shorts are being squeezed and there is no telling where it will stop. This is bullish for the market because it means portfolio managers are not scared of any future decline. I am sure there is some rotation in progress from the big caps with massive profits into small caps for the Q4 rally.


Despite the minor declines from day to day in the various indexes, the market appears to be bulletproof. There have been numerous things that could have caused a significant decline and the market keeps shaking them off and crawling slowly higher. The Dow's 9-day rally has been followed by a 4-day decline. That is not a big deal in my book. I would take that 650-point gain for a 128-point decline over 4 days every time.

I would continue to keep some cash in reserve just in case a buying opportunity does appear. The next 13 days are typically the most volatile of the year.

Enter passively, exit aggressively!

Jim Brown

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New Option Plays

Buying Support

by Jim Brown

Click here to email Jim Brown

Editors Note:

Facebook has corrected 7% from its $173.51 high close to test long term uptrend support.



NEW DIRECTIONAL CALL PLAYS

FB - Facebook - Company Profile

Facebook, Inc. provides various products to connect and share through mobile devices, personal computers, and other surfaces worldwide. Its solutions include Facebook Website and mobile application that enables people to connect, share, discover, and communicate each other on mobile devices and personal computers; Instagram, a mobile application that enables people to take photos or videos, customize them with filter effects, and share them with friends and followers in a photo feed or send them directly to friends; Messenger, a messaging application to communicate with people and businesses across platforms and devices; and WhatsApp Messenger, a mobile messaging application. The company also offers Oculus virtual reality technology and content platform, which allow people to enter an immersive and interactive environment to play games, consume content, and connect with others. Company description from FinViz.com.

Facebook fell hard on Monday with a nearly $8 drop. That knocked the stock back to $161.56 or a -6.88% decline from its highs. On Tuesday Facebook announced they had signed a long-term deal with the NFL to broadcast 10 min recaps of all 256 MFL games this season. The broadcast will be on Facebook's Watch channel and will be a major draw to that site. A lot of people follow multiple teams but they probably only get highlights on their local team on local TV. In this format they can get a comprehensive recap of every game every week.

Earnings are expected Nov 1st.

Facebook has been posting strong earnings beats and growing demographics. I expect that again in the Q3 report.

I am recommending the December options because in a spread format they are actually cheaper. The close to the money November options are expensive but options slightly out of the money are very cheap. The OTM December options have significant value that makes the spread work.

A $170 Nov call is $4.50. The Dec $170-$185 spread is $4.16 and we have an extra month of time if we decide to use it. The longer dated options will rise faster and retain their value better than the short term November strikes.

Because of the market weakness I am recommending an entry trigger at $165.50.

With a FB trade at $165.50:
Buy Dec $170 call, currently $5.75, initial stop loss $160.50.
Sell short Dec $185 call, currently $1.59, initial stop loss $160.50.
Net debit $4.16.


NEW DIRECTIONAL PUT PLAYS

No New Bearish Plays



In Play Updates and Reviews

Not a Good Sign

by Jim Brown

Click here to email Jim Brown

Editors Note:

The Dow closed 85 points below its intraday high and at the lows for the day. The Nasdaq remained positive but closed 25 points below its intraday high. With all but 3 big caps techs positive, I would have expected a better market.

On the positive side, the Russell 2000 gained 5 points to another new high. It would have been more but the biotech sector sold off and erased some of the Russell's intraday gains.



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 stopped at $149.35.



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

AAPL - Apple Inc - Company Profile

Comments:

Raymond James raised their price target to $180 and increased expectations for gross margins and average selling price. The analyst does not expect this to boost earnings until Q2-2018. The analyst said the decline was a buying opportunity.

Original Trade Description: Sept 23rd.

