Investors are counting down the days before Christmas and more importantly before year-end. The market has turned choppy as expected and the Dow and Nasdaq 100 were the only indexes to squeeze out a gain for the week.
While next week could have a positive bias, I expect the trading to be choppy as portfolio managers just try to hold on to what profits they have accumulated until January begins. With a lot of analysts expecting a January decline, there may be some managers that decide to pull the ripcord after Christmas instead of waiting for 2017.
Adding profitable new long positions in this market will be very difficult if it plays out as analysts expect.
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.
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
VRTX - Vertex Pharmaceuticals
The long call position was entered at the open.
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BULLISH Play Updates
ADP - Automatic Data Processing - Company Profile
Goldman upgraded from neutral to buy. $2 gain. New 52-week high.
Original Trade Description: December 5th.
Automatic Data Processing, Inc., together with its subsidiaries, provides business process outsourcing services worldwide. The company operates through two segments, Employer Services and Professional Employer Organization (PEO) Services. The Employer Services segment offers a range of business outsourcing and technology-enabled human capital management (HCM) solutions, including payroll services, benefits administration services, talent management, human resources management solutions, time and attendance management solutions, insurance services, retirement services, and tax and compliance solutions. This segment's integrated HCM solutions include RUN Powered by ADP, ADP Workforce Now, ADP Vantage HCM, and ADP GlobalView, which assist employers of all sizes in all stages of the employment cycle from recruitment to retirement; and ADP SmartCompliance and ADP Health Compliance. The PEO Services segment provides a human resources (HR) outsourcing solution through a co-employment model to small and mid-sized businesses. This segment offers ADP TotalSource that provides various HR management services and employee benefits functions, such as HR administration, employee benefits, and employer liability management into a single-source solution. Company description from FinViz.com.
ADP reported a 26.5% rise in earnings to 86 cents that beat estimates by 9 cents. Revenues rose 7.5% to $2.92 billion and beat estimates for $1.91 billion. The number of employees on client payrolls rose 2.7%. They ended the quarter with $2.82 billion in cash and long-term debt of $2 billion. The announced the sale of their CHSA and COBRA business to WageWorks for $235 million. The sale will be completed in Q2 2017.
The company guided for 2017 revenue growth of 7% to 8% and 15% to 17% earnings growth. The PEO Services segment revenues are expected to rise 14% to 16%.
The company just declared a 57-cent quarterly dividend to raise the annual dividend to $2.28.
Earnings Feb 1st.
ADP holds a dominant position in the payroll processing sector. With employment expected to rise again in 2017 this could be an attractive investment for funds that are tired of chasing industrials and bank stocks in the current rally.
Shares took profits last week from a very nice climb and could be ready to try for a new high.
There is resistance at $97 but given the time of year and the overbought conditions in the rest of the market, we could see a breakout. Options are relatively cheap.
Long Feb $97.50 call @ $2.10, see portfolio graphic for stop loss.
FFIV - F5Networks - Company Profile
No specific news. Barely holding above prior resistance on a weak Nasdaq.
Original Trade Description: November 21st.
F5 Networks, Inc. develops, markets, and sells application delivery networking products that optimize the security, performance, and availability of network applications, servers, and storage systems. It offers Local Traffic Manager, which provides intelligent load-balancing, traffic management, and application health checking; BIG-IP DNS that automatically directs users to the closest or best-performing physical, virtual, or cloud environment; Link Controller, which monitors the health and availability of each connection in organizations with more than one Internet service provider; Advanced Firewall Manager, a network firewall; and Application Security Manager, an Web application firewall that provides comprehensive, proactive, and application-layer protection against generalized and targeted attacks. The company also provides Access Policy Manager, which provides secure, granular, and context-aware access to networks and applications; Carrier-Grade Network Address Translation, which offers a set of tools that enables service providers to migrate to IPv6 while continuing to support and interoperate with existing IPv4 devices and content; and Policy Enforcement Manager that offers traffic classification capabilities to identify the specific applications and services to service providers. In addition, it offers cloud-based and other subscription services; BIG-IP appliances; VIPRION chassis-based systems; and Traffix Signaling Delivery Controller for diameter signaling and routing. Company description from FinViz.com.
The big attack on the Internet several weeks ago was driven by malware that had been placed on IoT devices including security cameras, cable boxes, burglar alarms and dozens of other device types. These devices are typically delivered without any material malware defenses. It is up to each manufacturer to overcome this in the future with some kind of defense.
