Option Investor

Daily Newsletter, Thursday, 2/2/2017

Table of Contents

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

Market Wrap

Resilient Market

by Thomas Hughes

Click here to email Thomas Hughes


Another day of uncertainty, another day with the market hanging out near the latest all-time highs. Today's economic data was decent but not stellar, the round of earnings more of the same; not awesome but not bad, when one company misses estimate another beats.

International markets fell in the over night session although losses were minimal. In Asia losses were led by the Nikkei, -1.22%, pressured lower by a steadily appreciating yen. In Europe early losses were trimmed to near break-even levels as earnings and economic data lifted sentiment. Trading was led by England, the FTSE rising 0.47% after the BOE held rates steady and raised their growth outlook. The bank now sees 2017 UK growth in the range of 2.0%, up from 1.4% target issued last August, and the 2nd upgrade since the Brexit referendum.

Market Statistics

Futures trading indicated a negative open all morning. In early trading the S&P was indicated to open close to 10 points below yesterday's close but that moderated to only about -5 points after the data and earnings dump. The open itself was a little hectic, the indices opened with small losses as indicated and made a push lower in the first few minutes of the open session. The good news is that support kicked in within the first 10 minutes of trading and sent the indices back to break-even, where they hovered the rest of the day. The SPX specifically was able to bob above and below the break-even level a minimum of 5 times before 2PM, and then a few more times after that, closing with little movement to show for the day.

Economic Calendar

The Economy

The Challenger, Gray&Christmas report on planned layoff's jumped 37% in January. The number of planned layoff's came in at 45,934, an increase from the previous month but down -39% from January of last year. The retail sector led, accounting for 49% of the monthly total, as brick&mortar operations suffer from the impacts of online shopping. On a year over year basis the number of retail layoff's in January was nearly unchanged from last year so it doesn't look like issues within the sector are worsening, just persisting. Looking at the chart it is clear that the trend in job cuts over the past year is down, consistent with strengthening within the labor market.

Initial claims for unemployment fell -14,000 to hit 246,000. Last week's figure was revised higher by 1,000 and the 4 week moving average increased by 2,250. On a not adjusted basis claims fell -1.1% versus an expected gain of 4.9% and are down -10.6% over last year. On an adjusted basis we've now had claims below 300K for more than 100 weeks, very nearly the longest trend on record. Looking at the chart is appears as if the adjusted figure is stabilizing around the 250K level, very near the long term low and at a level consistent with ongoing labor market health.

Continuing claims fell -39,000 to hit 2.064 million, last week's number was revised higher by 3,000. The four week moving average also fell, shedding -13,000, and is moving back toward its long term low. Regardless, continuing claims are trending near long term lows and consistent with ongoing labor market health.

The total number of claims fell by -55,817, in line with expectations and consistent with seasonal trends. Now that the total claims figure has crested its peak we can expect it to continue lower over the next 22-23 weeks. In terms of the long term trends and labor market health? This figure is consistent with long term improvement and ongoing labor market health. Considering yesterday's ADP, 240,000 and well above expectations, along with today's data and the trends I would expect to see tomorrow's NFP come in at or above 200K with a drop in the unemployment rate, a possible increase in participation and a rise in average hourly earnings.

The first read on 4th quarter productivity and unit labor costs were both expansionary and better than expected. Productivity increased at an annualized rate of 1.3% in the 4th quarter, consensus expectation was 1.0%, driven by an increase in output offset by an increase in hours worked. Output increased 2.2%, outpacing hours worked by more than 1.25%, which in turn helped to keep unit labor costs below expectations. On a year over year basis 4th quarter productivity is up 1.0% from 2015, led by a 2.2% increase in output and offset by a 1.1% increase in hours worked.

Unit labor costs rose by 1.7%, slightly less than the consensus 1.9%. This represents a 3% increase in wages offset by the 1.3% increase in productivity. The take-away is that wages are on the rise, 3% is a strong number, but is not having an overly negative effect on labor cost. Full year labor costs rose by 1.9%, well below the 2.9% YOY increase in average hourly reported with the last NFP release. Based on these figures it looks like the consumer is improving at a pace greater than inflation.

The Dollar Index

The dollar fell in today's action on an absolute lack of FOMC engagement. Yesterday's policy statement was the most vanilla, uninformative bland statement I've seen in years. They took no stand, gave no insight and created no waves begging a couple of questions from my inner conspiracy theorist. The first of which is, is the FOMC looking at the same data I am because I see a growing chance they will fall behind the curve, a situation that will lead to surprise interest rate hikes, a faster rate of increase and the possibility of larger increases than expected. The second is this, are they getting political? Or maybe trying to avoid the All Seeing Eye of Trump by not making waves? He's said a strong dollar isn't always that great, maybe they took it to heart, their lack of action certainly caused the dollar to fall and isn't likely to add much support.

