Option Investor

Daily Newsletter, Wednesday, 5/10/2017

Table of Contents

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

Market Wrap

Indexes Battling Resistance

by Keene Little

Click here to email Keene Little
This week has the major indexes battling what could be strong resistance but so far they show no intention of pulling back. This is a potential turn week for the market and that has resistance levels important to watch.

Today's Market Stats

Following Tuesday morning's high we've had only a small pullback that was followed by another bounce attempt today. The major indexes closed in the green but other than the RUT's stronger performance (+0.6%) the rally attempt was weak. The Dow was the weaker index as Boeing (BA) and Disney (DIS) pulled the index down and kept it in the red.

There were no significant economic reports to distract the market this morning and it suffered a further pullback before bouncing back up. The report on crude inventories, which showed a larger decline, sparked a rally in crude prices and that's usually helpful for the stock market, especially the small caps (which benefits from the smaller companies in the oil sector). But as I'll review with its chart, even oil has made it back up to what could turn into strong resistance.

The major indexes are pushing up against what will potentially be strong resistance levels. With a rally that appears to be running out of steam there's a good chance resistance is going to hold, although I see the potential for at least minor new highs. In addition to resistance levels, which I'll review on the charts, this week is a potentially important turn week.

Today we have a full moon and we've had more than a few important highs (and lows) on the full and new moons. There is also an important cycle turn date tomorrow and at the moment it's looking like we have price, pattern and time coming together this week for what could be an important high for the market. But there's no evidence yet that a high is in place and for the moment the bulls still rule.

I've been reading reports lately about the support that the global stock markets have been receiving from the world's central banks. Between this kind of support and the continuing effort by companies to buy back their own stock it's been tough for bears to do anything with this market. That could continue for much longer than seems possible but eventually even this rally is going to experience a more significant decline.

The central banks have been quite public about their support for the stock market. The central banks are of course fighting to boost their economies and to a large extent that requires consumers to consume. One way to accomplish that is to get consumers to feel good about the economy and a higher stock market theoretically helps that.

There is also an effort by the central banks to improve the returns on their own money and since the stock market always goes up (cough) they figure it's a safe investment. The problem is most of their investing has been in the tail end of the bull market and therefore they're buying the highs (with the belief the market will simply head higher).

As an example, the Swiss National Bank (SNB) has also been a heavy buyer of the stock market and especially in the last quarter. Many well-heeled investors put their money into the Swiss banks and currency since it's theoretically a safer place to park your money. But with their banking system heavily invested in the stock market it certainly prompts the question about how safe their banks will be in the event their investments start to lose money.

The chart below shows the stocks that the SNB is mostly invested in and compares Q1 2017 holdings to Q4 2016. The numbers are times a million so $2700 in AAPL stock is actually $2.7B invested. They added about $1B in just AAPL stock in the first 3 months of this year and certainly helped the stock's performance this year. As you can see in the chart, SNB poured more money into the stock market in the 1st quarter than they did in Q4 2016. What could possibly go wrong with this picture?

Swiss National Bank stock holdings, Q4 2016 - Q1 2017, chart courtesy stansberryresearch.com

Warren Buffett recently announced the fact that he's holding a larger position in AAPL and the combination of "heavy hitters" has certainly helped the stock outperform to the upside. AAPL is up nearly +50% since November, which is considerably better than the +15% for SPX over the same time period. The techs have of course been helped and NDX has enjoyed a +22% rally since November.

AAPL has clearly been on a tear but what happens if these central banks become spooked with any kind of decline. Will they not just withdraw their support but also become big sellers? Can you imagine being a money manager for a central bank and having them breathing down your neck when their investments start losing value?

Before getting into a review of the major indexes I wanted to take a little time to review AAPL since it's been one of the strong drivers behind the rally we've seen and what happens in the near future could help determine market direction. A big-picture view of AAPL is shown with its monthly chart below.

Apple Inc., Monthly chart

AAPL's stock really took off from the lows hammered out in 2000-2003, when you could have bought it for a split-adjusted price near $1 (you can take out the butt-kicking machine now). Even though the stock continued to rip higher after pulling back into the January 2009 low (another butt-kicking for not buying the stock at the split-adjusted price of $11) you can see how the rally is "rounding" over and is showing monthly bearish divergence since early 2012. Whether or not the stock is peaking here is arguable but the rolling top pattern suggests it will peak here.

Apple Inc., Weekly chart

It's arguable that the completion of AAPL's rally was actually the April 2015 high (the completion of a 5-wave move up from 2003) and the rally from May 2016 is only a corrective move within what will become a larger pullback pattern. The weekly chart of AAPL, shown below, shows a 3-wave move up from May 2016 and as such it could be the b-wave of what will become a larger 3-wave pullback from April 2015. The projection at 151.35, shown on the chart, is where the 2nd leg of the move up from May 2016 is 162% of the 1st leg.

At this point the 3-wave move up from May 2016 is either a bearish a-b-c or a bullish 1-2-3 and we won't know which it is until we see the next pullback/decline. A multi-week/month choppy pullback would suggest a 4th wave to then be followed by another rally later this year. A sharp impulsive move down would suggest we're going to see a much strong decline for the rest of this year (down to at least the May 2016 low near 89). And then maybe after that we'll see another rally back up to the rounding topping pattern shown on the monthly chart.

