Option Investor
Newsletter

Daily Newsletter, Wednesday, 11/1/2017

Table of Contents

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

Market Wrap

Bullish First of Month

by Keene Little

Click here to email Keene Little
The first of the month tends to be positive, attributed to new investments that come into the market (retirement accounts and other monthly distributions from paychecks), and at least for the blue chips, that held true today. The tech indexes and RUT did not do as well as the blue chips today and there are some stronger hints of possible trouble for the bulls.

Today's Market Stats

The first of the month for SPX has been bullish 10 out of 11 times this year and that's been attributed to the new-month money that comes in from paycheck deductions for investments, especially retirement accounts. It's become somewhat of a self-fulfilling prophecy as well since traders are now expecting the first day or two to be bullish.

Another statistic the bulls have on their side is the fact that the first of November has been bullish 2/3 of the time since 1976 (hat tip to Tom McClellan). The blue chips kept the streak going with their positive close today, although the selloff following the morning gap up is not a bullish sign.

The tech indexes and RUT suffered a stronger selloff following this morning's gap up for the market, which could be a warning sign. There might be some rotation out of the riskier stocks into the relatively safety of the blue chips (easier to sell in a downturn, lower beta if riding the market down) and this could be hinting there's trouble ahead for the rally. But the bears have some work to do before they've proven the bulls are done.

This morning's economic reports were largely ignored (very little price action in the pre-market futures) since there were essentially no surprises. The ADP employment picture improved with the +235K vs. the +110K in September (which was revised lower from the originally reported +135K). The number was a little better than the +215K that the market expected.

The ISM Index came in a little lower at 58.7, vs. 60.8 in September, but near what the market expected (59). Construction spending for September was +0.3%, which was an improvement over the +0.1% in August and much better than the -0.2% that had been expected. Unfortunately the year-over-year% continues to decline since peaking in the spring of 2016.

Crude inventories declined -2.4M last week but that didn't help oil prices today since they declined after an overnight rally. As I'll show in oil's chart, the overnight high has the potential to be the top of its rally from June.

The FOMC rate decision this afternoon was a no-surprise hold on rates. The Fed's announcement left the door wide open to an expected December rate hike since the economy is "solid." There was no further discussion of the "QER" (QE Reversal), which remains on track to slowly reduce the amount of bonds that are rolled over, thereby removing some of the liquidity the Fed has been providing over the years.

One of the things that's not registering with the market yet is the fact that major central banks are now talking about and implementing plans to reverse some of the stimulus they've been providing with uber-low interest rates and lots of free money. The stock markets of the world (along with many other assets) have benefitted greatly from the extreme levels of stimulus from the central banks and most recognize this to be true. So why is QER not striking fear into market participants? Because right now the market is not paying attention to any bad news. As my granddaughter (3 years old at the time) used to say, when she didn't want to be told something she didn't want to hear, "Don't say any something." That's what the market is telling us right now.

Cora sent me an email with the following observation about all of this:

"This market does not sell off or take profits for any reason whatsoever.
- Manhattan terrorist attack during market hours - same old, same old...it didn't take out any of the 1% that makes our market
- President threatened with impeachment - whatever, it's just another day of politics
- Fed unwinding Quantitative Easing - eh, they will take care of us in some other way
- Korea threatening with [a nuclear] bomb - he has funny hair
- Catalonia declaring independence, Venezuela on the brink of falling apart - who, what, where, why should we care?
The disconnect is getting scary."

The market is obviously bullish when it ignores bad news and just keeps rallying. The time for the bulls to worry is when good news is sold. These both are sentiment indicators -- you want to be bullish when bad news is bought and you want to be a seller when good news is sold.

While some bullish sentiment indicators have backed off, such as VIX and the Fear & Greed index, the Investors Intelligence report shows a 30-year record high level of bulls (63.5%) vs. bears (14.4%). The spread (49.1) is above a level that has been associated with major market highs in the past. This in combination with a slowly rising VIX (higher lows) and declining Fear & Greed index while the stock market indexes continue higher is a dangerous sign for the late-comers to the market. The retail crowd is shedding its fear of the market and jumping in with both feet, which typically means the market is nearing a top (when they're all in).

The Investors Intelligence reports the results of a survey of 100 investment advisors and newsletter writers. Their answers are categorized as either bullish, bearish or "correction" and when the majority swing to one side of the boat it's a good time to high side the other side of the boat before it tips over.

It reminds me of sailing our Hobie Cat -- we'd love getting one pontoon out of the water and up high, hanging out over the side and enjoying the ride up high as we flew along the surface of the water. We'd then wait for the bow of the low side to dig into the water, which immediately stopped the boat. It would then flip over and cartwheel, throwing us all into the water. If you knew it was coming you could prepare for it but for those we gave rides to, who were simply enjoying the ride, well, let's just say they weren't happy campers when they were suddenly ejected without warning.

My sense is that the market is up high on one pontoon and the bow of the low side is starting to dip under the surface. The hapless bulls, especially those who don't suspect the danger, will not be happy with what's coming next. The 30-year high reading for bullish sentiment in the Investors Intelligence survey is clearly a warning sign that the "most hated bull market" is not hated so much anymore. When everyone gets in the pool it's usually a good time to get out.

And with that let's see if the charts are providing any warning signs that our boat is about to dig in and suddenly stop.


S&P 500, SPX, Weekly chart

Last week SPX finished with a dragonfly doji (more bearish version of a hanging man doji) at a trend line along the highs since April 2016 and at the midline of an up-channel for the rally from 2010-2011. So far this week's candle is a small doji cross that's down 2 points from last Friday's close. Obviously a lot can change before this week completes but with the weekly oscillators threatening to roll over from overbought with price up against trendline resistance it's a good time to be cautious about the upside. There's no evidence this is going to be a top but the wave count also supports the idea that we could be putting in a final high here.


S&P 500, SPX, Daily chart

SPX has been struggling near the price projection at 2579.14, which is where the rally from April achieved two equal legs up. This is an important price projection for a final 3-wave move up in the rising wedge pattern for the rally from February 2016. Last Friday SPX closed at 2581, which was exceeded slightly with this morning's high at 2588, but it closed back down near the 2579.14 projection.

We have bearish divergence since the October 5th high, which is another warning sign but again, no proof yet that a high has been made, just a warning. The first sign of trouble for the bulls would be a drop below the 20-dma, currently near 2563, which would also be a break below its uptrend line from August. Until SPX drops out of its up-channel it's obviously still in an uptrend.