Near term, the dollar is under pressure from Trump comments and an apparently dovish Fed. Longer term the data supports improving economic conditions, rising inflation and normalized rates. The dollar may continue to fall, but I think when it hits bottom the bounce could be huge (imagine a surprise rate hike, and one bigger than a mere 25 basis points). Today the Dollar Index fell about a half percent but bounced off the intraday low a 10 week low, to close with a small gain on the day. The indicators remain bearish but continue to diverge from the low which makes the move lower appear weak and extended. Next target for support is near 98.65, resistance is now back at the 100.50 level.

The Gold Index

Gold prices got a lift today from Fed dovishness and a stronger dollar. The caveat is that gains were capped at resistance on strengthening economic outlook. Spot gold gained nearly a full percent in today' session to trade above $1,215 but gains were capped at the $1,220 level. A break above this level would be bullish and could take it up to $1,250, the caveat is that tomorrow's NFP could reassert bullish outlook for the US economy and the dollar.

The Gold Miners ETF GDX gained just over 2%, gapping up at the open, but price action held within a very narrow range. Today's candle is a very small spinning top appearing exactly at the 38.2% retracement level and within yesterday's long upper shadow. The ETF continues to drift upward on strength in gold but the indicators persist in weakness. Both MACD and stochastic are showing wicked divergence suggesting a market on increasingly shaky footing. Resistance is at today's close, near $24.50, a break above could be bullish but I'd be careful, gold and the miners can only go so high on Trump driven flight to safety and Fed indecision.

The Oil Index

Oil prices were choppy today, up a half percent and down a half percent as OPEC production cuts and rising US output vie for dominance of the market. OPEC has managed to lift and support prices above $50, US production has prevented further advance and all while demand outlook holds steady. Where this tug of war ends is yet to be seen, at this time the market remains skewed toward over-supply so prices are likely to remain under pressure.

The Oil Index held steady in today's action, just off yesterday's low, posting a small gain for the day. Action was supported by results from ConnocoPhillips which reported a smaller than expected loss, better than expected production and the expectation to meet 2017 goals. The indicators are bearish with a renewed surge in downside momentum so the index may drop down to next support, near 1,200, although forward outlook remains positive. Longer term, earnings growth is still expected to be robust this year and oil prices are still expected to hold above $50 so I am bullish and looking to buy on the dip.

In The News, Story Stocks and Earnings

It was a busy day for earnings, both before and after the bell. There were quite a few big names before the bell, like International Paper, but there more after the bell. International Paper is one that beat on both the top and bottom line in the 4th quarter, growing EPS by roughly 25%, although full year results were down slightly from the previous. The company's CEO said in the release that they are entering 2017 with improving economic conditions and several catalysts expected to enhance earnings, a statement that sounded good but did not cheer investors. Despite the beat and positive outlook shares of the stock fell more than -6% in a retreat to recent support levels.

Amgen beat EPS estimates by a dime but provided weak guidance for the upcoming year. The interesting news was positive results with one of their drugs that helped to lift shares more than 1%in after hours trading.

Amazon beat EPS estimates as well, but missed on revenue and reported some weak statistics for some of its largest divisions. The good news is that the company reported another quarter of profitability, the bad news is that forward guidance is weak. Shares fell nearly -4% in after hours trading.

GoPro reported earnings above estimates on weaker than expected revenue. The company also gave weak forward guidance, -20% below consensue, resulting in a -10% drop in after hours trading.

Chipotle Mexican Grill was also not able to deliver positive results. The fast casual burrito pusher missed on both the top and bottom lines as comp sales plunge -4.8%. Shares fell nearly that much in the after hours session.

The Indices

The indices held heir ground today in a choppy session. In most cases it was a real crap shoot whether or not the individual indices would close in the red or the green, except in the case of the Dow Jones Transportation Average. The transports held within a tight range today, creating a small doji spinning top, but made the largest move with a decline near -0.70%. The index has fallen below the short term moving average and retreat to support levels which has left it looking like a double top reversal could be at hand. The neckline would be current support, near 9,000, that if broken could lead to a correction in the range of -5% to -10%. The indicators have rolled over into a bearish signal, consistent with the drop from resistance, but have yet confirm any form of reversal; they are at worst indicative of ranging at this time.

The next largest move was made by the NASDAQ Composite, a decline of -0.11%. The tech heavy index created a small spinning top doji just below the current and recently set all time high in a move that looks like nothing more than simple consolidation. The indicators are moving lower in the nearer term but remain bullish in the longer, consistent with an index trending at new highs. A fall from this level would find first support at the short term moving average, about -1%, with next support targetnear 5,400, about -4%.

The Dow Jones Industrial Average made the smallest decline, -0.03%, creating a small bodied spinning top candle. The index is sitting on support at the short term moving average, just beneath current all time highs and within the near term range. The indicators are consistent with consolidation within an uptrend, confirming support at the bottom of the near term range, and have begun to roll into a trend following entry set-up. A break below support would be bearish but may not fall much below the 19,500 to 19,000 range, a bounce from the moving average would be bullish and trend following with targets in new all time high territory.