Jumping into the major indexes, I'll start with the NDX since it's been the leader to the upside. It's also been benefitting from AAPL's rally. After it tops out it will likely provide an important clue for the rest of the market.

Nasdaq-100, NDX, Daily chart

As I've reviewed in the past for NDX, there were a few price projections that pointed to a 5654-5690 target zone and the high end of the zone was achieved with Tuesday's high at 5691.

As a quick review of its larger pattern, NDX has a 5-wave move up from November 2008, with the 5th wave being the rally from February 2016. It equals the 1st wave (November 2008 - April 2012) inside the target zone, at 5664. Once this 5th wave (the rally from February 2016) completes we will be set up for a much larger decline, even if it's going to be "just" a bear market correction to the bull market run from 2008.

The 5th wave (the rally from February 2016) is also a 5-wave move (the fractal nature of the market) and its 5th wave is the leg up from November 2016. This smaller 5th wave extended (it's larger than normal) and a common projection is where it equals the 1st through 3rd waves, which is where the 5654 projection comes from.

Now looking at the rally from November 2016, it too is a 5-wave move and once again the 5th wave has extended. Because the 3rd wave also extended I look for a price projection based on 162% of the 1st wave. This all sounds complex but I basically take each 5-wave move and figure out price projections based on the count. The 162% projection for the 5th wave of the rally from November 2016 points to 5690.46, which is the projection shown on the daily chart below. This is the high end of the 5654-5690 target zone that I've been looking for. Note also that the 5690 projection crosses the trend line along the highs from November 2014 - July 2015 this week.

Key Levels for NDX:
- bullish above 5690
- bearish below 5608

Nasdaq-100, NDX, 60-min chart

Now we zoom in closer to the 5th wave of the rally from November 2016 with the 60-min chart below, which is the leg up from April 13th. Once again this smaller-degree 5th wave is a 5-wave move, shown on the chart. Once again the 5th wave of the rally from April 13th extended and again I then look for a projection where the 5th wave equals 162% of the 1st wave.

The 162% projection points to 5689.31 and the fact that it fell on top of the larger-degree extended 5th wave (at 5690.46) has it looking like it's an important level to watch carefully. Notice the bearish divergence since MACD peaked on April 25th, which shows the slowing momentum of the rally. We have the pieces in place to call a high at any time and now we wait for the market to tell us whether or not it will top out near here.

S&P 500, SPX, Daily chart

On Tuesday SPX poked above its March 1st high, near 2401, but was not able to hold it. It remains to be seen whether or not we're seeing a double top in the making, with bearish divergence against the March 1st high, but that's the bearish setup here. Is SPX is able to push a little higher we could see it make it up to about 2415 where it would run into the trend line along the highs of the rally off the March 27th low.

Key Levels for SPX:
- bullish above 2415
- bearish below 2379

Dow Industrials, INDU, Daily chart

The Dow has been struggling to get out of its choppy sideways price action that it's been in since April 26th. If it's been in a bullish continuation pattern since that date we'll see a breakout to the upside and while I have trouble seeing the Dow heading up to 21539 (for two equal legs up from April 19th) that remains upside potential. That would get the Dow up to its trend line along the highs from May 2011 - December 2014, currently near 21450. The bears want to see the Dow below its crossing 20- and 50-dma's, near 20820 and 20795, resp., and then break its uptrend line from November-April, currently near 20750.

Key Levels for DOW:
- bullish above 21,170
- bearish below 20,775

Russell-2000, RUT, Daily chart

At its April 26th high, near 1426, the RUT had again tested its trend line along the highs from 2007-2015. This is arguably the top of a larger megaphone topping pattern (the bottom of the pattern is a trend line along the lows from February 2014). The top of the megaphone, using the log price scale, is approaching 1429 and remains the upside target if another rally can kick into gear.

When switching the chart to arithmetic price scale it shows the 2007-2015 trend line near 1400 and is once again acting as resistance after breaking last week. The RUT has been finding support at its 20-dma, riding up it since its May 4th low. The choppy bounce pattern looks like a correction to the decline from April 26th and two equal legs up for the bounce points to 1403.67, which is near the 50% retracement of its decline.

A rally above 1404 would therefore suggest another rally to 1429 is possible. But at the moment the RUT is facing resistance with a choppy bounce pattern that looks more like a bear flag than something more bullish. The bulls want to see the RUT above 1404 while the bears want to see it below 1378.

Key Levels for RUT:
- bullish above 1430
- bearish below 1378

Volatility index, VIX, Daily chart

While the indexes battle potentially significant resistance the VIX hit support at the bottom of a large descending wedge from 2015, at 9.77. It poked below the bottom of this wedge on Monday and Tuesday but closed at or back above the line. Tuesday's low was 9.56 but it closed at 9.96 following Monday's close on the line. It's possible this is the little throw-under completion to the pattern and now we'll see the VIX start to climb back up.

It's important to recognize that a climbing VIX, if that's what we see happen from here, is not necessarily a rally killer for the stock market. A rising VIX will show more fear entering the market but as we've seen at prior VIX bottoms, it's been common for the stock market to make a final high weeks, if not months, later. That could happen again but of course there are no guarantees that the market will ignore a rising VIX and keep rallying anyway.