However, FFIV provides software and hardware to prevent denial of service attacks from these devices as well as the more robust attacks from computers and servers. With more and more servers in the cloud it is harder to protect them from attack like you would dedicated physical servers in a dedicated data center. This is where FFIV excels.
The company's Silverline service places a sophisticated cloud based filter around critical infrastructure that stops attacks instantly. Aided by hardware based firewalls in dedicated data centers they protect data and equipment from all outside attacks.
For Q3 they reported earnings of $2.11 compared to estimates for $1.94. revenue of $525 million beat estimates for $520 million.
Earnings Jan 21st.
FFIV shares spiked on earnings in late October and have been moving steadily higher. They are about to break over resistance at $144 and we could see another leg higher when that happens.
Position 12/8/16 with a FFIV trade at $142.25
Long Jan $145 call @ $3.80, see portfolio graphic for stop loss.
UNH - UnitedHealth - Company Profile
Jefferies said UNH was the top stock to buy ahead of the Obamacare repeal. They have contracts with more than 850,000 doctors 6,000 hospitals. The analyst said despite the recent gains it trades at a discount to the market.
Original Trade Description: December 7th
UnitedHealth Group Incorporated operates as a diversified health and well-being company in the United States. The company's UnitedHealthcare segment offers consumer-oriented health benefit plans and services for national employers, public sector employers, mid-sized employers, small businesses, individuals, and military service members; and health care coverage, and health and well-being services to individuals aged 50 and older addressing their needs for preventive and acute health care services. It also provides services dealing with chronic disease and other specialized issues for older individuals; Medicaid plans, Children's Health Insurance Program, and health care programs; and health services, including commercial health and dental benefits. This segment serves through a network of 1 million physicians and other health care professionals, as well as approximately 6,000 hospitals and other facilities. Its OptumHealth segment offers health management services, including care delivery and management, wellness and consumer engagement, distribution, and health financial services. This segment serves individuals through programs offered by employers, payers, government entities, and directly with the care delivery systems. The company's OptumInsight segment provides software and information products, advisory consulting services, and business process outsourcing and support services to hospitals, physicians, commercial health plans, government agencies, life sciences companies, and other organizations. Its OptumRx segment offers pharmacy care services and programs, including retail pharmacy network management, home delivery and specialty pharmacy, manufacturer rebate contracting and administration, benefit plan design and consultation, claims processing, and clinical program services, such as formulary management and compliance, drug utilization review, and disease and drug therapy management. Company description from FinViz.com.
UNH will have about $184 billion in revenue in 2016 to put it at number six on the Fortune 500 list. With its broadening of scope using its various Optum programs it is maximizing profits by widening the service component of its business. Here is an excellent article on why UNH will be the most profitable. Amazon of Healthcare
I am not going to go into an in depth explanation of UNH. That article I referenced has plenty of information why UNH should be a long term holding of any investor.
Earnings January 17th.
I wanted to play UNH last week when it was at $152 but it had resistance at $153 and I decided to wait another day to see if that resistance was broken. Shares gapped up to $158 at the open the next day and ran to $162.50 over the next four days. Now that big gain has been digested and shares pulled back to $156 before adding a couple dollars on Wednesday. I believe the UNH rally will continue for the reasons listed in that article above. I am willing to take a shot here that the market rally also continues even if Wednesday's futures related spike fades in the days ahead. We have 16 trading days until 2017 and we should close the year at higher levels.
Position 12/13/16 with a UNH trade at $160.25
Long Jan $165 call @ $2.58, see portfolio graphic for stop loss.
VRTX - Vertex Pharmaceuticals - Company Profile
No specific news. Generic headlines about Trump taking on big pharma next depressed the sector.
Original Trade Description: December 14th.
Vertex Pharmaceuticals Incorporated engages in discovering, developing, manufacturing, and commercializing medicines for serious diseases. The company focuses on developing and commercializing therapies for the treatment of cystic fibrosis (CF) and advancing its research and development programs. It markets ORKAMBI for the treatment of patients with CF 12 years of age and older who have two copies (homozygous) of the F508del mutation in their CFTR gene; and KALYDECO (ivacaftor) for the treatment of patients with CF 6 years of age and older who have the G551D mutation in their CFTR gene. The company also develops VX-661, a corrector compound that is in a Phase III development stage in combination with ivacaftor in multiple CF patients; VX-371, an investigational epithelial sodium channel, which is in a Phase II development stage; and VX-152 and VX-440 that are CFTR corrector compounds in Phase I clinical trial. In addition, it engages in the research and mid-and early-stage development programs in the areas of oncology, pain, and neurology. Company description from FinViz.com.