The S&P 500 was able to post a gain, a small one, after bobbing above and below break even many times throughout the day. The index created a small white bodied candle, moving up from support at the short term moving average and long term up trend line. It appears to be drifting higher, supported by short and long term traders, although some indecision persists. The indicators are consistent with consolidation within an uptrend and showing some weakness in the near term, I might expect to see the near term range persist if not for tomorrow's NFP. A move higher would be trend following and bullish, upside targets in new all time high territory. A break below support would be bearish with downside target near 2,200.

The indices continue to churn and consolidate and now there is only the NFP (and earnings and Trump) to hold it back. The trends are up and outlook is positive, on the charts in the economy and with earnings, so I am bullish. There is a bit of risk in the market no matter what the VIX is reading, Trump's maneuvering could back-fire to say the least, so I remain cautious. If the market bounces I'm ready to ride it higher, if it corrects I'm ready to buy on the dip and in either case eagerly awaiting tomorrow's data.

Until then, remember the trend!

Thomas Hughes

New Option Plays

Distribution Phase

by Jim Brown

Click here to email Jim Brown

Editors Note:

The market traded flat despite 7.0 billion shares changing hands. The Dow traded in a narrow 91-point range and declined -6 points. The Nasdaq lost -6 and the S&P gained +1. The only time the market trades almost perfectly flat on high volume is when distribution is in progress. We saw this back in January when the Dow could not hit 20,000 for four weeks despite trading only a few points below that level. Large institutions were more than likely "distributing" their positions to those who still felt the rally had room to run.

While the S&P looks like it could be wedging up for another resistance test, the overall market feels heavy. On the positive side, the market has had multiple chances to sell off this week and avoided every one with a decent rebound. I would be hard pressed to pick a market direction today but the signs of distribution are troubling. We have a pretty even portfolio with trades in both directions so I am not going to add to it tonight. The futures are starting to decline but not as severe as last night and you saw how that turned out. The market survived and closed flat.


No New Bullish Plays


No New Bearish Plays

In Play Updates and Reviews

High Volume, No Movement

by Jim Brown

Click here to email Jim Brown

Editors Note:

Earnings volatility is keeping the indexes from establishing a trend in either direction. The earnings cycle has produced some incredible single stock volatility that is keeping the indexes off balance. A dozen stocks may be up $5 on earnings while another dozen are down $5. Facebook was up strongly in afterhours on Wednesday to $137 but they traded down to close at $131 today. Amazon was up +$8 going into earnings and right at a new high at $840 but lost $35 in afterhours. This will weigh on the Nasdaq on Friday.

The earnings volatility seems to be a lot higher than I would have expected for this quarter. It may be due to the big post election gains and stocks are priced to perfection. Provide a big beat and the short get crushed but any flaw in those perfect earnings ends up with a trip to the woodshed.

That said, the S&P looks like it is wedging up to a potential retest of resistance at 2,300 but the Amazon decline coupled with a dozen other big decliners tonight might put that retest off to another day. Volume was moderately high today at 7.0 billion shares but the range was very narrow. That is very unusual unless the market is undergoing a distribution phase.

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

HA - Hawaiian Holdings

The long put position was entered at the open.

VIX - Volatility Index

The long call position remains unopened until a trade at $10.50.

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

Credit spreads and naked puts = OptionWriter

Long term option investments = LEAPS Investor

3-6 month Option Trades = Ultimate Investor

Iron Condors = Couch Potato Trader

Long and short equity trades = Premier Investor

BULLISH Play Updates

PANW - Palo Alto Networks - Company Profile


No specific news. Shares still consolidating from Tuesday's gains. The earnings date changed from 2/20 to 2/28.

Original Trade Description: Jan 23rd

Palo Alto Networks, Inc. provides security platform solutions to enterprises, service providers, and government entities worldwide. Its platform includes Next-Generation Firewall that delivers application, user, and content visibility and control, as well as protection against network-based cyber threats; Advanced Endpoint Protection, which prevents cyber attacks that exploit software vulnerabilities on various fixed and virtual endpoints and servers; and Threat Intelligence Cloud, which offers central intelligence capabilities, security for software as a service applications, and automated delivery of preventative measures against cyber attacks. The company provides firewall appliances; Panorama, a security management solution for the control of appliances deployed on an end-customer's network as a virtual or a physical appliance; and Virtual System Upgrades, which are available as an extensions to the virtual system capacity that ships with the physical appliances. It also offers subscription services covering the areas of threat prevention, uniform resource filtering, malware and persistent threat, laptop and mobile device, and firewall protection services, as well as cyber attack, threat intelligence, and content control services. In addition, the company provides support and maintenance services; and professional services, including application traffic management, solution design and planning, configuration, and firewall migration, as well as provides online and classroom-style education training services. Palo Alto Networks, Inc. primarily sells its products and services through its channel partners, as well as directly to medium to large enterprises, service providers, and government entities operating in various industries comprising education, energy, financial services, government entities, healthcare, Internet and media, manufacturing, public sector, and telecommunications. Company description from FinViz.com.