Key Levels for SPX:
- bullish above 2590
- bearish below 2544


S&P 500, SPX, 60-min chart

This morning's high for SPX also tagged 2587.62, shown on the 60-min chart below, which is the 127% extension of its previous pullback October 23-25. This is a common reversal Fib level to watch and this morning's strong reversal off the gap-up start to the day is not a bullish sign. We could see SPX chop its way higher in a small ending pattern, in which case I see upside potential to 2590-2595 and maybe just above 2600. A drop below Monday's low at 2568 would be the first indication that a top is likely in place.


Dow Industrials, INDU, Daily chart

Other than the fact that the Dow has been unable to get through the trend line along the highs from April 2016 - March 2017, currently near 23550, I see more upside potential to about 24K. The daily chart below is using the arithmetic price scale since that shows the referenced trend line acting as resistance. When the chart is viewed with the log price scale the trend line is higher and now nearing 24K. But like the short-term pattern for SPX (60-min chart), I see the possibility for just one more minor new high to complete a small ending pattern, which could result in one more test of the trend line.

Key Levels for DOW:
- bullish above 23,500
- bearish below 23,100


Nasdaq-100, NDX, Daily chart

NDX gapped up this morning and tagged the price projection at 6270.35 (with a high at 6276.66), which is where the 5th wave of its rally from August equals the 1st wave. That 5th wave, which is the leg up from October 25th, is also a 5-wave move and its 5th wave has also achieved equality with the 1st wave. There's at least a little more upside potential to the top of its up-channel from July, currently near 6312, but the pieces are now in place to be able to call a top. Whether or not it will be a top awaits confirmation. An impulsive decline (vs. the choppy pullbacks we've seen since Jesus was a little boy) would be our first clue that the bulls are done. Confirmation of a high doesn't come until NDX drops below 6010.

Key Levels for NDX:
- bullish above 6270
- bearish below 6010

A big driver behind the tech rally has of course been the FAANG stocks. Other big-cap stocks benefit greatly from the buying of the QQQ and other tech ETFs. The SOX has also been strong and INTC has been particularly strong. But going through many of the tech charts is further evidence (to me) that a high for the techs might have been this morning's. AAPL gapped up and ran into trendline and Fib resistance and then reversed strongly back down. Today's created a bearish engulfing candlestick, which is a reversal candlestick.

Updating my weekly chart of MSFT that I showed over the weekend, I had noted that Friday's high reached an upside target zone at 84.65-87.20 with its high at 86.20.The target zone is based on a throw-over above its up-channel that equals how much it was below the channel at the start of its rally from June 2016. Friday's high was the positive reaction to its earnings and that created the gap up and throw-over finish to its rally (potentially). There's been no follow through since that high and while it's a little early to call a high for MSFT that's the current setup -- short against Friday's high.

Microsoft Corp., MSFT, Weekly chart


Russell-2000, RUT, Daily chart

The RUT has continued its entrapment inside its expanding triangle off the October 5th high. The choppy consolidation inside this pattern should be bullish and a rally out of this pattern could see the RUT run up to a price projection near 1548 (for the 5th wave of the rally from August), which is where it would also hit the intersection of the broken uptrend line from August and a trend line along the highs from July-October (the trend lines cross on November 10th).

It's possible the RUT will break down from this pattern, in which case it would be a failed bullish pattern and that would mean a strong decline to follow. The first sign of trouble for the bulls would be a drop below the bottom of the expanding triangle near 1477. Stronger confirmation of a high would be a drop below its 50-dma, which is rising towards the trend line along the highs from 2007-2015, currently near 1465.

Key Levels for RUT:
- bullish above 1515
- bearish below 1477


10-year Yield, TNX, Weekly chart

Last week TNX made it up to its downtrend line from 1988-2007 and stopped a little shy of a price projection at 2.508, which is where the c-wave of an expanded flat a-b-c bounce off the June low would be 162% of the a-wave. The October 25th high was 2.475 and the turn back down from there is a small 5-wave decline into today's low. That's our first clue that TNX has reversed back down and once a bounce correction to the decline from October 25th completes we should see a continuation lower.

There is of course further upside potential, especially if a pullback holds above the 200-week MA and its uptrend line from July 2016 - September 2017, both of which will cross near 2.20 in a few weeks. A climb above 2.51 would also be bullish. The big question is what will happen if and when the stock market starts back down, especially if it becomes a scary pullback. If fund managers scurry into the relative safety of Treasuries it would spike yields down.


KBW Bank index, BKX, Daily chart

BKX looks toppy with its new high above its October 6th high and bearish divergence. It's also struggling to get through the trend line along the highs from July-October. There's Fib correlation at 103.03-103.24 so if BKX presses a little higher keep an eye on this area for a possible high. The Fibs come from a 127% extension of the March-April 2017 pullback (103.03) and the 162% extension of the July-September pullback (103.24). The first sign of trouble for the banks would be when BKX drops below its 20-dma, currently at 100.60.


Transportation Index, TRAN, Weekly chart

With its October 13th high the TRAN tagged the trend line along the highs from December 2016 - March 2017 and has since rolled back over, leaving a bearish divergence at the new high. For an ending pattern for the rally from January 2016, a 3-wave move up from May 2017 fits well as the completion of the rally. Therefore we have a good setup for an important high for the TRAN but a new high can't be ruled out until it drops below the August low at 9010.


Dow Jones US Home Construction index, DJUSHB, Monthly chart

One sector that's been particularly hot this past year is the home builders. But as with the broader market, the home builders could be reaching a peak, as shown with the monthly chart below. There is an up-channel for the rally from the November 2008 low, based on the uptrend line from October 2011 - February 2016 and the parallel line attached to the first highs off the 2008 low. DJUSHB has now reached the top of the channel and there are hints of topping in the oscillators. If the index turns back down from here it would be a signal that the housing market is slowing, which would be a negative for our economy. It's too early to tell what will follow here but it'll be worth watching over the coming weeks.


U.S. Dollar contract, DX, Daily chart

At the moment the US$ has a bullish breakout in progress. On October 26th it broke out of its down-channel from January and above 94, which fits as a neckline for an inverse H&S bottoming pattern. A pullback to 94 and then higher would be bullish as would a pullback to the top of its down-channel, near 92.90 next week. Either would be a bullish back-test and a continuation higher would confirm the bullish breakout. The new up-channel from September could also contain the rally up to the H&S price objective, near price-level resistance at 97.50.