KBW Bank index, BKX, Daily chart

The banks have been neither strong nor weak since BKX hit a high at 93.67 on April 26th. The sideways consolidation can easily be interpreted as a bullish continuation pattern, which points to another leg up to at least the March 1st high at 99.77. BKX is struggling to punch through its broken 50-dma, currently near 92.75 and today's close was 92.60.

A sustained break above 93.75 would bullish for at least another few weeks whereas a break below its 20-dma, near 91.38 on Thursday, would likely lead to a sharper decline. Another leg down would help create the right shoulder of a H&S topping pattern but that's yet to be proven. The neckline is currently near 86.85. In any case, follow the money whichever direction it breaks.

U.S. Dollar contract, DX, Daily chart

The US$ has shown us a series of lower highs and lower lows since its January 3rd high, which is the definition of a downtrend. But the pattern for its decline could be considered a bullish descending wedge, which is showing hints of bullish divergence. A break out the top of the wedge, currently near 100.36, would also be rally back above its broken 50-dma, which is dropping and currently near 100.06.

However, following the April 24th break of its uptrend line from May-August 2016 it's only been able to back-test the broken trend line since then. That includes the back-test on Tuesday and today, at 99.57, with its high at 99.61. We wait now to see whether the bearish or bullish pattern will be confirmed. If the dollar drops below Monday's low at 98.35 and stays below the bottom of the descending wedge it would leave behind a failed bullish pattern and would likely lead to a stronger decline.

Gold continuous contract, GC, Daily chart

Gold is approaching price-level support near 1205 and its pattern looks like it should find a tradable bottom soon. The decline from April 17th looks impulsive, which suggests another leg down following a bounce correction. Assuming it will soon find support to complete the leg down from April 17th, it will become a question about how high the bounce will go. It's anyone's guess but for now I'm depicting a bounce back up to the 1250 area where it would run back into its 20-, 50- and 200-dma's, which will likely be crossing around that level in a couple of weeks. For those interested in buying gold for a long-term hold position I think we'll see lower prices this year.

Oil continuous contract, CL, Daily chart

Today oil rallied up to its broken uptrend line from August 2016 and then pulled back. The bounce off its overnight low at 43.76 on May 4th would achieve two equal legs up at 48.75, which would also be a test of its broken 20- and 200-dma's. But if today's back-test is followed by selling it will leave a bearish kiss goodbye at support-turned-resistance. How oil trades from here could be a good indicator for the direction of the RUT and possibly the broader market.

Economic reports

Thursday's economic reports will include PPI data, which is expected to show a higher inflation rate in April than was reported for March. Any further slowdown in inflation would spark further conversation about whether or not the Fed will raise rates further in June.

On Friday, in addition to further inflation data with the CPI numbers, we'll also get retail sales data, which are expected to have improved in April over March. A negative surprise would tell us the consumer is not spending money and that would spark slowdown concerns


With several indexes bumping up against resistance while showing slowing momentum it's going to be important to see what the bulls can put together for the rest of the week. I see at least a little more upside, such as to SPX 2415, before turning back down into at least a larger pullback correction. But as laid out for NDX, there is the potential that we've seen the highs or will in the next day or two.

With price projections met, resistance lines being hit, price patterns that can be viewed as completed wave counts and a time window this week (full moon and an important cycle turn date) we have the pieces in place for an important market high. What we don't have is any evidence of a reversal and that keeps the bulls in charge until a top is more evident.

If the market rolls over it will then be important what kind of pullback/decline develops. If we get another multi-week choppy pullback (corrective wave count) we'll then know to expect higher prices into next month. But if the decline turns into a sharp impulsive move then we'll have evidence of a trend change. Until we see what happens after a top is in place we can't know what the larger pattern is and that means trading should be kept short term.

I think it's risky chasing the market higher and stops on long positions should be trailed and kept tight. Let the bulls prove they have more from here. Otherwise I sense there are some hungry bear ready to pounce.

Good luck and I'll be back with you next Wednesday.

Keene H. Little, CMT

New Option Plays

Picks and Shovels

by Jim Brown

Click here to email Jim Brown

Editors Note:

The people who made money in the California gold rush were those who sold the picks and shovels. Cognex sells the tools to run your business better.


CGNX - Cognex Corporation - Company Profile

Cognex Corporation provides machine vision products that capture and analyze visual information in order to automate tasks primarily in manufacturing processes worldwide. The company offers machine vision products, which are used to automate the manufacturing and tracking of discrete items, such as mobile phones, aspirin bottles, and automobile tires by locating, identifying, inspecting, and measuring them during the manufacturing or distribution process. Its products include VisionPro, a software suite that provides various vision tools for programming; displacement sensors with vision software for use in 3D application; In-Sight vision systems that perform various vision tasks, including part location, identification, measurement, assembly verification, and robotic guidance; In-Sight vision sensors; ID products, which are used for reading codes that are applied on discrete items during the manufacturing process, as well as have applications in logistics automation for package sorting and distribution; DataMan barcode readers; barcode verifiers; vision-enabled mobile terminals for industrial barcode reading applications; and barcode scanning software development kits. The company sells its products through direct sales force, as well as through a network of distributors and integrators. Company description from FinViz.com.