In November, PANW posted earnings that beat the street but revenue, which rose 34% missed estimates by a fraction. Revenue was $398.1 million and analysts were expecting $400.1 million. PANW had guided for revenue growth of 33% to 35% so they were right in the middle of their guidance range. Earnings of 55 cents beat estimates for 53 cents. Shares were crushed because the company said the market was "lumpy" and customers were taking longer to make purchase decisions.

In Q3 they added more than 1,500 new customers to hit 35,500 globally. Subscription revenue has risen to 60% of total revenue as they move to a cloud model.

In early January, noted short seller Andrew Left of Citron Research, put out a bullish note on PANW saying they had a fantastic moat, which would be a barrier to entry for other companies trying to duplicate their type of firewall. His price target is $170. Shares rallied $14 over the next three weeks on the call. At the same time Bernstein put out a very positive note on the company saying nobody serious about protecting their web environment should be without PANW as their security solution.

Shares have rebounded to their November gap down level of $144 and have found resistance. They are not giving back their gains but there was a slight retracement on Monday in a weak market. I believe they will overcome this resistance level and move higher, market permitting.

There is a persistent rumor in the market that Microsoft and Cisco Systems are both looking for a cybersecurity company to acquire. Given Palo Alto's position in the sector, they would be a good target.

Earnings February 28th.

Because of the price of the options, I am forced to turn this into a spread. If you want to go with a naked call, I would probably use the $150 strike.

Position 1/24/17:

Long March $145 call @ $6.00, see portfolio graphic for stop loss.
Short March $155 call @ $3.15, see portfolio graphic for stop loss.
Net debit $2.85

RHT - Red Hat Inc - Company Profile


No specific news. Finally a real breakout with a $1.64 gain.

Original Trade Description: Jan 21st

Red Hat, Inc. provides open source software solutions to develop and offer operating system, virtualization, management, middleware, cloud, mobile, and storage technologies to various enterprises worldwide. It offers infrastructure-related solutions, such as Red Hat Enterprise Linux, an operating system platform that runs on hardware for use in physical, virtual, container, and cloud environments; Red Hat Satellite, a system management offering that helps to deploy and manage Red Hat infrastructure across physical and virtual servers, and cloud environments; and Red Hat Enterprise Virtualization, a software solution that allows customers to utilize and manage a common hardware infrastructure to run multiple operating systems and applications. The company offers application development-related and other technology solutions, such as Red Hat JBoss Middleware, a solution for developing, deploying, and managing applications, as well as integrating applications, data, and devices along with business processes automation; Red Hat cloud offerings, a software solution that enables customers to build and manage various cloud computing environments; Red Hat Mobile, a software development platform that enables customers to develop, integrate, deploy, and manage mobile applications for enterprises; and Red Hat Storage, a software solution that enables customers to treat physical server storage as a scalable, shared, centrally-managed pool of virtual storage and to manage large, unstructured, or semi-structured data in physical, virtual, and cloud environments. It also provides consulting, support, and training services; and real-time operating system, distributed computing, directory services, and user authentication. Company description from FinViz.com.

On December 21st, the company reported earnings of 61 cents that beat estimates by 3 cents. However, the beat came mostly from a lower tax rate. Revenue rose 17.5% to $615.3 million compared to estimates for $618.4 million so a slight miss there. Billings rose 8.7% to $679 million but misses estimates for $713 million. Subscription revenue rose 19% to $543 million and 88% of total revenue. That is recurring and will help smooth out future earnings.

The CEO explained that two large government deals worth $20 million slipped into Q4. Also, two large customers chose to be billed rather than pay up front and that took another $27 million out of billings. If those deals were included the billings would have been up +16% instead of 8.7%. The good news is that all of those deals are now in Q4 and that will give Q4 an earnings boost.

Earnings March 22nd.

Shares have rebounded to $74 and appear poised to break over that level and move back to the $80 range. I am using the March options, which expire 4 days before the earnings and they are half price the next cycle in June.

Position 1/23/17:

Long March $75 call @ $2.35, see portfolio graphic for stop loss.

SLCA - U.S. Silica - Company Profile


No specific news but the earnings date changed officially to the 22nd after the close. Shares closed at a new high on Wednesday and then dropped $2 today on no news.

