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Newsletter

Daily Newsletter, Wednesday, 10/18/2017

Table of Contents

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

Market Wrap

IBM To the Rescue

by Keene Little

Click here to email Keene Little
All of the indexes have been struggling the past week+ with some chopping their way slowly higher while others chop sideways or down. The market has been looking tired and while some indexes did not enjoy IBM's rally today it helped the Dow break through some tough resistance. Now all the bulls need is some follow through.

Today's Market Stats

Following last night's earnings report IBM blasted higher in the after-hours session. There was no give-back this morning and the shorts couldn't cover fast enough. The rally continued into this afternoon and only gave back a little at the end of the day. It was up +10% (+14.69) before closing +8.9% (+12.99). That gave the Dow a big boost and launched it up and over some strong resistance and now all the bulls need to do is hold today's gains, or at least not let it backtrack too much before continuing higher. The other indexes however, were more reserved and still suggest caution about the upside.

Other than the Dow, we had the same kind of start to the day that we've been seeing repeatedly -- start with a gap up, immediately sell into and then work the indexes back up into the afternoon and then sell into it again, which has it looking like a distribution pattern playing out. This can continue for as long as big money wants to distribute inventory and retail traders want to buy. The net result has been a lot of choppy price action with some indexes, like SPX, slowly working their way higher in a small rising wedge (the Dow broke out of its rising wedge pattern today and needs to hold above it).

The RUT has been a little different from the others with a choppy pullback over the past 2 weeks but the pattern looks like a potential bull flag consolidation pattern. The net result of all this choppy price action is that we traders need to wait for confirmation of the direction it's going to break out. The Dow could be our leading index and if the others follow in the next day or two we could be looking at the start of the next rally leg. But the risk of a downturn is high and it's reasonable to remain cautious about the upside.

There was no reaction to this morning's pre-market economic reports, which included housing starts and building permits, both of which declined slightly in September. As we move into fall and then winter it's typical to see a slowdown in building and sales so a little slowdown is to be expected, although the slowdown in September was a little more than had been expected and housing starts are now at a 1-year low.

This afternoon's Fed's Beige report basically said the economy is blah (my term, not theirs). The pace of growth for the economy is "split between modest and moderate," whatever that's supposed to mean. I guess it simply means it's not robust, hence blah. The Fed is confused as to why a stable economy and a tight labor market (in their view) hasn't led to more inflation. They still expect higher inflation but can't find any evidence of it yet.

Unfortunately the Fed's economic models don't reflect the fact that our economy is not nearly as strong as they think it is. There has been a fundamental change with all the money thrown at it but a significant lack of use of that money (except for asset appreciation like houses and stock prices).

The Fed believes the recent hurricanes put a damper on economic growth but that it's temporary and they're likely to continue with their plan to raise rates again in December. Essentially there was nothing in the Beige book that wasn't already known. The market sold off slightly following the report but nothing significant.

With the anniversary of the October 19, 1987 Black Monday, which had followed a steep decline the previous days, there's been a lot of talk about the vulnerability of the current market vs. back then. It could be just talk around the 30-year anniversary but there are some smart market observers, who were in the market back then, who are issuing warnings that today is looking eerily similar to what the market was like then. As I'll show further below, even though the Dow was very bullish today, there are reasons to be cautious about the upside.

A strong reason to be cautious, both in the long term and the short term, is that the market is stretched to the upside. Current market valuations suggest the return over the next 10 years is likely to be dismal. Therefore it doesn't make a lot of sense to commit large sums of money to a stock market that is over-valued and likely to correct.

The short-term problem for the market is that we have a very different market than we've had in the past and yet some similarities. Part of the problem today is the amount of computer (algo) trading combined with passive investing (ETFs instead of stock picking). The flash crash in 2015 still hasn't been figured out as to why or how it happened. And today we're even more vulnerable as the move into ETFs will lead to a situation where there will be no buyers when the selling begins. There is a significant air pocket below us that's been created by having virtually no backing and filling during the rally. It's been a steady rise with virtually no pullback. That sets us up for a nasty correction when it comes and it's very likely to catch most off guard.

As for the current picture, the charts don't emphatically point in one direction or the other and we're waiting for a break from the past two weeks so that we can get a sense of the next move, which could be big. Whether or not that started with the Dow today remains a big question mark. We'll have a better sense of that by the end of the week or next week at the latest (we need to get through opex and its control of the market).

I'll lead off tonight's chart review with the SPX weekly chart.


S&P 500, SPX, Weekly chart

For the past 3 weeks SPX has been nuzzling up against its trend line along the highs since April 2016 (ignoring the slight poke above it in February 2017) and the midline of its up-channel from 2010-2011, both of which are currently crossing near 2564 (today's high). SPX would start to look more bullish above 2565 although there are some shorter-term reasons that support a rally to the 2580 area and therefore it would be more bullish above 2585. From a weekly perspective the first sign of trouble for the bulls would be a break below the uptrend line from February-November 2016, currently near 2500, and a top would be confirmed in place if SPX drops below its August 21st low at 2417.