Cognex reported earnings growth of 200% to 51 cents. Revenue growth increased 40% to $134.9 million and well over guidance of $123.5 million. Gross margin was 79%. Operating income rose 128% to $37.4 million. Operating margin rose from 17% to 28%. The company raised guidance for Q2 for revenue in the $165-$170 million range or roughly 13.7% growth.

Earnings July 31st.

The CEO said growth across all regions were better than expected. Factory automation in the America's increased by mid-teens percentages and was expected to improve. Growth across a range of industries including consumer electronics and automotive were better than expected. Automotive related revenue rose 20% in the quarter.

There are no negatives in the Cognex story. Shares spiked to $90 on the earnings, a new high, and have held there for the last six days. Wednesday's close was a new high and it looks like a breakout is imminent.

Buy August $95 call, currently $3.90, initial stop loss $85.85.


No New Bearish Plays

In Play Updates and Reviews

Big Cap Techs Stumble

by Jim Brown

Click here to email Jim Brown

Editors Note:

Only one FAANG stock posted a gain and Priceline dropped a whopping 87 points. We may be nearing the end of the Nasdaq rally when Netflix is the only FAANG stock that posted a gain. Nvidia held up the Nasdaq almost by itself but late in the afternoon there was some help by a random smattering of other stocks. There was no particular sector that surged.

The Dow declined -90 points intraday but the dip was bought again to close down only 32 points. Intraday the Dow traded under support at 20,900 to a 4-day low.

If the Nasdaq finally cracks and profit taking breaks out, it will take the entire market down with it.

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

SAIC - Science Applications
The long call position was closed at the open.

SYMC - Symantec
The long call position was closed at the open.

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

ADBE - Adobe Systems - Company Profile


Hedge fund Pioneer Investments bought 1.5 million shares. New high today. I raised the stop loss again because we need to exit soon. This is a May position.

Original Trade Description: March 23rd.

Adobe Systems Incorporated operates as a diversified software company worldwide. Its Digital Media segment provides tools and solutions that enable individuals, small and medium businesses, and enterprises to create, publish, promote, and monetize their digital content. This segment's flagship product is Creative Cloud, a subscription service that allows customers to download and install the latest versions of its creative products. This segment serves traditional content creators, Web application developers, and digital media professionals, as well as their management in marketing departments and agencies, companies, and publishers. The company's Digital Marketing segment offers solutions for how digital advertising and marketing are created, managed, executed, measured, and optimized. This segment provides analytics, social marketing, targeting, advertising and media optimization, digital experience management, cross-channel campaign management, and audience management solutions, as well as video delivery and monetization to digital marketers, advertisers, publishers, merchandisers, Web analysts, chief marketing officers, chief information officers, and chief revenue officers. Its Print and Publishing segment offers products and services, such as eLearning solutions, technical document publishing, Web application development, and high-end printing, as well as publishing needs of technical and business, and original equipment manufacturers (OEMs) printing businesses. The company markets and licenses its products and services directly to enterprise customers through its sales force, as well as to end-users through app stores and through its Website at adobe.com. It also distributes products and services through a network of distributors, value-added resellers, systems integrators, independent software vendors, retailers, and OEMs. Company description from FinViz.com.

Everybody knows Adobe or at least they did 20 years ago. Photoshop and Illustrator were the key pieces of software everyone needed to create content for magazines and print media. What would Sports Illustrated have done without Photoshop for their Swimsuit Edition?

Fast forward to 2017 and Adobe has so many different pieces and partners that you cannot even describe them all. With annual revenue at $7 billion and growing they are rapidly outpacing everyone's earnings expectations.

Adobe is hosting its annual Digital Marketing Summit. At that event they announced several new partnerships and the integration of multiple "cloud" entities into one platform.

This description is from a Real Money article.

Headlining these moves is the creation of a common platform, known as the Experience Cloud for all of the products that to date had been grouped within Adobe's "Marketing Cloud." Going forward, Marketing Cloud will comprise one of three parts of Experience Cloud, and feature products such as Experience Manager (used to create and manage marketing content across platforms), Target (lets marketers personalize user experiences) and Social (used to run social media marketing campaigns).

Another part of Experience Cloud, known as Advertising Cloud, lets companies run and optimize search, display and video ad campaigns. It pairs Adobe's Media Optimizer search and display ad-buying tools with recently-acquired TubeMogul's video ad-buying platform. The third part, known as Analytics Cloud, combines the popular Adobe Analytics tool for uncovering insights from customer data with Audience Manager, a platform for creating customer/audience profiles.

Advertising Cloud has gotten a lot of attention, since it more firmly makes Adobe a player in an ad tech space where Alphabet/Google (GOOGL) and Facebook (FB) loom large, and where independent players such as The Trade Desk (TTD) and The Rubicon Project (RUBI) are also present. Adobe is pitching itself as an independent alternative to Google and Facebook, which of course are also giant sellers of ad inventory, while arguing that integrations between the three parts of Experience Cloud set it apart from both independent ad tech players and marketing software rivals such as Salesforce.com (CRM) and Oracle (ORCL).

In their earnings last week, they reported a 21.6% rise in revenue to $1.68 billion and the 12th consecutive increase in revenue from the Creative Cloud graphics software. Earnings were 94 cents and analysts had been expecting 87 cents and $1.645 billion in revenue. Adobe said annualized recurring revenue rose by $265 million to $4.25 billion. That is based on continuing subscription growth.