Gold continuous contract, GC, Daily chart

With last Friday's low gold again tested its broken downtrend line from 2011-2016 and its 200-dma. It's showing bullish divergence against its October 6th low and now all it has to do is get back above its broken 20-dma and its broken uptrend line from July-October, both crossing near 1283. The next hurdle for the bulls would be price-level resistance at 1300 and its broken 50-dma, also near 1300 (it was unable to hold above both after its rally into the October 16th high). Gold bulls would in trouble if gold drops below the intersection of the broken downtrend line from 2011-2016 and the uptrend line from December 2016 - July 2017, near 1257.


Oil continuous contract, CL, Daily chart

Oil's overnight rally had it tagging the top of a parallel up-channel for the rally from June and it then proceeded to sell off sharply today. The corrective bounce pattern off the June low is one thing that keeps me bearish longer-term for oil but short term I see at least a little more upside potential. Two equal legs up from the pullback into the August 31st low points to 56.38 so that remains a possibility. But the minimum projection that I had expected to see, at 53.96 (for two equal 3-wave moves up from June), has been met and now with the rally up to the top of the up-channel there is the potential for a turn back down from here.

There is the possibility that the downtrend line from March 2015 - January 2017 is the neckline of an inverse H&S bottoming pattern (the June low is the right shoulder). The upside price objective out that bullish pattern is near 84. So it would be bullish to see a pullback that holds support at or above the neckline, currently near 51.50.


Economic reports

Thursday will be a quiet day for economic reports but Friday will be important with the employment data. This morning's ADP report showed an improvement in the employment gains for October so the market will want to see confirmation of that with Friday's NFP report.


Conclusion

We have more than a few signals that a market top could be here with this morning's gap up and selloff. Between trend lines, Fib projections, the wave count, bearish divergence and a slew of other technical indicators there's enough evidence to suggest the bulls could soon be in trouble. But the bulls have been in trouble many times before and the market just keeps rallying. The quote from Cora says it all -- this market continues to rally on all kinds of bad news and that's bullish. When we see the market sell off on good news we'll know market sentiment has shifted.

Bullish sentiment, as described with the Investors Intelligence survey, tells us it's risky to be thinking bullish (you want to be very careful when you're with the crowd since you can get trampled when everyone is trying to get out at the same time). The bottom line is we have a good setup for an important market high but without the confirmation.

The challenge for those in long positions and those wanting to get short is that a coming correction could start very quickly and violently, catching both sides flat footed or back on their heels. Getting out could be a challenge, especially if the market becomes no-bid as the computers turn into selling machines and can't find buyers.

Those who want to get short could find themselves faced with having to short in the hole, which is always challenging since there's always the fear that the market will come roaring back at any time, even if it's just going to be a quick short-covering rally. It's a big reason why I think it's prudent to trim long positions and/or hedge your positions with some short positions. Bears can use longer-dated OTM put options and hope to get in cheap and out with inflated premiums.

Bottom line is that it's a good time for both sides to play it safe and be cautious. I think upside potential is dwarfed by downside risk and I'd trade accordingly.

Good luck and I'll be back with you next Wednesday.

Keene H. Little, CMT

In the end everything works out and if it doesn't work out, it is not the end. Old Indian Saying


New Option Plays

Changing Market

by Jim Brown

Click here to email Jim Brown

Editors Note:

Facebook, Google, Twitter and Amazon are killing this previously lucrative market. Old line advertisers are dying because the ad industry is changing.



NEW DIRECTIONAL CALL PLAYS

No New Bullish Plays


NEW DIRECTIONAL PUT PLAYS

OMC - Omnicom Group - Company Profile

Omnicom Group Inc., together with its subsidiaries, provides advertising, marketing, and corporate communications services. The company offers a range of services in the areas of advertising, customer relationship management, or CRM, public relations, and specialty communications. Its services comprise advertising, brand consultancy, content marketing, corporate social responsibility consulting, crisis communication, custom publishing, data analytics, database management, environmental design, financial/corporate business-to-business advertising, graphic arts/digital imaging, healthcare communications, and instore design services. The company's services also include direct, entertainment, experiential, and field, interactive, mobile, multi-cultural, non-profit, promotional, retail, search engine, social media, and sports and event marketing services; and investor relations, marketing research, media planning and buying, organizational communications, package design, product placement, public affairs, public relations, and reputation consulting services. It operates in North America, Latin America, Europe, the Middle East, Africa, Australia, China, India, Japan, Korea, New Zealand, Singapore, and other Asian countries. Omnicom Group Inc. was founded in 1944 and is based in New York, New York. Company description from FinViz.com.

Omnicom reported Q3 earnings of $1.13 that beat estimates for $1.10. Revenue of $3.72 billion declined -1.9% and narrowly beat estimates for $3.71 billion.

Expected earnings Jan 16th.

Omnicom was the only advertising agency that posted decent earnings. Interpublic Group (IPG) and WPP Group (WPPGY) both lowered guidance as their biggest clients like McDonalds, Procter & Gamble, J&J, etc, all began to shrink advertising budgets. Amazon has turned into a seller of everything and companies like PG and JNJ are suffering from product price declines and less buying from normal wholesale customers.

McDonalds said this week they were going to review their $2 billion advertising budget and see how much they needed to divert to social sites like Instagram and Facebook. The advertising being served on Facebook does not need a multibillion dollar ad agency to place it. Everything is online and companies have instant access to more than 3 billion consumers between Facebook, YouTube and the Google Chrome browser. The historical advertising business is undergoing a revolution.

Shares of OMC have declined to a two year low and with the other companies lowering guidance and Facebook posting blowout advertising numbers tonight, we could see lower lows on OMC.

Buy Jan $65 put, currently $1.70, initial stop loss $72.50.



In Play Updates and Reviews

Blow Off Top?

by Jim Brown

Click here to email Jim Brown

Editors Note:

The Dow gained 140 points at the open and gave back all but 10 points intraday. The index was saved by a small buy program around 2:PM that kept it from going negative and caused some short covering into the close. The Nasdaq closed 45 points below its intraday high and most of the earnings reported after the close were negative. When stocks break out to big intraday highs and then retrace to negative territory it is normally a sign of weakness ahead.