S&P 500, SPX, Daily chart

The daily chart shows a little more clearly the price action at the trend along the highs since April 2016 and the slight loss of momentum since the October 5th high. There's upside potential to a price projection at 2579, which is where it would achieve two equal legs up from April (I'm looking at the possibility for just an A-B-C move up from April for the 5th wave of the rally from January 2016 since the rally has created a large rising wedge pattern). Slightly higher is a trend line along the highs for the rally from August, which will be near 2585 by next Monday.

Key Levels for SPX:
- More bullish above 2585
- bearish below 2541


S&P 500, SPX, 60-min chart

The 60-min chart doesn't show the trend line along the highs from April 2016 but essentially it's the top of the little rising wedge pattern that has developed since the October 5th high. That little wedge will be negated if today's rally continues into the end of the week, in which case I'll be looking for 2579-2587. In addition to the 2579 price projection on the daily chart (for two equal legs up from April), there is the same price projection for the 5th wave of the rally from August (where it would equal the 1st wave). That makes 2579 a price level of interest if reached.

SPX is currently trying to get through the price projection at 2564.73, which is where the 5th wave would equal 62% of the 1st wave in the rally from August, which is a common relationship when a move has gone too far too fast (without any appreciable correction). Therefore there is the potential the rally could complete at any time, especially considering the fact that it is pressed up against resistance at its trend line along the highs from April 2016 (daily chart).


International Business Machines, IBM, Weekly chart

Before looking at the Dow, which was driven primarily by IBM today (the other 29 stocks effectively cancelled each other out), I think it's a good idea to check out IBM's chart to see what it's currently dealing with. The risk is a one-and-done kind of move today. IBM broke above its downtrend line from 2013-2014, near 159, and closed today on its broken 50-week MA at 159.58 with today's close at 159.53. It had popped above this level and came within a point of hitting its broken 200-week MA at 162 before pulling back into the close.

With today's high at 161.23 it was able to achieve a 50% retracement of its February-August decline, at 160.96, and back-test its broken uptrend line from February 2016. In other words, it's facing a lot of resistance here and it's possible there will be no follow through to today's rally. That of course remains to be seen and if IBM is able to rally above price-level resistance at 165 and above the 62% retracement of its decline, near 166, it could be off to the upside for this stock.


Dow Industrials, INDU, Daily chart

With IBM's push, the Dow broke above the top of its parallel up-channel from April, near 23060. It also busted out the top of a rising wedge pattern for its rally from August, the top of which is near today's open at 23087. This all looks bullish if the Dow can now hold above this morning's open on any pullback.

The pattern for the rally from April, the way I'm counting it, is a double a-b-c (double zigzag) and the 2nd a-b-c is the move up from June 29th. The c-wave of this move would be 162% of the a-wave at 23189, about 16 points above today's high. A trend line along the highs from June-August (light grey line) was reached today and the combination of this and the 23189 projection has me wondering if today has nearly completed its rally rather than starting a stronger leg up. Again, we'll know better in the next few days but stay bullish above 23087 and bearish below it, especially below 22820.

Key Levels for DOW:
- bullish above 22,000
- bearish below 22,000

Another reason to be cautious about today's rally for the Dow, even though price action looks bullish, not all is well underneath the surface of the water (cue the soundtrack from Jaws). The battle between "smart" money (commercial traders) and "dumb" money (retail traders, which includes most fund managers) is almost always won by smart money. They truly play the long game of buying low and selling high. Even Warren Buffet now has one of his largest cash positions ever held. The same is true for many large "smart" fund managers -- they've been slowly building their cash position while retail traders get giddy about buying new daily highs.

Measuring what the smart money is doing can be seen from the COT (Commitment of Traders) report and right now the COT report shows the widest spread between commercials (black line at the bottom of the chart below, which shows a very large net-short position) and non-commercials (blue line, showing a very large net-long position) since before 2003 (as far back as I can find a chart). In addition to the wide spread, each side holds the largest position since before 2003. In other words each side is betting BIG and it's a huge spread. The warning from this chart, which goes back to 2009, is that the coming correction is going to hurt a lot of the retail traders betting on the long side. The only question is when the correction will come.


Dow e-mini futures vs. COT report


Nasdaq-100, NDX, Daily chart

The techs were hurt today by the FAANG stocks, which mostly finished in the red (only a minor gain for GOOGL). NDX continues to struggle with its broken uptrend line from June-November 2016, which it's been battling since October 5th. A little higher is its trend line along the highs from November 2014, currently near 6165, so there's a little more upside potential (and more bullish above 6180) but the pattern is at the point where it can't tolerate much of a drop without turning on the selling. I think the first sign of trouble would be a drop below 6100 but it will take an impulsive decline, instead of a choppy pullback, to tell us a high is likely in place.

Key Levels for NDX:
- bullish above 6180
- bearish below 6010


Russell-2000, RUT, Daily chart

While the other indexes have been chugging higher (hard to call them rallies) the RUT has been consolidating off its October 4th high and has nearly made it down/over to its uptrend line from August 18 - September 8, currently just below 1495. This is also where a trend line along the lows of the consolidation intersects the uptrend line Thursday morning. As long as the RUT stays above 1495 it's in a bullish consolidation pattern and breakout to the upside should coincide with a bullish breakout by the other indexes as well.