Update 5/2/17: Barclay's initiated coverage with a buy rating and $155 price target on growing traction in the cloud. They expect revenue from the Creative Cloud to rise 20% per year.

Earnings June 15th.

Shares spiked after earnings from $122 to $130 and then faded back to $125 over the next week. They have started to rebound again because finding 20% revenue growth in the market is hard to do.

Position 3/24/17 with an ADBE trade at $127.50
Long May $130 call @ $2.61, see portfolio graphic for stop loss.

APC - Anadarko Petroleum - Company Profile


Company declared a dividend of 5 cents payable June 28th to holders on June 14th. Shares up on the $1.43 spike in oil prices.

Original Trade Description: May 6th.

Anadarko Petroleum Corporation engages in the exploration, development, production, and marketing of oil and gas properties. It operates through three segments: Oil and Gas Exploration and Production, Midstream, and Marketing. The Oil and Gas Exploration and Production segment explores for and produces oil, natural gas, and natural gas liquids (NGLs). The Midstream segment engages in gathering, processing, treating, and transporting Anadarko and third-party oil, natural-gas, and NGLs production, as well as the gathering and disposal of produced water. The Marketing segment sells oil, natural gas, and NGLs in the United States; oil and NGLs internationally; and anticipated liquefied natural gas production from Mozambique. The company's oil and natural gas properties are located in the U.S. onshore, deepwater Gulf of Mexico, and Alaska; and in Colombia, Cote d'Ivoire, Mozambique, and other countries As of December 31, 2016, it had approximately 1.7 billion barrels of oil equivalent of proved reserves. Florida. Company description from FinViz.com.

Anadarko shares were hammered over the last several weeks by multiple events. The $10 drop in crude prices was the major cause of the first dip. Prices will rebound as we enter the summer driving season that begins on Memorial Day.

The second problem was a house explosion in Firestone Colorado. When the house was built the contractors cut into an abandoned flow line that used to run through the pasture that became a housing development. The line had been abandoned and the tanks removed long ago. However, when the well was shutdown in early 2016 the valve on the abandoned line was never closed. A new valve, new line to new storage tanks elsewhere was installed after Anadarko acquired the lease and the well was restarted in February. Unknown to Anadarko, the well was actually flowing gas into both lines. The gas from the line that had been cut saturated the ground around the house and entered the basement through a sump pump. The non-odorized gas built up in the basement until the owner tried to install a new water heater and the house blew up. Two men were killed and the wife was badly burned.

Anadarko shutdown more than 3,000 wells in the area to make sure they do not have any other problems. The well was drilled in 1993 and was last inspected in 2014. The well initially belonged to Gerrity Oil. Gerrity became a subsidiary of Patina Oil and Gas. Patina had 3,550 producing wells in the Wattenberg field within a 40 mile radius. Noble Energy bought Patina in 2005. How/when the well ownership moved from Noble to Anadarko is not clear.

I am sure there will be a settlement. However, Anadarko has insurance. If Somebody other than Anadarko was responsible for shutting down the well in early 2016 then they will be liable as well. That could have been any number of oil field service providers like Baker Hughes, Schlumberger or others. There is also the contractor that cut the line while they were building the house. If they did not report it, they could be liable.

Anadarko is a $30 billion company. Any fine, judgment or settlement that comes out of this event will be expensive but on a relative basis it will probably be less than the cost of drilling a single well and will probably be shared by several companies. I do not want to be uncaring but we are talking about a business reality that is important to this investment.

Earnings August 1st.

The double whammy of the oil price drop and the high profile house explosion crushed APC shares. The headlines on the explosion are already fading. Once oil prices begin to rebound ahead of Memorial Day the energy company shares will also begin to rise. Options are cheap because of the disaster. This is a buying opportunity.

Position 5/8/17:

Long Aug $55 call @ $2.14. See portfolio graphic for stop loss.

CCL - Carnival Cruises - Company Profile


Profit taking appeared after the new high on Tuesday.

Original Trade Description: May 6th.

Carnival Corporation operates as a leisure travel and cruise company. It offers cruises under the Carnival Cruise Line, Princess Cruises, Holland America Line, and Seabourn brands in North America; and Costa, AIDA, P&O Cruises (UK), Cunard, and P&O Cruises (Australia) brands in Europe, Australia, and Asia. The company operates approximately 100 cruise ships. It also owns Holland America Princess Alaska Tours, a tour company in Alaska and the Canadian Yukon, which owns and operates hotels, lodges, glass-domed railcars, and motor coaches. In addition, the company is involved in the leasing of cruise ships. It sells its cruises primarily through travel agents and tour operators. The company was incorporated in 1972 and is headquartered in Miami, Florida. Company description from FinViz.com.

Carnival shares are at a record high after the company reported earnings of 38 cents that beat estimates for 35 cents. Revenue rose 3.8% to $3.79 billion and beating estimates. Onboard spending rose 6% as the company added more casinos and IMAX theaters to its ships. They raised full year guidance from $3.30-$3.60 to $3.50-$3.70.

The company said "At this time, cumulative advance bookings for the remainder of 2017 are well ahead of the prior year at considerably higher prices." More than 25.3 million people are expected to cruise this year compared to the 15.8 million a decade ago.

The company also raised the dividend by 14% to 40 cents payable on June 16th to holders on May 26th. They also approved a $1 billion stock buyback program.

