Investors are wondering where the buyers went after declines in five of the last six days. The selling is peaceful and no sign of panic but it is still selling.
The retail sector is becoming a real drag on the markets after multiple earnings reports with misses and lowered guidance. Brick and mortar stores are struggling and the warm weather has kept people from buying winter coats and clothes. Inventories are rising and holiday sales are already starting.
Thursday will see several additional retailers report and then Friday we will get the retail sales report for October. It is not expected to be good.
The market is suffering from a lack of any earnings reports from high profile companies as the earnings cycle comes to a close. Cisco is the last Dow reporter and they will confess after the close on Thursday. After this week the earnings will drop to a trickle.
The six-week rally in October is weighing on the market in November. However, the second week of November is typically weak so we really cannot say this is out of the ordinary. The third week normally begins the ramp higher into December. I continue to recommend buying the dip as long as we do not break below 2,060 on the S&P-500. The index closed at 2,075 tonight.
We cannot seem to get a break this month. The volatility over the last two weeks has knocked us out of multiple positions and we need a trend to appear. Keep your fingers crossed that support holds and the normal November rally begins soon.
Send Jim an email
Items shaded in blue were previously closed.
Current Position Changes
Stop Loss Updates
Check the graphic above for any new stop losses in bright yellow. We need to always be prepared for an unexpected decline.
WYNN - Wynn Resorts
We were stopped out of the short position the prior week as shares rallied on news out of China. Shares collapsed back again on Monday after October numbers showed gaming receipts down another 34%. We can't seem to get a break on WYNN.
Stopped Nov $85 long call, entry .32, exit .25, -.07 loss.
Stopped Nov $75 short call, entry .92, exit $1.85, -.93 loss
XBI - Biotech ETF (Stopped/Reenter)
We were stopped on the short put when the XBI dipped to $68.59 on the 6th. Because of the wide spreads on these options, I had the stop loss too tight. I am recommending we reenter the short position.
Sell short Dec $60 put, currently .80, stop loss $65.85
Stopped Dec $60 short put, entry $1.55, exit $1.50, +.05 gain.
Retain Dec $50 long put, entry .41, currently .10
RRGB - Red Robin (Stopped)
Red Robin rebounded +5.7% over the last two days to stop us out of the short call at $68.25 today. They announced the opening of three new restaurants in Louisiana, Colorado and Minnesota. Plus they gave away free meals to veterans and military members on Wednesday. Apparently that garnered them some good will from investors.
Stopped Nov $70 Short call, entry .86, exit .75, +.11 gain
Retain Nov $80 long call, entry .31, currently .00
BABA - Alibaba (Stopped)
Alibaba rallied to resistance over $85 on expectations for Singles Day and then sold off on the news Jim Chanos was recommending them as a short position because of potentially fraudulent accounting. The drop from the high stopped us on the 6th on the short put. Shares were down again today on a sell the news event despite the very successful $13.5 billion sales on Singles Day.
I am recommending we close the long put because it has little chance of finishing in the money over the next week.
Closed Nov $78 short put, entry .49, exit .69, -.20 loss.
Close Nov $70 long put, entry .14, currently .11, -.03 loss.
YUM - YUM Brands (Call Spread)
YUM reported another quarter of disappointing earnings with comps in China coming in well below expectations. In an effort to pacify investors they announced the spinoff of YUM China into a separate company. That is the growth sector for the company. The parent will remain YUM Brands US and will be a stable slow growth stock. Investors are expressing their lack of interest in a slow growth operation by selling their shares.
Earnings Jan 5th.
Sell short Dec $72.50 call, currently $1.10, stop loss $70.25
Buy long Dec $77.50 call, currently .43, no stop loss
Net credit 67 cents.
SWKS - Skyworks Solutions (Call Spread)
Skyworks is an Apple supplier and analysts are cutting estimates on component demand almost daily. On Tuesday Credit Suisse said Apple cut production of iPhone component last week by 10% because of weak Asian demand for iPhones.
Skyworks is also in a bidding war with Microsemi over PMCS-Sierra (PMCS). We learned on Tuesday that PMCS was favoring the bid by Microsemi and analysts expect Skyworks to up the bid again.
Earnings Jan 21st.
Sell short Dec $85 call, currently $1.60, stop loss $82.65
Buy long Dec $95 call, currently .35, no stop loss.
Net credit $1.25.
Existing Play Recommendations
Links to original play recommendation
ADI - Analog Devices (Put Spread)
XBI - Biotech ETF (Bear Call Spread)
MON - Monsanto (Put Spread)
WYNN - Wynn Resorts (Call Spread)
HOG - Harley Davidson (Call Spread)
XBI - Biotech ETF (Put Spread)
LRCX - Lam Research (Put Spread)
BABA - Alibaba (Put Spread)
RRGB - Red Robin (Call Spread)
Prices Quoted in Newsletter
At Option Investor we have a long-standing policy prohibiting the editors and staff from actually trading the individual recommendations in order to conform to SEC rules concerning trades.
The prices quoted in the newsletter are the end of day prices in most cases.
When discussing fills or stops the prices quoted are the bid/ask at the time the entry trigger or exit stop is hit. This is NOT a price that someone on staff actually got using a live order.
For entry/exit points at the market open the prices quoted will be the opening print. The majority of the time the readers are able to get a better fill than the opening print because of market maker bias at the open.
For trades with an opening qualification the prices quoted will be the bid/ask at the time the qualification was met.
All of these rules normally produce worse prices than an active trader would normally get. Because they are standardized there may be some cases where a price quoted was better than an actual fill. If you received a price that was dramatically different than what was quoted please let us know.