Apple Inc. designs, manufactures, and markets mobile communication and media devices, personal computers, and portable digital music players to consumers, small and mid-sized businesses, and education, enterprise, and government customers worldwide. The company also sells related software, services, accessories, networking solutions, and third-party digital content and applications. It offers iPhone, a line of smartphones; iPad, a line of multi-purpose tablets; and Mac, a line of desktop and portable personal computers. The company also provides iLife, a consumer-oriented digital lifestyle software application suite; iWork, an integrated productivity suite that helps users create, present, and publish documents, presentations, and spreadsheets; and other application software, such as Final Cut Pro, Logic Pro X, and FileMaker Pro. In addition, it offers Apple TV that connects to consumers' TV and enables them to access digital content directly for streaming high definition video, playing music and games, and viewing photos; Apple Watch, a personal electronic device; and iPod, a line of portable digital music and media players. Further, the company sells Apple-branded and third-party Mac-compatible, and iOS-compatible accessories, such as headphones, displays, storage devices, Beats products, and other connectivity and computing products and supplies. Additionally, it offers iCloud, a cloud service; AppleCare that offers support options for its customers; and Apple Pay, a mobile payment service. The company sells and delivers digital content and applications through the iTunes Store, App Store, Mac App Store, TV App Store, iBooks Store, and Apple Music. Company description from FinViz.com.

Earnings October 31st.

Apple shares have fallen $13 since the September 1st high and $12 since the product announcement on September 12th. The shares have fallen into a cluster of converging support levels and the post announcement decline should be "about" over. Nobody will know for sure until the rebound begins.

After the product announcement Apple reaffirmed its guidance saying we planned for the recent event surrounding the production and release of the new products when giving the prior guidance. Apple rarely misses guidance. Knowing they were having production problems and staggered release they probably low-balled the number.

They are expected to sell 85 million phones in Q4. More than 66% of iPhone users have phones older than 2 years. They will have five active models for sale in Q4. They have the 7, 7+, 8, 8+ and the X plus they still have some of the older, cheaper models they are selling overseas in places like India. The new Watch could be the model that actually turns the Watch into its own revenue category instead of being lumped into the "other" category.

I have been negative on Apple for the last three weeks and the decline is going as expected. I believe the stock has reached a level where buyers will appear. There could still be several dollars of decline but the rebound could be just as quick once it appears to have bottomed.

I am recommending a November spread to reduce our risk and depending on the stock price before earnings, we might hold over the event. That is where they will give sales numbers and Q4 guidance and they could be strong.

Position 9/25/17:

Long Nov $155 call @ $3.65, see portfolio graphic for stop loss.
Short Nov $165 call @ $1.27, see portfolio graphic for stop loss.
Net debit $2.38.


ABBV - AbbVie - Company Profile

Comments:

UBS downgraded the stock from buy to neutral and initial support failed. If secondary support fails at $85, we are going to be stopped out.

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.

Update 9/23/17: AbbVie and Bristol-Myers announced a collaboration to evaluate a therapeutic regimen in advanced solid tumors. The partnership will test AbbVie's drug ABBV-399 along with the BMY drug Opdivo in non-small cell lung cancer.

Position 9/21/17:

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


CAT - Caterpillar - Company Profile

Comments:

No specific news. Minor gain in a weak market. Shares are holding just under the historic high.

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.

Update 9/21/17: 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.

Position 8/30/17:

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


SWK - Stanley Black & Decker - Company Profile

Comments:

No specific news. Shares rolled over and fell hard after Hurricane Maria turned and headed out to sea. With the headlines out of the news, the tool stocks faded. We were stopped at $149.35 for a minor gain.

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 24th. Revised.

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:

Closed 9/26/17: Long Jan $155 call @ $3.20, exit $3.61, +.40 gain.


TER - Teradyne - Company Profile

Comments:

No specific news. Minor decline in a weak market. I considered closing it but our stop loss was only missed by 3 cents. We have almost zero additional risk to let it ride.

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.


VIX - Volatility Index - Index Profile

Comments:

No material movement. If we do not get any volatility by Oct 6th, I am going to close the position. This week and the next two weeks are typically the most volatile of the year.

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 gained again despite the weak market. Now testing resistance.

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. Shares finally declined. Wednesday will be a key for direction.

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.




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