Original Trade Description: Jan 25th

U.S. Silica Holdings, Inc. produces and sells commercial silica in the United States. The company operates through two segments, Oil & Gas Proppants, and Industrial & Specialty Products. It offers whole grain commercial silica products to be used as fracturing sand in connection with oil and natural gas recovery; and resin coated proppants, as well as sells its whole grain silica products in various size distributions, grain shapes, and chemical purity levels for manufacturing glass products. The company also provides ground commercial silica products for use in plastics, rubber, polishes, cleansers, paints, glazes, textile fiberglass, and precision castings; and fine ground silica for use in premium paints, specialty coatings, sealants, silicone rubber, and epoxies. In addition, it offers other industrial mineral products, such as aplite, a mineral used to produce container glass and insulation fiberglass; and adsorbent made from a mixture of silica and magnesium for preparative and analytical chromatography applications. The company serves oil and gas recovery markets; and industrial end markets with customers involved in the production of glass, building products, foundry products, chemicals, and fillers and extenders. As of December 31, 2015, it had approximately 400 million tons of proven and probable recoverable mineral reserves. Company description from FinViz.com.

In the gold rush in the 1800's it was not the miners that got rich but it was the companies that sold them the picks, shovels and wheelbarrows. In the energy sector every shale well has to be fractured and that required mountains of sand. We are not talking regular beach sand. The primary frac sand is mined in Wisconsin and other northern states. There are various grades of sand depending on the geology of the well and what the drillers are trying to accomplish.

In 2014 it took an average of 4.2 million pounds of frac sand per well. However, in 2015 and 2016 there was a significant increase in fracking intensity that began to use much larger quantities per well. In late 2015 the amount of sand rose from 9% of the fracking fluid to 20%. In early 2016 Simmons & Co reported two wells in the Permian that used 60 million pounds of sand each while two in the Haynesville Basin used 35 million pounds each.

Houston based oilfield logistics company Twin Eagle reproted receiving "historic shipments" of frac sand at its facility outside the Eagle Ford. They reported receiving one 130-car train of sand a week. One car carries 100 tons so that is 13,000 tons per week. That is 26 million pounds of sand per week. If wells are now using 20 to 25 million pounds per well that is one train per well.

Last week the active rig count rose by 29 oil wells to 551 active oil wells. Each rig drills a minimum of two wells per month. If each well used 25 million pounds that would be more than 1,100 trains of sand per month.

There are rumors making the rounds that because of the increased intensity of sand in fracking there could be a sand shortage as the number of active rigs increase and producers began to rapidly complete the 3,000 or so wells that have been drilled over the last 18 months but never completed because of low oil prices. There is going to be a surge in the demand for sand.

U.S. Silica is one of the major sand suppliers with multiple facilities. They have used the downturn in the drilling industry to buy multiple competitors in order to bulk up for the future demand.

Update 1/31/17: Halliburton selected U.S. Silica as its preferred provider of containerized sand for last mile logistics to drilling locations. They signed a long-term contract with SandBox, a U.S. Silica subsidiary. Shares rebounded to within a few cents of a new high.

Earnings Feb 2nd.

SLCA has earnings on Feb 2nd but almost every company trading today has earnings over the next three weeks so that is just something we have to deal with. I am recommending we buy a longer-term option to get past any potential volatility around earnings. Their guidance should be good.

Position 1/26/17:

Long June $65 call @ $4.10, no stop loss until after earnings.

SPY - S&P-500 ETF - ETF Profile


No material gain. Still trading between resistance at $228.25 and support at $226.50. It looks like the S&P is coiling again just under resistance in preparation for a breakout but that could be just wishful thinking.

Original Trade Description: Jan 12th

The SPDR S&P 500 ETF Trust seeks to provide investment results that, before expenses, correspond generally to the price and yield performance of the S&P 500 Index.

The SPY dipped to $225 intraday before the dip buyers rushed into the market. Initial support is $223 and I believe we have a chance to test that level before the inauguration. There are only four trading days left. If the bank earnings disappoint on Friday we could see a decline in low volume. With the three-day weekend ahead we could see traders move to the sidelines to avoid weekend event risk while the U.S. markets are closed.

We could also see a pre inauguration decline as traders worry about event risk surrounding the event.

Whatever the reason we could see the ETF test that level over the next four days. Assuming there is no disaster surrounding the inauguration, we could see a real rally begin afterwards.

This is a short-term position using March options just in case any potential dip turns into a crash. The estimated option premium should be less than $3.

Position 1/25/17 with a SPY trade at $228.25

Long MAR $232 call @ $1.69, no initial stop loss.

$VIX - Volatility Index - Index Description


We were stopped out of our original long position on Wednesday with a bad tick. We are attempting to reload this position with a VIX trade at $10.50.

RELOAD: Buy Mar 12 call with a VIX trade at 10.50

Original Trade Description: Jan 26th

The VIX is a computed index, much like the S&P 500 itself, although it is not derived based on stock prices. Instead, it uses the price of options on the S&P 500, and then estimates how volatile those options will be between the current date and the option's expiration date. The CBOE combines the price of multiple options and derives an aggregate value of volatility, which the index tracks.

The VIX closed at 10.63 and very close to record lows. You have to go back to June of 2014 for a lower recent close at 10.28. Before that, you have to travel back in time to Feb-2007 for a close at 10.05. The next lowest close was 9.48 in Dec-1993.

