Option Investor
Newsletter

Daily Newsletter, Monday, 9/18/2017

Table of Contents

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

Market Wrap

Waiting For The Fed

by Thomas Hughes

Click here to email Thomas Hughes

Introduction

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

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

Market Statistics

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

Economic Calendar

The Economy

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


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


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


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


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

The Dollar Index

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


The Gold Index

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

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


The Oil Index

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

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


In The News, Story Stocks and Earnings

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


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


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


The Indices

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


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


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


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


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

Until then, remember the trend!

Thomas Hughes


New Plays

Volatility Fading Fast

by Jim Brown

Click here to email Jim Brown
Editor's Note

Time to restart our long-term volatility position. I had held off after the 1:4 reverse split because the options were expensive and I was expecting volatility in September from the budget battle and debt ceiling hurdle.



NEW BULLISH Plays

No New Bullish Plays


NEW BEARISH Plays

VXX - Volatility Index Futures - ETF Description

The VXX is a short-term volatility ETF based on the VIX futures. As a futures product it has the rollover curse. Every time they roll to a new futures contract, they have to pay a premium and that lowers the price of the ETF. It is a flawed product with a perpetual decline built in from the monthly roll over in the futures contracts.

As evidence of this flaw, they have now done four 1:4 reverse stock splits. The last five reverse splits occurred at $13.11 (11/2010), $8.77 (10/2012), $12.84 (11/2013), $9.52 (8/8/16), $12.77 (8/22/17). The prospectus says it can reverse split anytime it trades under $25 for a prolonged period and the splits will always be 1:4.

We know from experience that the VXX always declines. The last two times we shorted this ETF we had a $7.23 and $5.98 gain.

Unfortunately, put options are expensive with a volatility instrument at this price level. The only recommendation is to short the ETF and forget it. If we do get a prolonged rally into year-end we could see a sharp decline in the VXX over the next 2-3 months. This will be a long-term position. This is not a 2-3 week play. I can guarantee you, if history holds, we can play this until it splits 1:4 again at $10. Once we are in the position and profitable I will put a trailing stop loss on it. We will take profits and then look for a bounce to get back in.

The VXX is hard to short. Shortsqueeze.com says there are 19.9 million shares short out of 26.7 million shares outstanding. The shares are out there and being traded because the volume on Monday was 29.6 million. You have to tell your broker you really want to short it and make them find the shares. Sometimes it takes days or even a week before your broker will find you the shares. Trust me, be persistent and it will be worth the effort.

I had held off after the 1:4 reverse split because the options were expensive and I was expecting volatility in September from the budget battle and debt ceiling hurdle. With those issues pushed out into December, the volatility is dropping like the proverbial rock. Several readers have already emailed me asking when I was going to put this position back in the portfolio.

Sell short VXX shares, currently $41.00, no initial stop loss.




In Play Updates and Reviews

Russell Rally

by Jim Brown

Click here to email Jim Brown

Editors Note:

The Russell 2000 powered to a 9-point gain in a weak market. The Dow was strong thanks to Boeing, Caterpillar and the financial stocks. However, the big cap techs were mixed and the Nasdaq Composite only gained 6 points while the Nasdaq 100 lost 7 points. The S&P surged well over resistance at 2,500 intraday but fell back to rest just over that level at the close.

The strong Russell gain is market positive. If portfolio managers are buying small caps, there is no fear of an impending correction.





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


DF - Dean Foods
The short position was entered at the open.



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BULLISH Play Updates

ETSY - Etsy Inc - Company Profile

Comments:

No specific news. Shares were flat after the big decline on Friday.

Original Trade Description: Sept 13th.

Etsy, Inc. operates as a commerce platform to make, sell, and buy goods online and offline worldwide. Its platform includes its markets, services, and technology, which enables to engage a community of sellers and buyers. The company offers approximately 45 million items across approximately 50 retail categories to buyers. It also provides various seller services, including direct checkouts, promoted listings, and shipping labels, as well as Pattern by Etsy to create custom Websites; and seller tool and education resources to start, manage, and scale businesses to entrepreneurs primarily through Etsy.com. In addition, the company operates A Little Market, a handmade and supplies market for sellers and buyers. Company description from FinViz.com.