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


CCL - Carnival Cruise Line
The long call position was stopped at $65.50.

BA - Boeing
The long call position remains unopened until a trade at $253.



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

AABA - Altaba - Company Profile

Comments:

Alibaba continued to rise ahead of earnings before the open on Thursday.

Alibaba's new Global Shopping Festival is coming on November 11th and that will produce a lot of headlines in the two weeks ahead of the event. In 2016, they sold $17.7 billion on that day, up 32% from the prior year. With 466 million active customers, they could do well over $20 billion this year.

Original Trade Description: October 18th.

Altaba Inc. operates as a non-diversified, closed-end management investment company in the United States. Its assets consist primarily of equity investments, short-term debt investments, and cash. The company was formerly known as Yahoo! Inc. and changed its name to Altaba Inc. in June 2017. Altaba Inc. was founded in 1994 and is based in New York, New York. Company description from FinViz.com

Altaba owns a 15% stake in Alibaba, currently worth about $70 billion. They hold a stake in Yahoo Japan currently worth $7.7 billion. They have $130 million in investments. They have a $740 million stake in Excalibur, a unit of the new company that holds all the Yahoo patents that were not sold to Verizon. The company has $12 billion in cash. They recently announced a $5 billion stock buyback and the company has committed to returning nearly all the cash in the bank plus any thrown off by the investments, to the shareholders.

Owning Altaba is just like owning Alibaba only without the expensive options and a lot less volatility. We get the other parts for free. Obviously Altaba is reactive to Alibaba movement so there will still be some volatility, it is just comes with a lower risk.

Alibaba is growing much faster than Amazon and they have a larger market with 4.5 billion consumers in Asia.

Alibaba reports earnings on Nov 2nd and Altaba reports on Nov 29th. Because of the lower volatility and cheaper option prices, we can own AABA over the BABA earnings and profit from any post earnings gains.

Last week Alibaba said it was going to spend an additional $15 billion over the next three years on research. They already spend $3 billion and have more than 25,000 engineers on the payroll.

The new effort will create the Alibaba DAMO Academy, short for Discovery, Adventure, Momentum and Outlook. The academy will set up labs in China, USA, Russia, Israel and Singapore and fund collaborations with universities. They plan to explore AI, IoT, quantum computing, visual computing, machine learning and network security.

BABA shares fell $6 on the announcement because of the impact to profits. AABA shares followed Alibaba shares down and they bounced today off the 30-day average, which has been strong support. If the trend holds, this should be a buying opportunity.

I am using the Jan options so there will still be earnings expectations in the premium when we exit.

Position 10/19/17:

Long Jan $70 call @ $3.10, see portfolio graphic for stop loss.


ADI - Analog Devices - Company Profile

Comments:

No specific news. Shares closed just under Monday's record high.

Original Trade Description: Sept 30th.

Analog Devices, Inc. designs, manufactures, and markets a portfolio of solutions that leverage analog, mixed-signal, and digital signal processing technology, including integrated circuits (ICs), algorithms, software, and subsystems. It offers data converter products, which translate real-world analog signals into digital data, as well as translates digital data into analog signals; high-performance amplifiers to condition analog signals; and radio frequency ICs to support cellular infrastructure. The company also provides MEMS technology solutions, including accelerometers used to sense acceleration, gyroscopes to sense rotation, and inertial measurement units to sense multiple degrees of freedom. In addition, it offers isolators for various applications, such as universal serial bus isolation in patient monitors; and smart metering and satellite applications. Further, the company provides power management and reference products; and digital signal processing products for high-speed numeric calculations. Its products are used in electronic equipment, including industrial process control systems, medical imaging equipment, factory automation systems, patient monitoring devices, instrumentation and measurement systems, wireless infrastructure equipment, energy management systems, networking equipment, aerospace and defense electronics, optical systems, automobiles, and portable electronic devices. The company serves clients in industrial, automotive, consumer, and communications markets through a direct sales force, third-party distributors, and independent sales representatives in the United States, rest of North/South America, Europe, Japan, China, and rest of Asia, as well as through its Website. It has a collaboration with TriLumina Corp. to provide illuminator modules for automotive flash LiDAR systems. Analog Devices, Inc. was founded in 1965. Company description from FinViz.com.

Expected earnings Nov 29th.

ADI is a 52-year-old chip company. Yes, they had chips in 1965. The company is doing great and tends to make chips nobody else is making and that gives them an edge. They reported Q2 earnings of $1.26, which rose 54% snf beat analyst estimates at $1.15. Revenue of $1.43 billion rose 65% and beat estimates for $1.40 billion.

They guided for the current quarter for earnings of $1.29-$1.43 and analysts were only expecting $1.25. Revenue guidance was $1.45-$1.55 billion and analysts were expecting $1.46 billion.

Shares gapped up on the late August earnings then worked through the post earnings depression cycle before moving higher. They closed at a new high on Friday.

Last week IBD raised their composite rating from 93 to 96, which means ADI is outperforming 96% of all stocks in terms of fundamental and technical stock ranking criteria. The stock has an EPS rating of 97 with moderate institutional buying over the last several weeks.

I believe the breakout will continue and we could see $90+ before earnings in November. Options are still cheap because ADI is not a high profile stock.

Position 10/2/17:

Long Dec $90 call @ $1.95, see portfolio graphic for stop loss.


BA - Boeing - Company Profile

Comments:

Position unopened until a trade at $253.

Original Trade Description: October 28th.

The Boeing Company, together with its subsidiaries, designs, develops, manufactures, sells, services, and supports commercial jetliners, military aircraft, satellites, missile defense, human space flight, and launch systems and services worldwide. It operates in five segments: Commercial Airplanes, Boeing Military Aircraft, Network & Space Systems, Global Services & Support, and Boeing Capital. The Commercial Airplanes segment develops, produces, and markets commercial jet aircraft for various passenger and cargo requirements; and provides related support services to the commercial airline industry. This segment also offers aviation services support, aircraft modifications, spare parts, training, maintenance documents, and technical advice to commercial and government customers. The Boeing Military Aircraft segment researches, develops, produces, and modifies manned and unmanned military aircraft, and weapons systems for global strike, vertical lift, and autonomous systems, as well as mobility, surveillance, and engagement. The Network & Space Systems segment researches, develops, produces, and modifies strategic defense and intelligence systems, satellite systems, and space exploration products. The Global Services & Support segment provides integrated logistics services comprising supply chain management and engineering support; maintenance, modification, and upgrades for aircraft; and training systems and government services that include pilot and maintenance training. The Boeing Capital segment offers financing services and manages financing exposure for a portfolio of equipment under operating and finance leases, notes and other receivables, assets held for sale or re-lease, and investments. The company was founded in 1916 and is headquartered in Chicago, Illinois. Company description from FinViz.com.