The point here is that volatility is near record lows only reached four times in the last 23 years. That qualifies for an abnormal event. I believe it is time we bought some VIX calls. The odds of the VIX remaining this low for the next two months are about as close to zero as you can get.

There is a very old saying in the market. "When the VIX is high, it is time to buy. When the VIX is low, it is time to go." You cannot get much lower than this.

The VIX is telling us that everyone expects the market to continue moving higher. Nobody is worried that some unexpected headline or event is going to trigger a significant market decline. When nobody expects an event is when we should be the most concerned.

With a VIX trade at 10.50:

Buy March $12 call, estimated premium $2, no stop loss

Previously Closed 2/1/17: Long March $12 call @ $2.60, exit $2.50, -.10 loss.

WDC - Western Digital - Company Profile


WDC declared a quarterly dividend of 50 cents payable April 17th to holders on March 31st. no other news.

Original Trade Description: Jan 31st

Western Digital Corporation, together with its subsidiaries, develops, manufactures, and sells data storage devices and solutions worldwide. It offers performance hard disk drives (HDDs) that are used in enterprise servers, data analysis, and other enterprise applications; capacity HDDs and drive configurations for use in data storage systems and tiered storage models, as well as for use in storage of data for years; and enterprise solid state drives (SSDs), including NAND-flash SSDs and software solutions that are designed to enhance the performance in various enterprise workload environments. The company also provides InfiniFlash System, a system solution that offers petabyte scalable capacity with performance metrics; higher value data storage platforms and systems; datacenter software and systems; and HDDs and SSDs for desktop PCs, notebook PCs, gaming consoles, set top boxes, security surveillance systems, and other computing devices. In addition, it offers embedded NAND-flash storage products, including custom embedded solutions; and iNAND embedded flash products, such as multi-chip package solutions that combine NAND and mobile dynamic random-access memory in an integrated package for mobile phones, tablets, notebook PCs, and other portable and wearable devices, as well as in automotive and connected home applications, and NAND-flash wafers. Further, it provides HDDs embedded into WD- and HGST-branded external storage products; and NAND-flash products, which include cards, universal serial bus flash drives, and wireless drives. Company description from FinViz.com.

WDC is kicking butt and taking no prisoners in the disk drive sector. Since the acquisition of flash/NAND memory manufacturer SanDisk, they have upgraded and expanded their product line with additional new products announced almost weekly. SanDisk was the right acquisition at the right time. Today flash memory supply is tight and prices are rising.

The company reported earnings of $2.30 compared to estimates for $2.06. Revenue of $4.89 billion also beat estimates for $4.78 billion. They shipped 44.8 million hard drives in the quarter. The guided for Q1 earnings of $2.00-$2.10, which was above analyst expectations for $1.79. Of the 21 analysts that follow the company, 18 have it as a buy or strong buy. Only 3 rate WDC as a hold. The consensus price target is just under $95 per share with the stock trading at $79.

Earnings April 26th.

Shares traded up on Tuesday in a weak market.

Position 2/1/17:

Long April $85 call @ $2.65, see portfolio graphic for stop loss.

BEARISH Play Updates (Alpha by Symbol)

DIA Dow ETF - ETF Profile


The Dow traded in a narrow 91 point range and managed to close almost exactly where it started with no directional clues.

Original Trade Description: December 7th

The SPDR Dow Jones Industrial Average ETF Trust seeks to provide investment results that, before expenses, correspond generally to the price and yield performance of the Dow Jones Industrial Average.

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.

Position 12/12/16:

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.

FINL - Finish Line - Company Profile


No specific news. Only a 7-cent gain after Foot Locker was upgraded. The only direction here is sideways.

Original Trade Description: January 11th.

The Finish Line, Inc., together with its subsidiaries, operates as a specialty retailer of athletic shoes, apparel, and accessories in the United States. It operates in two divisions, the Finish Line and JackRabbit. The company's Finish Line division engages in the in-store and online retail of athletic shoes for Macy's Retail Holdings, Inc.; Macy's Puerto Rico, Inc.; and Macys.com, Inc., as well as online at macys.com. This division offers men's, women's, and kids' athletic shoes, as well as an assortment of accessories of Nike, Skechers, Converse, Puma, New Balance, Adidas, and other brands. As of April 2, 2016, the company operated Finish Line shops in 392 Macy's department stores in 37 states in the United States, the District of Columbia, and Puerto Rico. Its JackRabbit division retails lifestyle products, such as running shoes, apparel, and accessories of Brooks, Asics, Nike, Saucony, New Balance, and other brands. It also operates the e-commerce sites jackrabbit.com and boulderrunningcompany.com. The company operated 72 JackRabbit stores in 17 states in the United States and the District of Columbia. Company description from FinViz.com.