If the RUT drops below 1490 it would leave a failed bullish pattern in its wake and failed patterns tend to fail hard. Considering the vulnerability of this market (air pocket below us, commercial traders massively short, passive investing, computer trading, highly overvalued, shall I continue?), take any failure to rally seriously.

Key Levels for RUT:
- bullish above 1515
- bearish below 1490


30-year Yield, TYX, Weekly chart

There's been a lot of noise in the daily charts of the Treasury yields and little sense of direction. The weekly charts aren't providing much clarity either. But last week I discussed the 30-year yield and the fact that its bounce failed at its broken and crossing 50- and 200-week MAs. I thought it needed to hold above price-level S/R at 2.85 but it failed to do that with a drop back below it last Friday. If it stays below 2.85 I think it will be bearish and today's rally brought it back up to that level. While it will have to deal with potentially stronger resistance at its downtrend line from 2011-2013 if it rallies from here, I would say it's bullish above 2.85 (bearish for bond prices) and bearish below.


U.S. Dollar contract, DX, Daily chart

The US$ pulled back to support last week at its recovered 20- and 50-dma's, as well as the bottom of a previous down-channel from January, and bounce off support has it looking like we could see its rally continue. It's currently struggling with price-level resistance near 93.30 and a new downtrend line from April through the October 6th high, which was tested with today's high at 93.65 before pulling back to close at 93.23. If both of these resistance points can be cleared it would then be bullish.

If the dollar makes a new high above the October 6th high at 94.10 it would give us an impulsive move up from the September 8th low and that would signal a bottom is in place. A subsequent pullback from a new high would then be a buying opportunity for the dollar. But without a new high above 94.10 the dollar would turn short-term bearish if it drops back below the October 13th low at 92.59. There is still the potential for a drop down to the $90 area before setting up the next longer-term rally.


Gold continuous contract, GC, Daily chart

On October 5-6 gold successfully back-tested its broken downtrend line from 2011-2016, near 1266 at the time, and it was looking like it was off to the races when it got back above its 20- and 50-dmas last Friday. But gold has dropped back down below those MAs, now near 1289 and 1302, resp., as well as price-level S/R at 1300. As long as gold holds above its October 6th low near 1263 it stays potentially bullish. But a drop below 1262 would confirm the likelihood that gold is heading lower (potentially below last December's low at 1124).


Oil continuous contract, CL, Weekly chart

The bounce pattern for oil's rally from June has the potential to make it up to the $56 area and still be just a correction to its longer-term decline. There's also price-level S/R near 58.50, shown on the weekly chart below, that could be an upside target. But currently oil is fighting resistance at a downtrend line from May 2015, currently near 52 (today's high was 52.33). A longer-term uptrend line from 1998-2008 is currently near 53 so there's plenty of resistance for oil bulls to fight through.

As noted on the chart, it's possible to consider the downtrend line from May as the neckline of an inverse H&S bottoming pattern, which means a break above the trend line could be very bullish (the price objective for the pattern would be the height of the head, so about 84-85. But I think the larger oil pattern is bearish and the sideways consolidation over the past 3 years will be followed by another leg down. I think oil is in a longer-term decline, especially if demand continues to shrink while new sources/methods continue to increase supply.


Economic reports

Thursday's economic reports include the unemployment data and Philly Fed index and Leading Indicators, the latter being more or less an after-the-fact kind of report. The Philly Fed index is expected to show a little slowing from September but the market is likely to ignore it. On Friday we'll get some existing home sales data for September, which is expected to be down slightly from August, as were today's reports on new homes.


Conclusion

The stock market is clearly bullish and it doesn't make sense to fight it. In other words, no reaching in to grab rising knives. Ride it for as long as it holds but I think the rally has reached the point where it could top out at any time. More importantly, I think there's considerable downside risk since a decline could rapidly pick up speed and scare more and more traders into selling.

Computer trading could will likely exacerbate the problem by selling ETFs hard and not finding buyers on the other side. Between that and the air pocket below us (due to no significant corrections along the way in the rally) we could see a flash crash that puts the one in August 2015 (down -10% in 3 days) to shame. Waking up to a big gap down is the kind of downside risk I see.

Believing there is significant downside risk, it's tempting to get into some speculative short positions but that's equally dangerous in a market that could still have a long way to go into a blow-off top. However, getting into some short positions as a hedge to protect your long positions makes a lot of sense right now. Hopefully you won't need the insurance but you'll be glad to have it if we suddenly experience a 1000-point down day for the Dow. Do I believe we could see that kind of move? Absolutely.

It'll be interesting to see how the next week plays out since the indexes are either poised to turn back down from ending patterns to the upside (such as the SPX rising wedge pattern) or ready to break out to the upside from consolidation patterns (such as the RUT's choppy sideways/down flag pattern). The Dow has broken through some important resistance levels and could be our bullish indicator.