Business is booming. Boeing finalized a $13.8 billion order with Singapore Airlines last week. The order is for (20) 777-9 and (19) 787-10 planes. The rumor that will never die surfaced again and that being an Amazon order for (100) 767 freighters. This first appeared in March and keeps resurfacing. Amazon's leases for its current (40) 767 freighters do not expire until 2023. That means there is no rush to order more since it would take years for Boeing to make them but still deliver before 2023. There is another rumor that surfaced last week that Amazon is shopping for financing/lease arrangements for (400) 767s to be delivered over the next ten years. Boeing went to its managers and workers last week to see what would be needed to "significantly" boost production rates for a large and important customer. Boeing is rumored to be looking at a doubling of the production rate. They currently produce (2) 767s per month and they are planning on raising this to 4 per month from January 2020 through January 2021 then slowly scale back to 2 per month by 2025. This would seem to indicate a 40-60 plane order from a single customer for delivery in 2021. Shares closed at a new high.

Boeing got another windfall when Trump was elected and suddenly took an interest in producing more F-18 Hornet's than F-35s. Boeing was only expected to produce 5 Hornets this year with a big order for F18 Growlers filling out the production line. The Growlers are the radar jamming planes that protect a flight of fighters. In the budget that was just passed, an additional $1.1 billion was allocated for 14 additional F-18s in this year. Trump had asked for 24 but Congress only approved 14. There will be a lot more in the budget for 2018. The F-18 is the workhorse of the Navy and many of their older planes are reaching the 6,000 flight hour maximum threshold. That means the Navy will need hundreds over the next several years to replace the aging aircraft. Boeing expects the production line to increase to 3-4 per month starting in 2020. Boeing expects another 100 planes to be ordered over the next five budget cycles and possibly more as the military scales down requests for F-35s in favor of the much cheaper F-18s. Boeing has an enhancement called Block III that basically gives the F-18 the networking capability of the F-35. They envision a stealthy F-35 entering hostile airspace and doing reconnaissance and then transmitting back threat and target information to the heavily armed F-18s to actually carry out the attacks. Over the last five years, the Navy has requested five times as many F-18s as F-35s. A F-18 costs $75 million and F-35 $121 million.

Boeing said on any given day 2 out of every three F-18 planes are out of commission waiting for repairs. Planes have been flown hard in the post 9/11 world with multiple theaters of war and planes down for a single part end up getting cannibalized for other parts to keep the remaining planes flying.

All of this means Boeing is going to remain highly profitable for a very long time and this is just two production lines of the dozens of products being manufactured by the company.

Boeing recently upgraded their forecast for plane demand from China. The company now predicts China will buy 7,240 planes, up from 6,810 in the prior forecast. The value of these planes will be more than $1.1 trillion. The period covered is 2016 to 2036. China is expected to be 20% of the global demand for aircraft over the next 20 years. Boeing said the rapidly growing middle class and the continued economic growth in China would fuel the growth of airline travel.

Boeing raised its 20-year target on deliveries to Southeast Asia by 460 planes saying demand should exceed 4,210 new planes worth $650 billion. Boeing said Southeast Asia was the fastest growing market in the world and 10% of the global market.

Boeing reported a 7.4% rise in Q3 deliveries due to the high demand for the 737 jetliners. Boeing delivered 202 planes in Q3 compared to 188 in the year ago quarter. Of that total 145 were 737s, up from 120 last year. The 787 Dreamliners slipped 1 to 35 and 777s fell from 22 to 16. Boeing has delivered 554 planes in 2017 and expects to deliver 760-765 for the year. They received 127 new orders in Q3.

For Q3 they reported earnings of $2.72 per share that beat estimates by 7 cents. Revenue was $24.31 billion, which also beat estimates. They guided for the full year for earnings of $9.90-$10.10, ten cents higher than prior guidance. They repurchased $2.5 billion in shares in Q3. Their order backlog is $474 billion for nearly 5,700 commercial planes.

The Commerce Department said orders for commercial aircraft surged 30% in September.

Shares declined with the Dow after earnings. Since they are up roughly 80% for the year, it is understandable they needed to rest. There is support at $253 and again at $234. If the Dow declines next week I would like to enter this position on a touch of initial support.

With a BA trade at $253.00

Buy Dec $260 call, estimated premium $3.50, initial stop loss $248.50.


CCL - Carnival Corporation - Company Profile

Comments:

No specific news. Shares were trading sideways in the morning but around 1:PM the began to decline and the drop accelerates to a crash ahead of the close. We were stopped out on the position.

Original Trade Description: October 16th.

Carnival Corporation operates as a leisure travel and cruise company. It offers cruises under the Carnival Cruise Line, Princess Cruises, Holland America Line, and Seabourn brands in North America; and Costa, AIDA, P&O Cruises (UK), Cunard, and P&O Cruises (Australia) brands in Europe, Australia, and Asia. The company operates approximately 100 cruise ships. It also owns Holland America Princess Alaska Tours, a tour company in Alaska and the Canadian Yukon, which owns and operates hotels, lodges, glass-domed railcars, and motor coaches. In addition, the company is involved in the leasing of cruise ships. It sells its cruises primarily through travel agents and tour operators. Company description from FinViz.com.

Earnings December 26th.

Carnival shares had been on a steady path higher since last October but were derailed by the hurricanes. Many of the cruise destinations, including Puerto Rico, saw significant damage. Carnival had to cancel a couple cruises but continued running a full schedule almost without interruption. Shares have recovered from their decline and are moving towards pre hurricane levels.

More than 40 islands visited by cruise ships are open, fully operational and welcoming cruise ships on a daily basis. The majority of the 48 cruise ports in the Caribbean were not impacted at all by the storms. In places such as Jamaica, Belize and Cozumel in the Western Caribbean, and Aruba, Bonaire and Curacao in the Southern Caribbean, and Antigua and St. Kitts in the Eastern Caribbean, it's business as usual. Ports in the Bahamas, including Nassau and the popular private islands of Half Moon Cay and Princess Cays, are also open for business.