In late December Finish Line reported a loss of 24 cents compared to estimates for a loss of 18 cents. Revenue was $371.7 million, down -2.7% from the year ago period. Analysts were expecting $412.4 million. They guided for Q4 earnings of 68-73 cents compared to analyst expectations for 96 cents. Shares fell from $23 to $19 on the news and have continued to decline.

Finish Line does not report earnings again until March 22nd. That means every other retailer will post their disappointing quarters and with each earnings miss the weight should increase on FINL shares.

Finish Line operates mall stores and stores inside Macy's stores. Macy's already reported declining traffic and missed on same store sales. This should also impact FINL since lower Macy's traffic means lower traffic in the shoe section.

Shares are currently $17.50 and could easily break below the June lows before the next earnings reports. I am reaching out to May so there will be some earnings expectation in the premium when we exit before the earnings. We can buy time but we do not have to use it.

Update 1/26/17: Finish Line said it was selling its unprofitable JackRabbit running shoe business to CriticalPoint Capital. The company said it expected to realize a cash tax benefit of $30 million from the sale. Shares declined -28 cents.

Position 1/12/17:

Long May $17 put @ $1.55, see portfolio graphic for stop loss.

GIII - G-III Apparel Group - Company Profile


No specific news. Today's opening spike faded into the close.

Original Trade Description: January 28th

G-III Apparel Group, Ltd. designs, manufactures, and markets men's and women's apparel. It operates through two segments: Wholesale Operations and Retail Operations. The company's products include outerwear, dresses, sportswear, swimwear, women's suits, and women's performance wear; and women's handbags, footwear, small leather goods, cold weather accessories, and luggage. It markets swimwear, resort wear, and related accessories under the Vilebrequin brand; footwear, apparel, and accessories under Bass and G.H. Bass brands; and apparel products under Andrew Marc, Marc New York, Jessica Howard, Eliza J and Black Rivet, Weejuns, and other private retail labels. G-III Apparel Group, Ltd. also licenses its products under the Calvin Klein, ck Calvin Klein, Karl Lagerfeld, Guess, Guess?, Kenneth Cole NY, Reaction Kenneth Cole, Cole Haan, Levi's, Vince Camuto, Tommy Hilfiger, Jessica Simpson, Ivanka Trump, Jones New York, Ellen Tracy, Kensie, Dockers, Wilsons, G-III Sports by Carl Banks, and G-III for Her brands, as well as have licenses with the National Football League, Major League Baseball, National Basketball Association, National Hockey League, Touch by Alyssa Milano, Hands High, Collegiate Licensing Company, Major League Soccer, and Starter. The company offers its products to department, specialty, and mass merchant retail stores in the United States, Canada, Europe, and the Far East; and distributes products through its retail stores, as well as through G.H. Bass, Wilsons Leather, Vilebrequin, and Andrew Marc Websites. As of January 31, 2016, it operated 199 Wilsons Leather stores, 163 G.H. Bass stores, and 5 Calvin Klein performance stores. Company description from FinViz.com.

The holiday shopping season was not kind to any retailer except for Amazon. Most retailers are reporting negative comps and warning about slowing traffic. GIII was no exception. GIII warned Q4 saw a significant decline in sales that would cut 20 cents off earnings. They guided for the full year 2016 that ended January 31st, for revenue of $2.41 billion and earnings of $1.21-$1.31 compared to their prior guidance of $2.43 billion and earnings of $1.41 to $1.51. For 2017, they guided to earnings of $1.41-$1.51 compared to $2.44 in fiscal 2016.

The company said they were expecting positive comps in Q4 but now expect low double-digit negative comps. That is a heck of a swing. They blamed warmer weather and significantly lower traffic in the stores.

Earnings March 2nd.

Shares broke below support and closed at a three-year low on Friday. Given the trends in the retail sector, they could continue significantly lower with their guidance warning.

Position 1/30/17:

Long March $25 put @ $1.60, see portfolio graphic for stop loss.

HA - Hawaiian Holdings - Company Profile


Support at $50 was broken most of the day but a spike right at the close put it back into play. A real break of that support should target $45.

Original Trade Description: February 1st

Hawaiian Holdings, Inc., through its subsidiary, Hawaiian Airlines, Inc., engages in the scheduled air transportation of passengers and cargo. It offers daily services on North America routes between the state of Hawai'i and Los Angeles, Oakland, Sacramento, San Diego, San Francisco, and San Jose, California; Las Vegas, Nevada; Phoenix, Arizona; Portland, Oregon; and Seattle, Washington. The company also provides daily services on its Neighbor Island routes among the six major islands of the State of Hawai'i; daily services on its international routes between the state of Hawai'i and Sydney, Australia; and Tokyo and Osaka, Japan. In addition, it offers scheduled services between the state of Hawai'i, and New York City, New York; scheduled services between the State of Hawai'i and Pago Pago, American Samoa; Papeete, Tahiti; Brisbane, Australia; Auckland, New Zealand; Sapporo, Japan; Seoul, South Korea; and Beijing, China, as well as other ad hoc charter services. Hawaiian Holdings, Inc. markets its tickets through various distribution channels, including its Website, www.hawaiianairlines.com primarily for North America and Neighbor Island route customers, as well as through travel agencies and wholesale distributors primarily for its international route customers. As of December 31, 2015, the company's fleet consisted of 18 Boeing 717-200 aircraft for the Neighbor Island routes; 8 Boeing 767-300 aircraft; and 22 Airbus A330-200 aircraft for the North America, international, and charter routes, as well as 3 ATR42 turboprop aircraft. Company description from FinViz.com.