For Q2, the company reported earnings of 10 cents that rose from a 6-cent loss in the year ago quarter. Revenue rose 19.1% to $101.7 million. Active sellers rose 10.9% to 1.83 million. Gross merchandise volume rose 11.7% to $748 million. Sales on mobile devices rose 47%. International sales rose 31% to 32% of gross sales. The number of employees in the workforce declined 23% thanks to an aggressive push by the CEO to expand profitability.

They guided for gross merchandise sales to rise 12% to 14% for the full year, up from prior guidance of 11.7%. Full year revenue is expected to rise 18% to 20% and in line with the 19.1% in Q2.

The company is growing rapidly, especially internationally and they are reducing costs significantly. Over the last several months, they replaced the CEO, CFO and CTO in their push to grow the company and profits quickly.

Expected earnings Nov 2nd.

On Sept 7th a Davidson's analyst, Tim Forte, went all in on ETSY with a glowing forecast. Shares spiked to $17.50 and then faded for a couple days. They have rebounded over the last three days and closed at a new high on Wednesday.

Position 9/14/17:

Long ETSY shares @ $17.79, see portfolio graphic for stop loss.
Alternate position: Long Dec $20 call @ 70 cents, see portfolio graphic for stop loss.



HIMX - Himax - Company Profile

Comments:

No specific news. Apple suppliers beginning to firm.

Original Trade Description: Sept 9nd

Himax Technologies, Inc., a fabless semiconductor company, provides display imaging processing technologies to consumer electronics worldwide. The company operates through Driver IC and Non-Driver Products segments. It offers display driver integrated circuits (ICs) and timing controllers used in televisions (TVs), laptops, monitors, mobile phones, tablets, digital cameras, car navigation, and other consumer electronics devices. The company also designs and provides controllers for touch sensor displays, liquid crystal on silicon micro-displays used in palm-size projectors and head-mounted displays, light-emitting diode driver ICs, power management ICs, scaler products for monitors and projectors, tailor-made video processing IC solutions, and silicon IPs. In addition, it offers digital camera solutions, including complementary metal oxide semiconductor image sensors and wafer level optics, which are used in various applications, such as mobile phone, tablet, laptop, TV, PC camera, automobile, security, and medical devices. The company markets its products to panel manufacturers, agents or distributors, module manufacturers, and assembly houses; and camera module manufacturers, optical engine manufacturers, and television system manufacturers. Company description from FinViz.com.

Himax produces video drivers for 4K TVs and that accounted for 36% of total revenue in Q2. However, the big news comes from the 3D sensing chips. They are expecting a 90% increase in revenue from this technology in Q3. There are rumors that Himax is going to supply the 3D sensing technology for the new iPhones. Since several companies are rumored to have been selected, somebody is riding the rumor wave.

Since Himax guided for a 90% increase in revenue in Q3 from those sensors, it would suggest there is a surprise in store for the chip community.

They also provide chips for vehicle display panels and they recently guided for demand to jump from 135 million units in 2016 to 200 million by 2022.

On August 30th, Qualcomm and Himax jointly announced a new high resolution, low power, active 3D depth sensing camera system to enable conputer vision capabilities such as biometric face authentication, 3D reconstruction and scene perception for mobile, IoT, surveillance, automotive and AR/VR. They specifically said it would enable Android smartphones to have unparalleled 3D experiences. They called it "game changing technology for smartphones." This technology is the culmination of 4 years of research and development by these two firms.

Shares rallied on the announcements but then faded last week. The company issued a press release suggesting an Oppenheimer analyst had become too excited about the prospects and they reaffirmed their recent guidance. The fading excitement erased $1.50 in gains but support appeared at $10 and the overall uptrend should resume.

Expected earnings November 7th.

Position 9/11/17:

Long HIMX shares @ $10.31, see portfolio graphic for stop loss.
Alternate position: Long Dec $11 call @ $1.20, see portfolio graphic for stop loss.