The only ports out of the normal 48 that are not yet operational are St. Thomas, St. Maarten, Grand Turk, Dominica, Puerto Rico and St. Croix.

The beauty of the cruise ship industry is that they can change itineraries very quickly if a normal destination is out of service.

Carnival reported Q3 earnings of $2.29 beating estimates for $2.20. Revenue of $5.52 billion beat estimates of $5.39 billion. The temporary port closures are expected to cause a 10-12 cent reduction in Q4 earnings. They guided for a range of 44-50 cents and analysts had been expecting 63 cents before the storms hit.

Based on the rebound it appears investors are not worried about the storm impact.

Update 10/20/17: Carnival posted only a minor gain but we may have found out why the cruise sector was down last week. It appears a lot of ships going to China have been takes off that route. China was once touted as the new Caribbean with companies adding ships for Chinese customers. There is no confirmation but maybe taking a cruise was not on the bucket list for most Chinese. Analysts claim it would not be a material impact to cruise earnings but it would reduce suspected growth targets for the coming years. I tightened the stop loss in case the decline continues.

Position 10/17/17:

Closed 11/1: Long Jan $70 call @ $1.90, exit .78, -1.12 loss.


COST - Costco - Company Profile

Comments:

No specific news. They will report comp sales for October this week and expectations are for +7% same store sales and +9% total sales. That should give the stock a boost.

Original Trade Description: October 14th.

Costco Wholesale Corporation, together with its subsidiaries, operates membership warehouses. It offers branded and private-label products in a range of merchandise categories. The company provides dry and packaged foods, and groceries; snack foods, candies, alcoholic and nonalcoholic beverages, and cleaning supplies; appliances, electronics, health and beauty aids, hardware, and garden and patio; meat, bakery, deli, and produces; and apparel and small appliances. It also operates gas stations, pharmacies, optical dispensing centers, food courts, and hearing-aid centers; and engages in the travel businesses. In addition, the company provides gold star individual and business membership services. As of August 28, 2016, it operated 715 warehouses, including 501 warehouses in the United States, Washington, District of Columbia, and Puerto Rico; 91 in Canada; 36 in Mexico; 28 in the United Kingdom; 25 in Japan; 12 in Korea; 12 in Taiwan; 8 in Australia; and 2 in Spain. Further, the company sells its products through online. Company description from FinViz.com.

We all know the story. Amazon bought Whole Foods and Costco shares lost over $30. Fast forward three months and Costco reported strong earnings but analysts still believed Whole Foods was going to kill them. Shares fell $13.

Let me put this in caps. IGNORE WHOLE FOODS. They are an entirely different business model and even with Amazon behind them, they are no threat to Costco. Costco operates 741 retail warehouses, each 4 times bigger than a Whole Foods store. Whole Foods only has 346 stores. At Costco you can buy food, diamond rings, cameras, large screen TVs, clothing, drugs, discount eye glasses, GE appliances, cruises to anywhere in the world and caskets among thousands of other items. Whole Foods has food.

Costco reported earnings of $2.08 that beat estimates for $2.02. Revenue of $42.3 billion beat estimates for $41.55 billion. Those numbers were up from $1.77 and $36.56 billion in the year ago quarter. US same store sales were up 6.5% and online sales were up 30%. There was NO weakness from the Whole Foods acquisition.

Paid memberships rose 274,000 to 18.5 million. That equates to an addition of 16,000 per week. Business members had a 94% renewal rate and Gold Star members an 89.3% renewal rate. They ended the quarter with $5.78 billion in cash, up more than $1 billion from the year ago quarter.

Costco rolled out a free two-day delivery service for orders over $75 with same day delivery at 376 stores through Instacart.

Shares were knocked for a loss despite the strong results because analysts are still only looking at the surface comparisons between Whole Foods and Costco. The decline stopped at $155 and did not even come close to strong support at $155. The weakness lasted five days.

On Friday, JP Morgan released the results of a recent survey showing Costco grocery prices were a whopping 58% cheaper than Whole Foods. JP Morgan said Whole Foods and Costco actually have very little in common other than a few grocery items and Costco wins hands down.

That report lifted Costco shares by $2.63 on Friday but the stock has a long way to go to recover lost ground.

I looked at the December option with only 48 days left because it was cheaper but I chose the January option with 97 days left because it expires after their January 4th earnings and will retain its premium better. We can always buy time but we do not have to use it.

Update 10/18: Reuters released a survey of 8,600 online shoppers and 75% said they never or rarely by groceries online. While that should have been negative to Amazon and the Whole Foods purchase, it weighed on COST as well because of their efforts to accelerate their online business. Amazon fell $12 on the news.

Update 10/20: Oppenheimer reiterated an outperform rating and $185 price target. They listed 5 reasons why Costco is still a buy. Management optimism, credit card change is over, the new delivery options are just starting, IT investments over the last several years are paying off and costs are declining, improved advertising showing the extended benefits of being a member.

Position 10/16/17:

Long Jan $165 call @ $3.85, see portfolio graphic for stop loss.


MU - Micron Technology - Company Profile

Comments:

No specific news. Micron posted only a minor gain after the big spike on Tuesday.

Original Trade Description: October 9th.

Micron Technology, Inc. provides semiconductor systems worldwide. The company operates through four segments: Compute and Networking Business Unit, Storage Business Unit, Mobile Business Unit, and Embedded Business Unit. It offers DDR3 and DDR4 DRAM products for computers, servers, networking devices, communications equipment, consumer electronics, automotive, and industrial applications; mobile low-power DRAM products for smartphones, tablets, automotive, laptop computers, and other mobile consumer device applications; DDR2 and DDR DRAM, GDDR5 and GDDR5X DRAM, SDRAM, and RLDRAM products for networking devices, servers, consumer electronics, communications equipment, computer peripherals, automotive and industrial applications, and computer memory upgrades; and hybrid memory cube semiconductor memory devices for use in networking and computing applications. The company also provides NAND Flash products, which are electrically re-writeable, non-volatile semiconductor memory devices; client solid-state drives (SSDs) for notebooks, desktops, workstations, and other consumer applications; enterprise SSDs for server and storage applications; managed multi-chip package products; digital media products, including flash memory cards and JumpDrive products under the Lexar brand name. In addition, it manufactures products that are sold under other brand names; and resells flash memory products that are purchased from other NAND Flash suppliers. Further, the company provides 3D XPoint memory products; and NOR Flash, which are electrically re-writeable and semiconductor memory devices for automotive, industrial, connected home, and consumer applications. Company description from FinViz.com.