In late January HA reported earnings of $1.28 that missed earnings for $1.30. However, revenue of $633 million did beat estimates for $627.6 million. With fuel costs rising and much of HA routes considered long hauls, their costs are going to rise. Non0fuel costs are expected to rise 3% to 6% in Q1. They are currently negotiating a new contract with pilots and that will cause a rise in labor costs. Costs were already rising in Q4 and investors tanked the stock after earnings.

Earnings April 25th.

Shares have fallen $5 since the January 24th earnings and are hugging support at $50. If that level breaks, the next material support is $45.

Position 2/2/17:

Long March $50 put @ $2.10, see portfolio graphic for stop loss.

QCOM - Qualcomm - Company Profile


No specific news. Shares closed at a new 7-month low.

Original Trade Description: January 30th

QUALCOMM Incorporated develops, designs, manufactures, and markets digital communications products and services in China, South Korea, Taiwan, the United States, and internationally. The company operates through three segments: Qualcomm CDMA Technologies (QCT); Qualcomm Technology Licensing (QTL); and Qualcomm Strategic Initiatives (QSI). The QCT segment develops and supplies integrated circuits and system software based on code division multiple access (CDMA), orthogonal frequency division multiple access (OFDMA), and other technologies for use in voice and data communications, networking, application processing, multimedia, and global positioning system products. The QTL segment grants licenses or provides rights to use portions of its intellectual property portfolio, which include various patent rights useful in the manufacture and sale of certain wireless products comprising products implementing CDMA2000, WCDMA, CDMA TDD, and/or LTE standards, as well as their derivatives. The QSI segment invests in early-stage companies in various industries, including digital media, e-commerce, healthcare, and wearable devices for supporting the design and introduction of new products and services for voice and data communications. The company also develops and offers products for implementation of small cells; mobile health products and services; software products, and content and push-to-talk enablement services to wireless operators; and development, and other services and related products to the United States government agencies and their contractors. In addition, it licenses chipset technology and products for data centers. Company description from FinViz.com.

Qualcomm it under attack from every direction. A while back China's regulator assessed a $975 million fine for improper licensing and made them lower royalties. The South Korean FTC imposed a fine of $853 million because it found the company's licensing practices to be monopolistic. The KFTC found that Qualcomm's market share had risen from 34% in 2010 to 69% in 2015 while many competitors were forced out of the market.

In early January, the US FTC attacked the company for anticompetitive practices that prevented competitors from supplying chips to handset makers. This is another billion dollar problem.

Three days later Apple sued Qualcomm for $1 billion claiming Qualcomm charged five times as much for licensing than all other cellular patent licensors combined. Apple also claimed the company withheld $1 billion in rebates because Apple had cooperated with KFTC when that investigation was active.

There is blood in the water and there will probably be other suits from companies that suffered under the Qualcomm licensing scheme as well. The odds are also good that Qualcomm will have to change their licensing scheme, which will probably result in lower fees.

With roughly $4 billion in fines and suits over the last few weeks, the investor appetite for QCOM shares has evaporated. Brokers are slashing their ratings from buy to hold or even sell.

Last week the company reported earnings of $1.19 that matched estimates but missed on revenue. They guided for $1.15-$1.25 for Q1 and analysts were expecting $1.17. Other than that the guidance was lackluster with a lot of excuses and questions deflected.

Update 1/31/17: Qualcomm said NXP Semiconductor (NXPI) shareholders had approved the acquisition by Qualcomm. The acquisition is expected to be completed by the end of 2017. QCOM will start a new subsidiary in Amsterdam that will actually buy the shares for $110 each. The funding will come from $28.6 billion in cash currently held by Qualcomm overseas. They will not be taxed on the money as long as it is reinvested overseas.

Update 2/1/17: Qualcomm said NXP Semiconductor (NXPI) shareholders had approved the acquisition by Qualcomm. The acquisition is expected to be completed by the end of 2017. QCOM will start a new subsidiary in Amsterdam that will actually buy the shares for $110 each. The funding will come from $28.6 billion in cash currently held by Qualcomm overseas. They will not be taxed on the money as long as it is reinvested overseas.

Earnings April 26th.

Shares have collapsed on the news of the suits and fines and are threatening a steeper decline. Initial support is $50.

Position 1.31.17:

Long March $52.50 put @ $1.68, see portfolio graphic for stop loss.

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