Earnings June 27th.

Shares rallied to a new high at $63 and have held there for a week with no attempt to sell off. I believe they will move higher and the options are cheap.

Position 5/8/17:

Long July $65 call @ $1.10, see portfolio graphic for stop loss.

CNC - Centene Corp - Company Profile


No specific news. Excellent $1.63 gain to move away from resistance.

Original Trade Description: April 28th.

Centene Corporation operates as a diversified and multi-national healthcare enterprise that provides programs and services to under-insured and uninsured individuals in the United States. It operates through two segments, Managed Care and Specialty Services. The Managed Care segment offers Medicaid and Medicaid-related health plan coverage to individuals through government subsidized programs, including Medicaid, the State children's health insurance program, long-term care, foster care, and dual-eligible individual, as well as aged, blind, or disabled programs. Its health plans include primary and specialty physician care, inpatient and outpatient hospital care, emergency and urgent care, prenatal care, laboratory and X-ray services, home health and durable medical equipment, behavioral health and substance abuse, 24-hour nurse advice line, transportation assistance, vision care, dental care, immunizations, prescriptions and limited over-the-counter drugs, specialty pharmacy, therapies, social work services, and care coordination. The Specialty Services segment provides pharmacy benefits management services; health, triage, wellness, and disease management services; vision services; dental services; correctional healthcare services; in-home health services; and integrated long-term care services, as well as care management software that automate the clinical, administrative, and technical components of care management programs. This segment offers its services and products to state programs, healthcare organizations, employer groups, and other commercial organizations. The company provides its services through primary and specialty care physicians, hospitals, and ancillary providers. Company description from FinViz.com.

Centene reported earnings of $1.12 compared to estimates for $1.05. Revenue jumped 69% to $11.72 billion to beat estimates for $11.42 billion. The big spike in revenue came from the $6.3 billion acquisition of Health Net last year.

The insurer said it had 12.15 million members on March 31st, an increase of 605,000. They raised guidance for the full year from $4.40-$4.85 to $4.50-$4.90. The health benefits ratio or HBR, the amount it spends on claims compared to the premiums received declined from 88.7% to 87.6%. The lower HBR is due to a greater mix of commercial businesses and the growth of its Obamacare businesses.

Earnings July 25th.

Shares had resistance at $73, which was broken last week. The next resistance is the 52-week high at $75.50 and the stock closed at $74.41 on Friday. There was a sell the news drop on Wednesday after the earnings but shares have already recovered $3 of that decline.

If the stock moves to a new 52-week high is should continue on to make a new high over $80.

Position 5/1/17:

Long June $77.50 call @ $1.57, see portfolio graphic for stop loss.

CVX - Chevron - Company Profile


No specific news. Big spike in oil prices produced an equal spike in Chevron.

Original Trade Description: April 16th.

Chevron Corporation, through its subsidiaries, engages in integrated energy, chemicals, and petroleum operations worldwide. The company operates in two segments, Upstream and Downstream. The Upstream segment is involved in the exploration, development, and production of crude oil and natural gas; processing, liquefaction, transportation, and regasification associated with liquefied natural gas; transportation of crude oil through pipelines; and transportation, storage, and marketing of natural gas, as well as operates a gas-to-liquids plant. The Downstream segment engages in refining crude oil into petroleum products; marketing crude oil and refined products; transporting crude oil and refined products through pipeline, marine vessel, motor equipment, and rail car; and manufacturing and marketing commodity petrochemicals, and fuel and lubricant additives, as well as plastics for industrial uses. It is also involved in the cash management and debt financing activities; insurance operations; real estate activities; and technology businesses. Further, the company holds interests in power plants, as well as operates geothermal plants; and engages in the transportation of refined products primarily in the coastal waters of the United States. The company was formerly known as ChevronTexaco Corporation and changed its name to Chevron Corporation in 2005. Company description from FinViz.com.

Chevron is one of the U.S. energy majors with billions of barrels of reserves. The company pays an annual dividend of $4.32 or 4.07% yield. They are totally committed to preserving and raising the dividend. This makes them a top pick by nearly every major analyst.

Chevron is coming out of a major project cycle where they spent over $25 billion a year on capex building out monster projects. Now that the projects are nearly complete and ramping up production, the company can reduce its capex significantly and still increase production as those projects come online.

Chevron has amassed a two million acre position in the Permian Basin with 9 billion barrels of reserves. The company is currently operating 11 rigs in the Permian and will be adding 9 more in the coming months. They plan on ramping up their Permian production from the current 80,000 bpd to 700,000 bpd over the next few years. Chevron's Permian acreage is said to be worth more than $43 billion. It was acquired in pieces at much lower prices by predecessor companies over the last several decades. The Permian was never a big focus for Chevron as they concentrated on megaprojects elsewhere. They are increasing spending in the Permian by $2.5 billion in 2017. They are not hedging their oil production because they believe prices will rise.

Earnings on April 28th are expected to be a miss because of the sharp decline in oil prices in March. This is expected to lower earnings and force misses for the major producers. Since this is a well-known fact, I suspect it it being priced into the stock ahead of the report.

Thursday's decline of 3% put the stock right at light support at $106. If this level fails, there is strong support at $100.