Right now, with the differences between the indexes, we need to let price lead the way from here. Stay cautiously long until we see some impulsive moves to the downside. Just stay aware of the potential for a significant decline that happens very quickly and catches most bulls back on their heels, unsure how to react and likely to get hurt badly before realizing the market is not coming back.

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 Plays

Increasing Competition

by Jim Brown

Click here to email Jim Brown
Editor's Note

This missed on revenue and company cut guidance because of increasing competition. Those are not the CEO comments investors want to hear.



NEW BULLISH Plays

No New Bullish Plays


NEW BEARISH Plays

HAWK - Blackhawk Network Hldgs - Company Profile

Blackhawk Network Holdings, Inc. provides a range of prepaid gift, telecom, and debit cards in physical and electronic forms; and related prepaid products and payment services in the United States and internationally. It operates through three segments: U.S. Retail, International, and Incentives & Rewards. The company distributes closed loop gift cards in the areas of digital media and e-commerce, dining, electronics, entertainment, fashion, transportation, home improvement, and travel; non-reloadable open loop gift cards; and prepaid wireless or cellular cards that are used to load airtime onto the prepaid handsets, as well as sells handsets. It also offers general purpose reloadable (GPR) cards; and Reloadit, a GPR reload network product that allows consumers to reload funds onto their previously purchased third-party GPR cards. In addition, the company provides incentives solutions comprising solutions, which allow businesses to manage consumer incentive programs, including in-store, online, or mail-in rebate processing; a hosted software platform for managing sales person and sales channel incentive programs; bulk prepaid card ordering systems and Websites to allow business and incentive program clients to use prepaid cards as part of their incentive and reward programs; and direct-to-participant fulfillment services for prepaid cards, checks, and merchandise. Further, it offers Cardpool that provides an online marketplace and various retail locations to sell unused gift cards; digital services for online and mobile applications; and card production and processing services to its prepaid gift and telecom content providers. The company distributes its products through grocery, convenience, specialty, and online retailers. Company description from FinViz.com.

Blackhawk is in trouble. The company reported Q3 earnings of 18 cents that beat estimates for 10 cents but revenue of $208.1 million missed estimates for $216.5 million. The company guided for the full year for earnings of $1.56-$1.70 and analysts were expecting $1.68. They cut revenue guidance to $940-$981 million and analysts were expecting $1.1 billion.

The CEO said, "We have recently seen increasing competitive pressures in some retail markets and believe this will result in lower growth in our U.S. retail physical channels going forward."

PayPal, Visa and MasterCard are making a big push into prepaid cards. Blackhawk is fighting the three giants in the market and apparently, they are losing market share.

Shares fell $10 on the earnings and have continued to bleed points in the days that followed. They are at a 52-week low and are approaching a 3-year low at $30. Investors tend to flee when companies warn of increased competition and falling market share. If the $30 level breaks, the next support is around $23.

Earnings January 10th.

Because the stock is over $30 this will be an option only position.

Buy Dec $30 put, currently 60 cents, no initial stop loss.



Entry disclaimer: To avoid an unfavorable entry point, we will not launch a new play if the stock gaps more than $1.00 at the market open.



In Play Updates and Reviews

Bank Rescue

by Jim Brown

Click here to email Jim Brown

Editors Note:

Goldman's $6 gain lifted the financial sector and that rescued the Russell. The small cap index has a 17% weighting of financials. The entire sector was up on Wednesday, led by the $6 gain by Goldman along with the rally in the Dow. A positive Dow normally translates into positive financials.

The Russell did rebound back above the 1,500 support level with a 7-point gain and that was second only to the Dow. The S&P gained 1.90 and the Nasdaq 0.56. This was not a broad market rally. This was IBM and Goldman adding 130 points to the Dow when nearly half the Dow components (12) were negative.

Dow component AXP beat on earnings after the bell but then announced the CEO was leaving and all their afterhours gains evaporated. The Dow, Nasdaq and S&P futures opened negative for the evening session.

The Dow is now extremely over extended and we could see profit taking at any time.





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


JKS - Jinko Solar
The short stock position was closed at the open.



If you are looking for a different type of trading strategy, try these newsletters:

Short term Calls and Puts on equities = Option Investor Newsletter

Credit spreads and naked puts = OptionWriter

Long term option investments = LEAPS Investor

3-6 month Option Trades = Ultimate Investor

Iron Condors = Couch Potato Trader



BULLISH Play Updates

AMD - Advanced Micro Devices - Company Profile

Comments:

No specific news. Semiconductor sector was flat again today.