Vertex missed earnings by 2 cents with a 17 cent loss that was significantly better than the 39 cent loss in the year ago quarter. Sales of Kalydeco rose 6% to $176 million and revenue for Orkambi jumped 79% to $243 million. The problem is that the drugs have a very limited patient population in the U.S. of about 11,000 for this version of cystic fibrosis. They are close to receiving approval in the EU for these drugs. They have expanded their testing into other population groups to see if the drugs will continue to perform in other versions. There are 2,000 known mutations of the disease.
Shares declined in late November when one of the trials on a specific mutation failed to produce any additional results.
Shares have bottomed at the early November lows and have begun to rebound. If the market rolls over, Vertex could become a favorite oversold opportunity for institutional investors looking to put some profits back to work in a beaten down stock.
Earnings January 26th.
We cannot buy a post earnings option because there is no February strike and March is grossly expensive. That means the January expiration is our only option.
Long Jan $82.50 call @ $2.70, see portfolio graphic for stop loss.
BEARISH Play Updates (Alpha by Symbol)
DIA Dow ETF - ETF Profile
No forward progress. The Dow closed -80 points off its highs with a 9-point loss and the DIA did likewise. Market could continue to be choppy over the next week.
Original Trade Description: December 7th
The SPDR Dow JonesÂ® Industrial Average ETF Trust seeks to provide investment results that, before expenses, correspond generally to the price and yield performance of the Dow Jones Industrial Average.
Remember Dow 10,000? Traders talked about it for weeks. When it was finally hit, they were passing out Dow 10,000 hats on the floor of the NYSE for a week. That was December 11th 2003. It was a big milestone for the market.
Now 13 years later we are about to double that with Dow 20,000. Given the place on the calendar, the massive post election rally and the potential for normal profit taking in January, the Dow 20,000 touch could be a massive sell on the news event.
However, we are only 386 points way and it could happen as soon as next week. The Fed rate announcement on Wednesday could either cripple that potential or accelerate it if the Fed maintains a dovish posture on future rate hikes. I believe we will hit Dow 20K before the end of December. When that happens I want to be short the DIA ETF and plan on holding it through January.
I am choosing the Dow because it is the most overbought and could produce the biggest percentage move. Just look at Goldman's chart and the profit that needs to be removed there.
Because there will be plenty of other traders thinking along the same lines I want to enter the put position at 19,900 or $199 on the DIA ETF. I know I am jumping in front of a speeding train to enter a short position on a runaway market but the potential is very high for a good trade.
12/12 - 1/2 position: Long Feb $195 put @ $3.40, no initial stop loss.
12/13 - 1/2 position: Long Feb $195 put @ $3.15, no initial stop loss.
GATX - GATX Corporation - Company Profile
No specific news. Intraday spike sold.
Original Trade Description: December 15th
GATX Corporation leases, operates, manages, and remarkets assets in the rail and marine markets in North America and internationally. The company operates in four segments: Rail North America, Rail International, American Steamship Company (ASC), and Portfolio Management. The Rail North America segment primarily leases railcars and locomotive, as well as other ancillary services. This segment also offers repair, maintenance, modification, and regulatory compliance services on the railcar fleet. The Rail International segment leases railcars, as well as offers repair, regulatory compliance, and modernization work for railcars. The ASC segment operates a fleet of vessels that provide waterborne transportation of dry bulk commodities, such as iron ore, coal, limestone aggregates, and metallurgical limestone for steel makers, automobile manufacturing, electricity generation, and non-residential construction markets. The Portfolio Management segment is involved in leasing, asset remarketing, and marine operations, as well as manages portfolios of assets for third parties. As of December 31, 2015, it operated a fleet of 17 vessels; a fleet of approximately 106,100 cars; a fleet of 18,400 boxcars; and a fleet of 611 older four-axle and 26 six-axle locomotives. Company description from FinViz.com.
There has been no news since the company announced a 40 cent dividend on Oct 28th. The dividend is payable on Dec 31st to holders on Dec 15th. That is today. That means nobody else is going to be buying the shares to get the dividend.
Earnings Jan 19th.
GATX has rallied 45% since the election. I can only assume it was because of the rally in the Dow Transports in anticipation of a better economy in 2017. There is no current fundamental reason for a 45% rally and odds are good once the stock begins to roll over with the market it could fall very hard. Apparently other investors believe the same way since the only put strike with any volume is the January 60 puts. There is more volume in that one strike than all the other strikes combined.
Long Jan $60 put @ $2.35, no initial stop loss to avoid any volatility spikes.
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