KTOS - Kratos Defense - Company Profile

Comments:

Kratos deployed the first fully autonomous vehicle in Colorado with the Colorado Dept of Transportation. The robot vehicle replaces the trailing vehicle in a work construction crew. It follows the crew throughout the day and acts as a mobile crash barrier. Previously, a CDOT employee had to drive a specially built truck mounted with impact absorbing rear bumpers. Basically, this protects the work crew on the road by giving erratic drivers something to hit other than the work crew. There is still the problem of the driver in this truck when a car, truck or semi plows into the truck at 70 mph. In Colorado these bumper trucks were hit an average of 7 times per year, sometimes with injury to the CDOT drivers. The Kratos robotic crash guard truck has no driver so nobody is injured with an errant civilian vehicle crashes into it. The robot vehicle monitors the work crew and maintains a safe distance behind them with enough lane coverage to keep them from getting hit.

Original Trade Description: August 14th.

Kratos Defense & Security Solutions, Inc. provides mission critical products, solutions, and services in the United States. The company operates through three segments: Kratos Government Solutions, Unmanned Systems, and Public Safety & Security. The Kratos Government Solutions segment offers microwave electronic products; satellite communications; technical and training solutions; modular systems; and defense and rocket support services. The Unmanned Systems segment provides unmanned aerial, ground, and seaborne, as well as command, control, and communications systems. The Public Safety & Security segment designs, engineers, deploys, operates, integrates, maintains, and operates security and surveillance solutions for homeland security, public safety, critical infrastructure, government, and commercial customers. The company serves national security related agencies, the department of defense, intelligence agencies, and classified agencies, as well as international government agencies and domestic and international commercial customers; and critical infrastructure, power generation, power transport, nuclear energy, financial, IT, healthcare, education, transportation, and petro-chemical industries, as well as government and military customers. Kratos Defense & Security Solutions, Inc. was founded in 1994 and is headquartered in San Diego, California. Company description from FinViz.com.

Kratos builds drones for target practice for the U.S. military. They are also building drones for combat for air to air and air to land. They also provide communication systems for missiles, satellites and various other platforms.

China and Russia are rapidly militarizing space and Kratos is working with the U.S. military to improve satellite communication to defend against attacks. The DoD is currently spending a lot of money to prepare for war in space. Kratos owns and operates a global satellite demonitoring business with revenues rising 61% in Q1.

Kratos has so many new programs in operation it would be impossible to list them here and several of them are secret programs for unnamed clients.

Kratos guided for a return to profitability in Q2 and sharply rising revenue for the full year. Shares spiked 30% in the four weeks after Q1 earnings. Their next report is August 3rd. I am recommending we buy an option and hold over the report. If the earnings are as positive as they teased in the Q1 report we could see another sharp reaction. This company is in all the right places for the increase in defense department spending.

Kratos unveiled its newest high performance class of military unmanned aerial system technology at the Paris Air Show. The XQ-222 Valkyrie and UTAP-22 Mako drones provide fighter like performance and are designed to function as wingmen to manned aircraft in contested airspace. The Valkyrie can carry various weapons and intelligence systems and has a range of 3,000 miles. The Mako is designed to carry sensors and stealthily infiltrate hostile airspace to gather intelligence. Both are designed to operate with or without manned flights. The Air Force recently pitched the functions of the Valkyrie saying a F-35 with a group of fighter/bomber drones could maximize control of airspace and ground attack operations. The F-35 can select targets and pass information to specific drones while maintaining situational awareness from a stealthy and relatively safe position.

Just over the last couple weeks Kratos announced a $2.9 million order for an airborne communications system, a $10 million order for a ballistic missile defense system, $23 million for a military radar system and $8 million for a GPS Satellite protection system. Analysts are expecting a record $800 million in revenue for 2018. They expect to do $150 million in unmanned revenues in 2018.

Kratos posted earnings of 1 cent and a $10.4% increase in revenue to $186 million. They guided to be free cash flow positive by $25 million in 2017.

Expected earnings Oct 26th.

With the daily new contract awards shares have risen $1.50 in the last week and closed at a 5-week high on Monday. They are very close to breaking out to a new high.

Update 9/5/17: New high in a weak market. Unfortunately, after the close they announced a secondary offering of 12.5 million shares that will increase the float by 14%. If I recommended we sell at the open on Wednesday, we are going to get hit with the normal "sell the news" decline. If we retain the position, stocks normally rise after a secondary is completed. We can either take a loss on Wednesday or hang on for a bigger gain later. I am recommending we hold the position. I am removing the stop loss to avoid being knocked out of the position for a loss. Shares declined to $12.80 in afterhours, a drop of $1. If that is all the decline we get, I would be very happy.