Oil prices should begin to rally any day now. Refinery utilization of back over 90% and it is time to begin pushing summer blend fuels into the distribution system. We should begin to see inventory declines every week and that should last through July. August is normally when crude prices top out. OPEC should extend the production cuts because they are right on the edge of a reduction in inventories and an extension would guarantee it.

Chevron shares should rebound with crude prices. If they were to surprise with earnings, shares should rebound quickly.

The option is cheap and we are going to hold over the earnings report.

If the market tanks at the open on Monday, please do not enter this position until the S&P is positive.

Update 4/19/17: Chevron shares crashed with the entire energy sector after a nearly $2 drop in crude prices on weak inventory numbers from the EIA. WTI only declined -1 million barrels and gasoline rose 1.5 million compared to an expected decline of -1.6 million. The EIA said gasoline demand was down -0.8% from the same period in 2016.

Update 4/22/17: Chevron lost a court case in Australia for $260 million. The case ruled on the deductibility of interest on a $2.5 billion loan made from the parent company between 2003-2008. Chevron Australia paid 9% interest on the loan from Chevron and the parent company borrowed the money at a lower rate. The court said Chevron Australia could only deduct the interest at the parent's borrowing rate. Chevron said they would appeal.

Update 4/24/17: Chevron said it was selling its assets in Bangladesh to Himalaya Energy. No price was given but Bloomberg said the fields were worth about $2 billion. Chevron is planning on selling $10 billion in non-core assets in 2017. Himalaya is owned by a consortium of Chinese state owned firms. Bangladesh has a right of refusal on any deal and they said they were not done with their evaluations yet. The three fields held in the Chevron subsidiary produce 720 million cubic feet of gas and 3,000 barrels of condensate per day.

Update 4/28/17: Chevron reported earnings of $1.41 compared to estimates for 86 cents. The Chevron number did have a $600 million gain from the sale of an upstream asset so it is not really apples to apples comparison. Revenue of $33.4 billion missed estimates for $34.9 billion. Operating costs declined 14% and capex spending will be down more than 30%. Oil production rose 3% and full year growth is expected to be 4-9%.

Position 4/17/17:

Long June $110 call, currently $1.45. See portfolio graphic for stop loss.

FFIV - F5 Networks - Company Profile


No specific news. Another nice gain to extend the rebound.

Original Trade Description: May 8th.

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. The company sells its products to enterprise customers and service providers through distributors, value-added resellers, and systems integrators in the Americas, Europe, the Middle East, Africa, Japan, and the Asia Pacific Region. Company description from FinViz.com.

F5 reported earnings of $1.95 that missed estimates for $2.09. Revenue of $518.2 million rose 7% but missed estimates for $538 million. The company had guided for earnings of $2.01 to $2.04. They beat their own guidance but analysts were too optimistic.

The company blamed the miss on continued weakness in Europe. Sales rose 16% in the Asia Pacific region.

F5 began shipping some new products in Q1 but the volume shipments will hit in Q2. They also announced additional products that will also be shipping in Q2, which should be a good quarter. They guided for current quarter revenue of $520-$530 million with earnings of $2.01-$2.04.

Earnings July 26th.

Shares of F5 fell from $138 to $125 on the earnings miss on April 27th. After a week of post earnings depression, shares are now rebounding.

Position 5/9/17:

Long July $135 call @ $2.75, see portfolio graphic for stop loss.

FIVE - Five Below - Company Profile


No specific news. New 3-year high close. I raised the stop loss again because we need to exit this position soon. This is a May call.

Original Trade Description: April 10th.

Five Below, Inc. operates as a specialty value retailer in the United States. It offers accessories, including novelty socks, sunglasses, jewelry, scarves, gloves, hair accessories, athletic tops and bottoms, and T-shirts, as well as beauty products comprising nail polish, lip gloss, fragrance, and branded cosmetics; and items used to complete and personalize living space, including glitter lamps, posters, frames, fleece blankets, pillows, candles, incense, and related items, as well as provides storage options for the customer's room and locker. The company also provides sport balls; team sports merchandise and fitness accessories, such as hand weights, jump ropes, and gym balls; games, including name brand board games, puzzles, toys, and plush items; and pool, beach and outdoor toys, games, and accessories. In addition, it offers accessories, such as cases, chargers, headphones, and other related items for PCs, cell phones, and tablet computers; books, video games, and DVDs; craft activity kits; arts and crafts supplies that consist of crayons, markers, and stickers; and trend-right items for school comprising backpacks, fashion notebooks and journals, novelty pens and pencils, and everyday name brand items. Further, the company provides party goods, gag gifts, decorations, and greeting cards, as well as every day and special occasion merchandise products; assortment of classic and novelty candy bars, movie-size box candy, and gum and snack food; chilled drinks through coolers; and seasonally-specific items used to celebrate and decorate for events, such as Christmas, Easter, Halloween, and St. Patrick's Day. It primarily serves teen and pre-teen customers. As of January 28, 2017, it operated approximately 522 stores in 31 states. Company description from FinViz.com.

Five Below is an expensive Dollar Store. Everything in Five Below is $5 or less. That gives they a wider range of products and still keeps them somewhat Amazon proof because buying it online requires shipping.

Five Below is a bargain hunter impulse store. Customers rarely walk in with a specific product in mind but looking for a bargain instead. This is a kid magnet because they stock a lot of stuff that appeals to adolescents.