Original Trade Description: Sept 23rd

Advanced Micro Devices, Inc. operates as a semiconductor company worldwide. Its primarily offers x86 microprocessors as an accelerated processing unit (APU), chipsets, discrete graphics processing units (GPUs), and professional graphics; and server and embedded processors, and semi-custom System-on-Chip (SoC) products and technology for game consoles. The company provides x86 microprocessors for desktop PCs under the AMD A-Series, AMD E-Series, AMD FX CPU, AMD Athlon CPU and APU, AMD Sempron APU and CPU, and AMD Pro A-Series APU brands; and microprocessors for notebook and 2-in-1s under the AMD A-Series, AMD E-Series, AMD C-Series, AMD Z-Series, AMD FX APU, AMD Phenom, AMD Athlon CPU and APU, AMD Turion, and AMD Sempron APU and CPU brand names. It also offers chipsets with and without integrated graphics features for desktop, notebook PCs, and servers, as well as controller hub-based chipsets for its APUs under the AMD brand; and AMD PRO mobile and desktop PC solutions. In addition, the company provides discrete GPUs for desktop and notebook PCs under the AMD Radeon brand; professional graphics products under the AMD FirePro brand name; and customer-specific solutions based on AMD's CPU, GPU, and multi-media technologies. Further, it offers microprocessors for server platforms under the AMD Opteron; embedded processor solutions for interactive digital signage, casino gaming, and medical imaging under the AMD Opteron, AMD Athlon, AMD Sempron, AMD Geode, AMD R-Series, and G-Series brand names; and semi-custom SoC products that power the Sony Playstation 4, Microsoft Xbox One, and Xbox One S game consoles. Company description from FinViz.com.

Expected earnings Oct 24th.

Nvidia (NVDA) shares were rocked last week after news broke that Tesla was looking at moving to AMD and away from Nvidia for the chips to power the autonomous driving functions. The initial headline saw AMD spike and Nvidia decline. The actual story is that AMD and Nvidia are partnering on creating a chip solution for Tesla. It is no surprise that AMD is in the mix because Tesla hired Jim Keller to lead development of Autopilot. Keller previously worked at AMD and led the development of the Zen architecture and the new Ryzen processors.

It appears that Nvidia and AMD have a team of about 50 engineers working to develop a comprehensive solution for Tesla. Here is where it gets interesting. I would not be surprised to see Tesla make an acquisition bid for AMD. The company only has a $13 billion market cap compared to $110 billion for Nvidia. AMD has a lot of products that are different from the Nvidia product line even though they both make GPUs. AMD has only existed for years as a foil for Intel. The bigger company could not be considered a monopoly as long as AMD existed. Now with Qualcomm getting into the processor market and AMD and Nvidia in a high tech partnership, it would make sense for Nvidia to acquire AMD. Since GPUs are a small part of AMD's product line, there may not be that much regulatory concern. Is it a long shot? Absolutely, but definitely in the realm of possibilities.

Even if there is never an acquisition bid, just the combination of AMD and Nvidia in a partnership validates the technical capabilities of AMD and lifts them into the big league. Where AMD has always been a low cost alternative to Intel and always 1-2 generations behind in technical expertise, they have dramatically improved their game in the last 12-18 months. Instead of being road kill on the Intel superhighway to state of the art processors, they have surged to be a real competitor. Partnering with Nvidia is a real step up for the company.

The chart is ugly with no apparent trend but there is decent support at $12. They could easily catch fire as investors begin to understand the ramifications of the partnership and we could see another leg higher like the one that started the prior May. There are no guarantees but I do not believe anyone sees AMD's future as anything but positive given recent events.

Update 9/25/17: AMD and Nvidia declined after Intel announced the next generation in the Core CPU line for desktops. This 8th generation Core-i7-8700K is the bet gaming processor ever with an internal clock frequency of 4.7 Ghz and Intel's fastest ever. They will also support 4K video. This is a challenge for AMD but the company is still ahead of Intel in the GPU race.

Update 10/3/17: AMD announced a new embedded GPU requiring less power and capable of driving five simultaneous 4K displays. The GPU requires less than 40 watts TDP and comes in a smaller, thinner package. The chip has a 1.25 TFLOPS speed and comes in three form factors including MCM, MXM and PCI Express. The 4K and 3D support works for games, medical imaging, advertising signage and industrial uses. The GPU has 4 GB of GDDR5 memory. Shares gained more than 5% on the news.

Update 11/10/17: AMD shares rallied after a processor conference and upgrade to Nvidia. Yesterday there was an article with a picture of a new Intel processor with "Vega Inside" but it has disappeared today. Intel has previously denied any licensing with AMD but the picture showed a mobile processor with Intel Outside, Vega Inside, which would mean AMD's Vega graphics on an Intel chip. This was for a mobile processor for a notebook or tablet. Apparently, Intel was not ready for the world to see that internal graphic and the article was removed from circulation. If/when Intel does announce a deal with AMD the stock is going to soar.

Update: I was able to go back and find the link I had saved even though it is no longer on the website. Vega Inside

Position 9/25/17:

Long AMD shares @ $13.25, see portfolio graphic for stop loss.
Alternate position: Long Jan $14 call @ $1.25, see portfolio graphic for stop loss.



BOTZ - Global X Robotics AI - Company Profile

Comments:

No specific news. Long term position.

Original Trade Description: October 4th.