Update 9/6/17: KTOS announced a $46 million contract with the Saudi Royal Navy to assist in increasing military communications and preparedness. They also announced the QWK Integrated Solutions LLC, a partnership of multiple defense firms had won a $3.038 billion five year contract. The partnership will provide for rapid development and integration of space, missile defense, cyber, directed energy and related technologies to support SMDC/ARSTRAT and the warfighter.

Update 9/11/17: The company announced it had successfully completed a required number of missions with their jet powered unmanned drone system. The missions are part of the performance demonstrations prior to delivery of ten drones over the next six months. The customer was not announced for security reasons. However, a program they announced with the Navy several months ago called for delivery of 10 drones in 2017 with the potential for multiple follow on orders in 2018. This could be part of that project.

Position 8/15/17:

Long KTOS shares @ $12.78, see portfolio graphic for stop loss.
Alternate position: Long Nov $15 call @ 65 cents, see portfolio graphic for stop loss.

With shares just crossing the $12.50 strike price, we had to reach out to $15 and a distant month.



MRVL - Marvel Technology - Company Profile

Comments:

No specific news. Minor gain but a new high close.

Original Trade Description: August 30th.

Marvell Technology Group Ltd. designs, develops, and markets analog, mixed-signal, digital signal processing, and embedded and standalone integrated circuits. It offers a range of storage products, such as hard disk drive (HDD) and solid-state drive controllers, as well as HDD components, such as HDD preamps components; and develops software enabled silicon solutions consisting of serial advanced technology attachment port multipliers, bridges, serial attached SCSI, and non-volatile memory express redundant array of independent disks controllers and converged storage processors for enterprise, data centers, and cloud computing businesses. The company also provides networking products comprising Ethernet solutions comprising Ethernet switches, Ethernet physical-layer transceivers, and single-chip network interface devices; and embedded communication processors. In addition, it offers a portfolio of connectivity solutions, including Wi-Fi, and Wi-Fi/Bluetooth integrated system-on-a-chip products, which are integrated into a variety of end devices, such as enterprise access points, home gateways, multimedia devices, gaming products, printers, automotive infotainment and telematics units, and smart industrial devices. Further, the company provides printer-specific standard products, as well as full-custom application-specific integrated circuits; and communications and applications processors. Company description from FinViz.com.

Marvel reported earnings of 30 cents that beat estimates for 28 cents. Revenue of $605 million beat estimates for $601 million. Free cash flow more than doubled from $38 million to $89 million. Core revenues rose 6%, storage controller revenues rose 13%. SSD chips rose from 20% to 25% or revenue. The new SSD products are rapidly gaining market share and remain a high profit item. Gross margin was 60.4%. They guided for Q3 for revenue of $595-$625 million with earnings of 30-34 cents per share.

Expected earnings Nov 23rd.

The company is in the midst of a restructuring process while they are changing their product mix for the better. Apparently it is working.

Shares spiked from $15.75 to $17.25 after earnings then pulled back slightly on post earnings depression. They rebounded today to a new 2-month high and very close to a new high.

Position 8/31:

Long MRVL shares @ $17.79, see portfolio graphic for stop loss.
Alternate position: Long Oct $18 call @ 64 cents, see portfolio graphic for stop loss.



SYMC - Symantec - Company Profile

Comments:

No specific news. New high close after erasing several days of profit taking.

Original Trade Description: August 26th.

Symantec Corporation, together with its subsidiaries, provides cybersecurity solutions worldwide. It operates through two segments, Consumer Digital Safety and Enterprise Security. The Consumer Digital Safety segment provides Norton-branded services that provide multi-layer security services across desktop and mobile operating systems, public Wi-Fi connections, and home networks to defend against online threats to individuals, families, and small businesses. This segment also offers LifeLock-branded identity protection services, such as identifying and notifying users of identity-related and other events, and assisting users in remediating their impact; and digital safety platform designed to protect information across devices, customer identities, and the connected homes and families. The Enterprise Security segment provides endpoint protection products, endpoint management, messaging protection products, information protection products, cyber security services, Website security, and advanced Web and cloud security offerings. Its enterprise endpoint, network security, and management offerings supports evolving endpoints and networks, as well as provides an integrated cyber defense platform. This segment delivers its solutions through various methods, such as software, appliance, software-as-a-service, and managed services. The company serves individuals, households, and small businesses; small, medium, and large enterprises; and government and public sector customers. Company description from FinViz.com.