Micron is on a roll. Analysts are targeting $50 by the end of December despite the monster gain so far in 2017. Memory is in short supply and prices are rising monthly. The rapid escalation of cloud technology is demanding hundreds of thousands of servers per quarter, millions of disk drives and untold numbers of PCs, phones, tablets and IoT devices.

For Q2, they reported earnings of $2.02 compared to estimates for $1.84. Revenue rose 90% to $6.14 billion and analysts were expecting $5.97 billion.

For the current quarter, analysts are expecting $2.14 in earnings on a 60% increase in revenue. They are likely to beat those estimates.

Despite the strong earnings and forecasts, the company trades at a PE of 8.7 when the S&P is trading at 18.0. This is a monumental mismatch and suggests investors will be racing to buy this undervalued stock.

Shares spiked on earnings and ran up to $40.50. There was a three-day decline of about $1 to consolidate those gains and the stock surged again to close at a new high on Monday. I was hoping for a deeper pullback to buy but it never happened. If we do not buy this breakout, we could still be waiting after it runs up another $5.

I am using January options to capture the earnings expectations in December.

Update 10/10/17: Shares of Micron rallied more than $1 in the regular session but fell $2 in afterhours. The company announced a $1 billion secondary offering after the close. The proceeds will be used to pay off debt including $476 million of 7.5% secured notes and various other notes and credit lines. This should be positive for Micron because interest costs will decline but it will add approximately 25 million shares to the float.

Update 10/11/17: Shares rebounded from the $2 selloff in afterhours to close down only 37 cents. Summit Redstone said buy the dip because the secondary offering to pay off debt was an exercise in value creation. The analyst has a $51 price target. Instinet reiterated a buy rating and $45 target. Wells Fargo reiterated a buy rating and $45 target. Credit Suisse reiterated an outperform rating and $50 target.

Update 10/12/17: Micron priced its $1.2 billion, upsized secondary, at $41 after the close on Wednesday. Shares had closed at $41.61 and dipped today to close at $40.50. Barclay's boosted their target price from $40 to $60 saying DRAM demand looks good through 2018. Demand should remain high and supply should remain tight. Needham, Rajvinda Gill has a price target of $76. Let's hope he is right.

Update 10/18/17: Micron said it was retiring $2.25 billion in debt that carried interest rates of 7.5% and 5.25%. The secondary offering last week will provide most of the funds with the rest paid out of cash on hand. Shares posted a nice gain on the news and have almost recovered the $42 highs before the secondary was announced.

Update 10/20/17: Deutsche Bank reiterated a buy rating. UBS reiterated a buy rating and raised his price target from $39 to $53. UBS said Micron would be cash positive in 2018. The analyst no longer sees DRAM prices declining in 2018 as previously forecast.

Update 10/24/17: David Einhorn's Greenlight Capital took a new position in Micron saying investors are under appreciating the dynamics of the current memory cycle.

Update 10/31/17: Shares soared after Samsung reported earnings and said supply og DRAM and NAND memory would continue to be tight through 2018. That means higher prices for all memory makers. Samsung posted a 200% increase in profits on a 30% increase in revenue.

Position 10/10/17:

Long Jan $43 call @ $3.05, see portfolio graphic for stop loss.


PYPL - PayPal - Company Profile

Comments:

No specific news. Only a minor decline from the record high.

Original Trade Description: October 25th.

PayPal Holdings, Inc. operates as a technology platform company that enables digital and mobile payments on behalf of consumers and merchants worldwide. It enables businesses of various sizes to accept payments from merchant Websites, mobile devices, and applications, as well as at offline retail locations through a range of payment solutions, including PayPal, PayPal Credit, Braintree, Venmo, Xoom, and Paydiant products. The company's platform allows consumers to shop by sending payments, withdraw funds to their bank accounts, and hold balances in their PayPal accounts in various currencies. Company description from FinViz.com.

They reported Q3 earnings of 46 cents, up 32%, that beat estimates for 44 cents. Revenue of $3.24 billion, up 21% and beat estimates for $3.17 billion. They guided for the current quarter for earnings of 50-52 cents and full year earnings of $1.86-$1.88. Mobile payment volume rose 54% to about $40 billion. Total payments rose 31% to $114 billion. Free cash flow rose 36% to $841 million and they have $7.1 billion in cash. They added 8.2 million active accounts with net new actives up 88%. They now have 218 million active customer accounts with 17 million merchants. They processed 1.9 billion payments, up 26%.

Q4 revenue is expected to rise 20-22% to $3.570-$3.630 billion. Paypal said payment platform Venmo was on track with expectations. The platform processed $9.1 billion in payment volume, a 93% YoY increase.

Expected earnings January 18th.

The company recently announced partnership deals with Baidu, Bank of America, Visa, JP Morgan, Facebook and Apple. They have changed their focus from disruptor to partner where they can process more transactions through the partners. The Baidu partnership will connect them to 700 million Chinese shoppers and 17 million Paypal merchants. The deal with Apple to allow Paypal in the iTunes store, AppStore and Apple Music will connect them to more than 1 billion IOS devices worldwide. The Facebook partnership gives them access to 2.01 billion users.

Pacific Crest Securities said their market cap of $85 billion does not make them too big to be acquired by a larger bank. Even Amazon has been mentioned as a possible acquirer.

In mid August Paypal said it was acquiring Swift Financial, a small business lender and the transaction would close by the end of 2017. No terms were given. This will extend Paypal's reach for financing services. Paypal already has a working capital unit since 2013 and they have loaned more than $3 billion to small businesses.

Thanks to recent agreements with MC/V, users will be able to transfer money directly from their accounts to credit/debit cards, which will become a big selling point. The new "Pay with Venmo" platform that will allow users to make purchases at retail locations is in test mode with Lululemon, Athletica and Forever 21 already accepting those payments. This is turning into another big revenue stream for Paypal.

Shares posted an 81% gain on Wednesday when the market was down on much needed profit taking. Investors looking for a buying opportunity are going to be left behind.

Position 10/26/17:

Long Jan $72.50 call @ $2.95, see portfolio graphic for stop loss


VIX - Volatility Index - Index Profile

Comments:

No material move in a mixed market.