The investment seeks to provide investment results that correspond generally to the price and yield performance, before fees and expenses, of the Indxx Global Robotics & Artificial Intelligence Thematic Index. The fund invests at least 80% of its total assets in the securities of the underlying index. The underlying index is designed to provide exposure to exchange-listed companies in developed markets that are involved in the development of robotics and/or artificial intelligence as defined by Indxx, the provider of the underlying index. The fund is non-diversified. Company description from FinViz.com.

Robots of every description are taking over the manufacturing sector, service sector, etc. Drones are automated. Autos are becoming autonomous.

Even more important to this ETF is the sudden arrival of Artificial Intelligence or AI. That is the buzzword for everything. Everybody is trying to get into the AI business.

This ETF took off last January and while there have been several mild hiccups along the way, the chart is nearly vertical as investors become aware of it.

I am going to lag back on the stop loss because this could be a long-term position.

Position 10/5/17:

Long BOTZ shares @ $22.10, see portfolio graphic for stop loss.
Alternate position: Long Mar $23 call @ 80 cents, see portfolio graphic for stop loss.



CONN - Conn's Inc - Company Profile

Comments:

KeyBanc reiterated and overweight rating and raised their price target from $24 to $42. Shares spiked to $28.35 on a short squeeze related to the upgraded but faded back to $26.85 at the close. That was still a 5.5% gain.

Original Trade Description: Sept 23rd

Conn's, Inc. operates as a specialty retailer of durable consumer goods and related services in the United States. It operates through two segments, Retail and Credit. The company's stores provide furniture and mattress, including furniture and related accessories for the living room, dining room, and bedroom, as well as traditional and specialty mattresses; home appliances comprising refrigerators, freezers, washers, dryers, dishwashers, and ranges; and home office products consisting of computers, printers, and accessories. Its stores also offer consumer electronics, such as LED, OLED, Ultra HD, and Internet-ready televisions; and Blu-ray players, and home theater and portable audio equipment. The company also provides short- and medium-term financing to its retail customers, as well as offers product support services, such as product repair services, repair service agreements, and various credit insurance products. As of January 31, 2017, it operated 113 retail locations in Alabama, Arizona, Colorado, Georgia, Louisiana, Mississippi, Nevada, New Mexico, North Carolina, Oklahoma, South Carolina, Tennessee, and Texas. Conn's, Inc. was founded in 1890 and is based in The Woodlands, Texas. Company description from FinViz.com.

Conn's reported earnings of 26 cents and analysts were expecting a loss of 2 cents. Revenue of $366.6 million missed estimates for $371.9 million. They are located outside of Houston and were forced to close 23 stores, distribution and service centers in Beaumont and Houston. They lost 100 selling days as a result of the storm.

The company said collections from customer financings would be impacted and sales were slow after the stores reopened. However, once utilities and transportation systems were restored, the business saw a large uptick in activity. People who were flooded out have to replace all of their furniture and electronics. Because the company is located in and has a heavy presence in Houston, they will benefit from the surge in replacing household items for months into the future. Shares are rebounding on this outlook.

Earnings Dec 7th.

I profiled this as a long position on Sept 28th but the stock gapped higher on the 29th on an analyst upgraded and that cancelled the entry. Oppenheimer raised their rating to an outperform with a $56 price target. He said investors were under appreciating the resurgence of the Conn's business model and credit portfolio. The crisis of confidence from September 2016 has long passed.

Late Monday an SEC Form 4 was filed showing Harriet Stevens, a 10% owner, purchased another 42,000 shares for $1,066,800 on Oct 13th. This is a strong vote of confidence in the stock. She already owns 5.984 million shares worth $152 million. She did not need to buy more unless she really felt the stock was going higher.

Position 10/17/17:

Long CONN shares @ $26.00, see portfolio graphic for stop loss.
Alternate position: Long Nov $28 call @ $1.06. Short fuse. see portfolio graphic for stop loss.



HPE - Hewlett Packard Enterprise - Company Profile

Comments:

No specific news.

Original Trade Description: Oct 2nd

Hewlett Packard Enterprise Company provides technology solutions to business and public sector enterprises. It operates through Enterprise Group, Software, Enterprise Services, and Hewlett Packard Financial Services segments. The Enterprise Group segment offers servers, management software, converged infrastructure solutions and technology services; hybrid cloud solutions, including private cloud platform; business critical systems; storage products, as well as 3PAR StoreServ, a Storage platform; and networking products comprising switches, points, controllers, routers, and wireless local area network and network management products. This segment also provides software-defined networking and communications capabilities; network access solutions for mobile enterprises; and consulting services. The Software segment offers software to capture, store, explore, analyze, protect, and share information and insights within and outside organizations; enterprise security, application delivery management, and IT operations management software products. This segment provides HP Vertica, an analytics database technology for machine, structured, and semi-structured data; and HP IDOL, an analytics tool for human information, as well as solutions for archiving, data protection, eDiscovery, information governance, and enterprise content management. The Enterprise Services segment offers consulting, outsourcing, and support services across infrastructure, applications, and business process domains; and application and business services that help clients to develop, revitalize, and manage their applications and information assets. The Hewlett Packard Financial Services segment provides leasing, financing, IT consumption and utility programs, and asset management services. Company description from FinViz.com.