Symantec is the largest provider of security products for retail buyers. They have an excellent suite of firewalls and antivirus programs. I have used everyone in the market at one time or another and Symantec has always been the best for me.

Last week they announced something different. They announced a secure router that handles everything in your house. It has special security for smartphones, tablets, PCs, IoT devices, etc. It has a handy user friendly interface and you can set at the router level, individual passwords for everyone in the family with individual settings by password. Say you have a 12 year old boy in the house. You can set different parental exclusions for him than you would for an 8 year old in the same house. You are in charge of everyone's access regardless of what device they are using.

The secure router blocks attacks before they get to your PC and before Windows has to deal with them. The router is not cheap but compared to what it does, it is cheap for the number of functions. How much does it cost to have your PC compromised? The router is $300 and comes with a year of service. After the year is up it goes to $10 a month. That is an entirely new revenue stream for Symantec. Obviously, it will not show up in their earnings for several quarters but the stock is rising on the news.

You can read the full press release HERE.

Expected earnings Nov 1st.

The stock is at the upper end of the range that I recommend in Premier Investor. With the potential for volatility in September, I am not recommending we go long the shares. This will be an option only position so we can try and ride out some of the volatility with minimum risk.

Update 8/28: Symantec said over the weekend they have identified a sustained cyber spying campaign, likely state sponsored, against Indian and Pakistani entities. The espionage effort began in October. India, China and Pakistan have raised military readiness over the last several weeks.

Update 9/6/27: Symantec said the US and EU power grid had been hacked by state actors and they had gained access to core systems that would have allowed them to be shutdown. The hacks were loosely tied to a recently dormant group called Dragonfly with links to Energetic Bear or Kola, widely believed to be sponsored by Russia.

Update 9/11/17: Shares of Symantec continue to soar after Google reported that searches for "LifeLock" had exploded and surged even higher than after the Anthem hack in 2015. Symantec's LifeLock monitors the credit bureaus and notifies you if anyone tries to open an account in your name. It carries a $25,000 reimbursement for stolen funds and retails for $9.95 a month. This is going to be a boost to Q3 earnings.

Update 9/14/17: The halt to US sales of the Kapersky virus suite, made in Russia, is another plus for Symantec.

Position 8/28/17:

Long Oct $31 call @ 48 cents, see portfolio graphic for stop loss.


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BEARISH Play Updates

DF - Dean Foods - Company Profile

Comments:

No specific news. Shares are resisting making a new low but they are still struggling.

Original Trade Description: September 16th.

Dean Foods Company, a food and beverage company, processes and distributes milk, and other dairy and dairy case products in the United States. The company manufactures, markets, and distributes various branded and private label dairy case products, such as fluid milk, ice creams, cultured dairy products, creamers, ice cream mixes, and other dairy products; and juices, teas, bottled water, and other products. It sell its products under approximately 50 national, regional, and local proprietary or licensed brands, and private labels, including DairyPure, TruMoo, Alta Dena, Berkeley Farms, Country Fresh, Dean's, Friendly's, Garelick Farms, LAND O LAKES, Lehigh Valley Dairy Farms, Mayfield, McArthur, Meadow Gold, Oak Farms, PET, T.G. Lee, Tuscan, and others. The company sells its products to retailers, distributors, foodservice outlets, educational institutions, and governmental entities through its sales forces. Company description from FinViz.com.

Dean Foods reported earnings of 21 cents that declined -47.1% and missed estimates for 31 cents. Revenue of $1.93 billion, which also missed forecasts. The CEO warned, that volume and mix challenges are occurring at a higher-than-planned rate. As such, given the resulting volume shortages, they lowered their full-year guidance from $1.35-$1.55 to 80-95 cents. That is a major haircut.

On August 22nd the CFO resigned unexpectedly, effective Sept 1st. That is never good when a CFO exits with only one-week's notice.