If we ever hit that exit target at 16 it means we are probably going to lose other long positions. This is insurance against that potential decline.

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. It has been 482 days since a 5% decline.

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.



BEARISH Play Updates (Alpha by Symbol)

DIA - Dow SPDR ETF - ETF Profile

Comments:

The Dow spiked 140 points at the open and gave it all back to bottom at +10 points at 1:PM. A small buy program at 2:PM lifted it off the lows. This should be negative for market sentiment for the rest of the week. We need a move soon since this is a November option.

Original Trade Description: October 21st.

The SPDR Dow Jones Industrial Average ETF Trust seeks to provide investment results that, before expenses, correspond generally to the price and yield performance of the Dow Jones Industrial Average. The DJIA is the oldest continuous barometer of the U.S. stock market, and the most widely quoted indicator of U.S. stock market activity.

I am going to make this as simple as possible. The Dow is extremely overbought. It is due for a rest. There are 12 Dow components reporting earnings this week. Volatility will occur but we do not know in which direction. Since all the Dow gainers are already up strongly over the last several weeks, there is a good chance we could see some declines.

This is highly speculative. I am using November options because they are cheap but they will require a substantial move in the next ten days or they will decay quickly. This will be a quick trade.

Buy Nov $232 put, currently $1.86, no initial stop loss.


PG - Procter & Gamble - Company Profile

Comments:

No specific news. Minor gain but still holding at the lows.

Original Trade Description: October 28th.

The Procter & Gamble Company provides branded consumer packaged goods to consumers in the United States, Canada, Puerto Rico, Europe, the Asia Pacific, Greater China, Latin America, India, the Middle East, and Africa. The company's Beauty segment offers hair care products, including conditioners, shampoos, styling aids, and treatments; and skin and personal care products, such as antiperspirant and deodorant, personal cleansing, and skin care products. It markets its products under Head & Shoulders, Pantene, Rejoice, Olay, Old Spice, Safeguard, and SK-II brands. The company's Grooming segment provides shave care products comprising female and male blades and razors, pre- and post-shave products, and other shave care products; and appliances that include electric razors and epilators under the Braun, Fusion, Gillette, Mach3, Prestobarba, and Venus brands. Its Health Care segment offers toothbrushes, toothpastes, and other oral care products; and gastrointestinal, rapid diagnostics, respiratory, vitamin/mineral/supplement, and other personal health care products under the Crest, Oral-B, Prilosec, and Vicks brands. The company's Fabric & Home Care segment provides fabric enhancers, laundry additives, and laundry detergents; and air care, dish care, P&G professional, and surface care products under the Ariel, Downy, Gain, Tide, Cascade, Dawn, Febreze, Mr. Clean, and Swiffer brands. Its Baby, Feminine & Family Care segment offers baby wipes, diapers, and pants; adult incontinence and feminine care products; and paper towels, tissues, and toilet paper under the Luvs, Pampers, Always, Tampax, Bounty, and Charmin brands. The company sells its products through mass merchandisers, grocery stores, membership club stores, drug stores, department stores, distributors, baby stores, specialty beauty stores, e-commerce, high-frequency stores, and pharmacies. The Procter & Gamble Company was founded in 1837 and is based in Cincinnati, Ohio. Company description from FinViz.com.

P&G survived a proxy fight from activist investor Nelson Peltz but that does not mean their problems are over. Peltz said, "I believe that there is a direct correlation between how poorly a company is doing and how big of a fight they put up." Peltz estimated the company spent $100 million in their fight to keep him off the board. He said that is a lot of money for a company to spend to keep a knowledgeable investor from seeing the real numbers inside the company. Peltz has not conceded and an official recount of the votes is being conducted.

PG reported adjusted earnings of $1.09 that beat estimates by a penny. Revenue of $16.65 billion rose only 1% and missed estimates for $16.69 billion. Revenue from their grooming business has declined for three consecutive quarters. Peltz believes the entire company is in decline and they are massaging the numbers to put some lipstick on the pig. That only works for a short time.

Earnings January 19th.

Shares have declined $5 since the Oct 18th earnings and they are on the verge of breaking below 52-week support at $86. If the market is going to weaken on post earnings depression after this week, PG could be a leader to the downside given the negative analyst views.

Position 10/31/17:

Long Jan $85 Put @ $1.88, see portfolio graphic for stop loss.


SLB - Schlumberger - Company Profile

Comments:

No specific news. Crude oil prices are holding over $54 and that is supporting the energy sector.

Original Trade Description: October 23rd.

Schlumberger Limited supplies technology products and services to the oil and gas exploration and production industry worldwide. Its Reservoir Characterization Group segment provides reservoir imaging, monitoring, and development services; wireline technologies for open and cased-hole services; slickline services; exploration and production pressure and flow-rate measurement services comprising surface and downhole services; software integrated solutions, such as software, consulting, information management, and IT infrastructure services; consulting services for reservoir characterization, field development planning, and production enhancement; and petrotechnical data services and training solutions, as well as integrated management services. Its Drilling Group segment designs, manufactures, and markets roller cone and fixed cutter drill bits; supplies drilling fluid systems; provides pressure drilling and underbalanced drilling solutions, and environmental services and products; mud logging services; land drilling rigs and support services; and well planning and drilling, engineering, supervision, logistics, procurement, contracting, and drilling rig management services, as well as bottom-hole-assembly, borehole-enlargement technologies, impact tools, tubulars, and tubular services. Its Production Group segment provides well services comprising pressure pumping, well cementing, and stimulation services; coiled tubing equipment; well completion services and equipment that include packers, safety valves, and sand control technology, as well as completions technology and equipment; artificial lifts; and integrated production and production management services. Its Cameron Group segment offers integrated subsea production systems; surface systems; drilling equipment and services; and valve products and measurement systems. Company description from FinViz.com.

The company said the already week offshore sector was also declining because offshore drilling/production is not profitable at $50 oil. This sector will continue to decline until oil prices rebound over $75 sometime in 2019 according to best estimates.

Schlumberger said production growth was slowing faster than expected. That means less cash flow for producers and another decline in rig counts. The company said customers were reducing their forecasts for prices and activity for 2018 and future revenue and profitability was likely to decline.

Shares fell $2 post earnings to $62 but the odds are very good we are going to see lower lows as the energy companies report disappointing earnings and guidance in the weeks ahead.

Earnings January 19th.

Position 10/24/17:

Long Jan $60 put @ $1.42, 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