Expected earnings Dec 5th.

HPE has been undergoing an intense reorganization for several years. That included splitting off from HPQ in an effort to separate the corporate business from the consumer business. Meg Whitman has done a superb job in trimming excess departments and selling off non-core assets.

Recently, she announced another 10% reduction in the workforce that would result in 5,000 job cuts. She said the reductions would result in fewer lines of business and a more streamlined decision process. The current 3-year plan calls for savings of $1.5 billion and shift the focus towards research and development.

When Whitman took over in 2011 Hewlett Packard had 350,000 workers before the spinoff. Now HPE has 52,000.

The company now specializes in cybersecurity, enterprise WiFi, cloud services, servers and other corporate technology. Whitman recently said the company is seeing rapidly growing demand across key areas of the business.

Shares closed at a new high on Monday after trading in a $2 range for almost a year. I believe the latest announcement on reductions and streamlined operations has finally struck a chord with investors.

Update 10/3/17: Shares down slightly on news they allowed Russia to examine the source code of security software used to guard Pentagon secrets. The review was required by Russia and other countries prior to those countries considering HPE as a cybersecurity vendor for their secrets. However, by letting Russian software engineers view the source code, supposedly to make sure there was no hidden back door access for US spies, they learned how the code worked, what the software was guarding against and gave them insights as to how they could defeat it. The top White House cyber security official said this was becoming a bigger problem because everyone (other countries) was demanding to see the source code and that has now become a security risk.

Position 10/3/17:

Long HPE shares @ $14.97, see portfolio graphic for stop loss.
Alternate position: Long Jan $16 call @ 50 cents, see portfolio graphic for stop loss.



MRVL - Marvel Technology - Company Profile

Comments:

No specific news. The stock returned to resistance at $18.60.

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:
Closed 10/9: Long Oct $18 call @ 64 cents, exit 64 cents, breakeven.



ON - ON Semiconductor - Company Profile

Comments:

No specific news. New closing high.

Original Trade Description: Oct 9th.

ON Semiconductor Corporation manufactures and sells semiconductor components for various electronic devices worldwide. It operates through three segments: Power Solutions Group, Analog Solutions Group, and Image Sensor Group. The Power Solutions Group segment offers discrete, module, and integrated semiconductor products for various applications, such as power switching, power conversion, signal conditioning, circuit protection, signal amplification, and voltage reference. The Analog Solutions Group segment designs and develops analog, mixed-signal, and logic application specific integrated circuits and standard products, as well as power solutions for a range of end-users in the automotive, consumer, computing, industrial, communications, medical, and aerospace/defense markets. This segment also provides trusted foundry, trusted design, and manufacturing services, as well as integrated passive devices technology. The Image Sensor Group segment offers complementary metal oxide semiconductors and charge-coupled device image sensors, as well as proximity sensors, image signal processors, and actuator drivers for autofocus and image stabilization for a range of customers in automotive, industrial, consumer, wireless, medical, and aerospace/defense markets. The company serves original equipment manufacturers, distributors, and electronic manufacturing service providers. Company description from FinViz.com.

Earnings Nov 6th, unconfirmed.

ON continues to power higher on a surge of new products as the IoT boom continues. The company completed the acquisition of Fairchild Semiconductor in September.

A major factor in the boom is the Advanced Driver-Assistance Systems. This market is expected to reach $42 billion by 2021 according to MarketsandMarkets. This is giving ON a tremendous boost in earnings and forecasts.

However, they missed earnings for Q2. They reported 26 cents and estimates were 33 cents. Revenue of $1.34 billion beat estimates for $1.31 billion. The company guided for the current quarter for $1.34-$1.39 billion.

Somebody believes they are going to beat those estimates by a mile. On Monday, somebody bought 11,000 of the November $20 calls at 65 cents. That is a $715,000 bet. I suggest we follow them.

Because of the steep gains over the last month, I am not recommending a stock position. We will do this with options only.

Update 10/11/17: ON and Fujitsu announced an agreement where ON will purchase 40% of Fujitsu's 8-inch wafer fabrication plant in Aizu-Wakamatsu. The purchase will be completed by April 1st. ON already had a 10% share and will acquire another 30%. ON said it planned to increase ownership to 80% in the second half of 2018 and 100% in the first half of 2020. By scaling into the ownership it will allow ON to add capacity as demand increases.

Update 10/12/17: ON announced to new System on a Chip (SOC) 1.0 Megapixel CMOS image sensing products for the automotive imaging sector. The company said annual shipments of cameras for use in cars will easily surpass 80 million units by 2020.

Position 10/10/17:

Long Nov $20 call @ 80 cents, see portfolio graphic for stop loss.




BEARISH Play Updates

BBBY - Bed, Bath and Beyond - Company Profile

Comments:

No specific news. Shares holding at the 8-yr low.

Original Trade Description: October 14th.