Expected earnings Nov 8th.

Dean Foods handles a lot of milk brands and the USDA said milk sales nationwide declined -2.9% in May alone. Management said competitive and volume pressures are hurting the company and the negative dynamics are expected to continue the rest of the year.

Milk has been found to cause diabetes or at least make it worse and the news is spreading fast. I have a friend that has been taking insulin for 20 years. I talked him into dropping milk from his diet and he was able to get off insulin within 3 weeks. A year later he backslid and began to drink milk again and he had to go back on insulin. He was quickly convinced and has sworn off forever and now leads a normal life with no diabetes meds.

Shares fell sharply to a 5-year low but given the severity of the guidance warning and the size of the earnings miss, the stock could continue to decline.

We shorted this stock on August 10th at $11.37 and shared dipped about 60 cents then rebounded to take us out of the short. The long put ended 6 cents in the money after shares began to roll over again. I believe we are going to see new lows.

Position 9/18/17:

Short DF shares @ $11.02, see portfolio graphic for stop loss.
Alternate position: Long Dec $10 put @ 40 cents, see portfolio graphic for stop loss.



GE - General Electric - Company Profile

Comments:

GE said it had received its 10,000th order for its advanced energy saving locomotive. The company said it was also working on an AI robot that could save $200 billion in power costs by intelligently monitoring and controlling power consumption and distribution on the electrical grid.

Shares rebounded 50 cents on this double barrel blast of positive news. I am recommending we close the short stock position and hold the long put option. I am not convinced GE's troubles are over but they are posting positive advertisements and that could boost the stock temporarily.

Original Trade Description: September 11th.

General Electric Company operates as an infrastructure and technology company worldwide. Its Power segment offers gas and steam power systems; maintenance, service, and upgrade solutions; distributed power gas engines; water treatment, wastewater treatment, and process system solutions; and nuclear reactors, fuels, and support services. The company's Renewable Energy segment provides wind turbine platforms, and hardware and software; onshore and offshore wind turbines; and solutions, products, and services to hydropower industry. Its Oil & Gas segment offers surface and subsea drilling and production systems, and equipment for floating production platforms; and compressors, turbines, turboexpanders, reactors, industrial power generation, and auxiliary equipment. The company's Aviation segment designs and produces commercial and military aircraft engines, integrated digital components, and electric power and mechanical aircraft systems; and provides aftermarket services. Its Healthcare segment offers diagnostic imaging and clinical systems; products for drug discovery, biopharmaceutical manufacturing, and cellular technologies; and medical technologies, software, analytics, cloud solutions, and implementation services. The company's Transportation segment provides freight and passenger locomotives, and rail and support advisory services; and parts, integrated software solutions and data analytics, software-enabled solutions, mining equipment and services, and marine diesel and stationary power diesel engines and motors, as well as overhaul, repair and upgrade, and wreck repair services. Its Energy Connections & Lighting segment offers industrial, grid, power conversion, automation and control, lighting, and current solutions. The company's Capital segment provides industrial and energy financial services; and commercial aircraft leasing, financing, and consulting services. Company description from FinViz.com.

GE has been struggling for the last several years. They manufacture hundreds of products from $10 items to $10 million items. After the financial crisis they did everything possible to exit their financial divisions and escape the "too big too fail" SIFI designation. They accomplished that in 2016.

Their biggest problem today is negative cash flow. It is a great company and is in no danger of failing but they are not generating enough cash to cover operating expenses, a 4% dividend and a whopping $21.1 billion stock buyback authorization through 2018.

They have been downgraded by almost everyone and JP Morgan said last week the stock needs to fall to the mid to high teens before it will be investible again. Shares closed at $23.72 today. With the stock nearing a three-year low, the odds are good, once that happens, we will see a continued drop into the teens.

JP Morgan suggested they would be forced to A) cut the dividend, which is not going to happen, B) sell something to raise cash, C) stop the $21.1 billion remaining on their stock buyback. Shares closed negative on Monday with the Dow up +259.

Earnings Oct 20th.

Position 9/13/17:

Short GE shares @ $23.93, see portfolio graphic for stop loss.
Alternate position: Long Dec $23 put @ 58 cents, see portfolio graphic for stop loss.





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