Bed Bath & Beyond Inc., together with its subsidiaries, operates a chain of retail stores. It sells a range of domestics merchandise, including bed linens and related items, bath items, and kitchen textiles; and home furnishings, such as kitchen and tabletop items, fine tabletop, basic housewares, general home furnishings, consumables, and juvenile products. It also provides various textile products, amenities, and other goods to institutional customers in the hospitality, cruise line, healthcare, and other industries. As of February 25, 2017, the company had a total of 1,546 stores, includes 1,023 Bed Bath & Beyond stores in 50 states, the District of Columbia, Puerto Rico, and Canada; 276 stores under the names of World Market, Cost Plus World Market, or Cost Plus; 113 buybuy BABY stores in 35 states and Canada; 80 stores under the CTS name; and 54 stores under the Harmon name. It also offers products through various Websites and applications, such as bedbathandbeyond.com, bedbathandbeyond.ca, harmondiscount.com, christmastreeshops.com, buybuybaby.com, buybuybaby.ca, harborlinen.com, t-ygroup.com, and worldmarket.com. In addition, the Company operates Of a Kind, an e-commerce Website that features specially commissioned limited edition items from emerging fashion and home designers; One Kings Lane, an online authority in home decor and design that offers a collection of selected home goods, and designer and vintage items; PersonalizationMall.com, an online retailer of personalized products; Chef Central, an online retailer of kitchenware, cookware, and homeware items catering to cooking and baking enthusiasts; and Decorist, an online interior design platform that provides personalized home design services. Company description from FinViz.com.

It is a tough world when nearly every one of your products is listed on Amazon along with a dozen competitive products with free 2-day delivery. Bed, Bath and Beyond is stuck in that rut and it is painful.

In their recent earnings they reported 67 cents, down from $1.11 in the year ago quarter and missed estimates for 93 cents. Revenue of $2.9 billion also missed estimates for $3 billion. Same store sales declined -1.7%. The retailer said it was undertaking a number of "transformational initiatives." One of those initiatives was the termination of 880 manager positions. Shares fell 18% on the earnings.

With Toys-R-Us filing bankruptcy, there are now concerns about other stores possibly following suit. BBBY is in trouble even though they are buying back shares and paying a dividend. With sales and earnings declining those shareholder friendly efforts may have to be curtailed. They have 65,000 employees and 1,550 stores.

This is simply a case of a large brick and mortar retailer trying to compete with an all powerful Amazon and we know who is going to win this battle in the long run.

Expected earnings Dec 19th.

I am reaching out to January on the option because we can buy an extra 40 days of time for 21 cents. We can buy time but we do not have to use it.

Position 10/16/17:

Short BBBY shares @ $21.20, see portfolio graphic for stop loss.
Alternate position: Long Jan $20 put @ $1.10, see portfolio graphic for stop loss.



JKS - Jinko Solar - Company Profile

Comments:

No specific news. The position was closed at the open.

Original Trade Description: October 11th.

JinkoSolar Holding Co., Ltd., together with its subsidiaries, engages in the design, development, production, and marketing of photovoltaic products in the People's Republic of China and internationally. It offers solar modules, solar cells, silicon ingots, silicon wafers, and recovered silicon materials. The company sells its products to distributors, project developers, and system integrators under the JinkoSolar brand, as well as on an original equipment manufacturer basis. JinkoSolar Holding Co., Ltd. was founded in 2006 and is based in Shangrao, the People's Republic of China. Company description from FinViz.com.

Expected earnings Dec 6th, unconfirmed.

Declining demand for certain types of solar panels, new requirements in China, new rules in China and an excess of supply in the market is depressing Jinko shares.

Of the last five analyst actions, 2 have been a cut back to hold and 3 have been a cut to sell. Axiom cut them to sell with a $10 price target.

To make matters worse, on Sept 27th, the company announced an "at the market" offering of $100 million in stock. That represents about 5 million shares in addition to their 27 million shares outstanding. At the market means the selling broker will simply sell the shares into the market at a time and pace of their own choosing. Average daily volume is about 800,000 so assuming they sold 100,000 shares per day it would take 50 trading days of continuous selling pressure.

Over the last month the consensus earnings estimates for the full year have declined from $1.99 to 77 cents. Estimates for the quarter have declined from 41 cents to 17 cents. Axiom said estimates should turn negative for Q4 and remain negative all the way through 2019.

Unfortunately, the outlook is so negative the put options are very high. This will be a stock only position.

Update 10/12/17: Jinko announced its annual meeting will be held November 15th. The announcement was before the open while there was nothing unusual in the press release, the stock gapped up sharply. Shares gapped up 5% to $23.72 before fading slightly to end with a 92-cent gain for the day. Fortunately, the gap higher at the open gave us a short entry at a higher than expected level and we missed half of the gain. Now we need the decline to continue.

Position 10/12:

Closed 10/18: Short JKS shares @ $23.03, exit $23.59, -.56 loss.



VXX - Volatility Index Futures - ETF Description

Comments:

Since this is a long-term ETF position, there will not be daily commentary.

Original Trade Description: September 18th.

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.

Position 9/19/17:

Short VXX shares @ $40.95, see portfolio graphic for stop loss.





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