They reported earnings of 90 cents that beat estimates for 89 cents. Revenue was $388.1 million and that narrowly beat estimates for $387 million.

They guided for Q1 for earnings of 12-14 cents and analysts were expecting 13 cents. For the full year, they guided for $1.55-$1.61 per share and analysts expected $1.58. Revenue guidance was $1.21 to $1.23 billion.

They currently operate about 550 stores and plan to open 100 in 2017. They expect to increase that to 2,000 stores over time. They were primarily in Texas Florida and the North East but they have begun to expand into California and the feedback has been outstanding. Nothing costs under $5 in California so their stores are hot locations.

Earnings June 21st.

Shares closed at a 7-month high on Monday and just over resistance at $44.50. If the current rally holds the next resistance test would be $52.

Update 4/12/17: Five will open the first nine stores in California next week with stores at Aliso Viejo, Anaheim, Compton, Hawthorne, Montebello, Fontana, Rancho Cucamonga, South Gate and Redlands.

Position 4/11/17:

Long May $45 call @ $1.90, see portfolio graphic for stop loss.

MCD - McDonalds - Company Profile


No specific news. Shares made another new high.

Original Trade Description: May 3rd.

McDonald's Corporation operates and franchises McDonald's restaurants in the United States, Europe, the Asia/Pacific, the Middle East, Africa, Canada, Latin America, and internationally. The company's restaurants offer various food products, soft drinks, coffee, and other beverages. As of December 31, 2016, it operated 36,899 restaurants, including 31,230 franchised restaurants comprising 21,559 franchised to conventional franchisees, 6,300 licensed to developmental licensees, and 3,371 licensed to foreign affiliates; and 5,669 company-operated restaurants. McDonald's Corporation was founded in 1940 and is based in Oak Brook, Illinois. Company description from FinViz.com.

McDonalds is surging because they have overhauled their menu, offered breakfast all day, shifted to fresh beef, mobile ordering, delivery with UberEats, kiosks AND they are selling coffee for $1 and specialty drinks for $2. That is vastly lower than Starbucks and it is helping them steal market share. People stopping by to pick up a cheap coffee tend to order a snack as well. Who can resist adding an Egg McMuffin to go with that coffee.

McDonalds reported better than expected earnings and raised guidance. They reported $1.47 compared to estimates for $1.33. Revenue of $5.68 billion beat estimates for $5.53 billion. Same store sales rose 1.7% compared to expectations for an 0.8% decline. Global sales were up 4%.

Earnings July 25th.

Goldman has had a neutral rating on them forever but upgraded the fast food giant today to a buy with $153 price target. Goldman admitted they were late but said there was still plenty of time given the improved metrics. Goldman cited McDonald's "Experience of the Future" plans for mobile ordering and kiosks and said the expanding delivery options could expand revenue.

McDonalds closed at a new high today in a weak market.

Update 5/4/17: McDonalds said it was adding Signature Crafted Recipes to its stores in Florida and would be adding 5,000 workers to handle the volume.

Position 5/4/17:

Long July $145 call @ $1.67, see portfolio graphic for stop loss.

MSM - MSC Industrial Direct - Company Profile


No specific news. Nice gain. Maybe we are finally going to get a real rebound.

Original Trade Description: April 22nd.

MSC Industrial Direct Co., Inc., together with its subsidiaries, markets and distributes various ranges of metalworking and maintenance, repair, and operations (MRO) products primarily in the United States, Canada, and the United Kingdom. The company's MRO products comprise cutting tools, measuring instruments, tooling components, metalworking products, fasteners, flat stock, raw materials, abrasives, machinery hand and power tools, safety and janitorial supplies, plumbing supplies, materials handling products, power transmission components, and electrical supplies. It offers approximately 1,000,000 stock-keeping units through its master catalogs; weekly, monthly, and quarterly specialty and promotional catalogs; brochures; and the Internet, such as its Websites comprising mscdirect.com and use-enco.com. The company serves primarily through its distribution network of 85 branch offices and 12 customer fulfillment centers. In addition, it distributes fasteners and other consumables for customers in manufacturing, government, the Department of Defense, transportation, and natural resources end-markets. The company was founded in 1941 and is headquartered in Melville, New York. Company description from FinViz.com.

MSC reported earnings of 93 cents compared to estimates for 90 cents. Revenue of $703.8 million beat estimates for $696.8 million. They guided for the current quarter to revenue of $734-$748 million and analysts were expecting $735 million. They declared a quarterly dividend of 45 cents. Shares fell $18 on the news.

The earnings were great and guidance was good. Why did the stock crater? Shares had vastly outperformed the market with a $35 post election gain. The earnings turned into a sell the news event as investors captured all that built up profit.

Shares bottomed at $86 last week and began to move slightly higher. Having just released earnings they to not report again until July 6th. We have plenty of time.

Just to be sure the rebound has begun I am going to put an entry trigger on the position.

Position 4/24/17:

Long June $95 call @ $1.71, see portfolio graphic for stop loss.

SAIC - Science Applications Intl - Company Profile


No specific news. SAIC was not performing. We closed the position at the open for a minor loss.

Original Trade Description: April 26th.

Science Applications International Corporation provides technical, engineering, and enterprise information technology (IT) services primarily in the United States. The company's offerings include engineering; technology and equipment platform integration; maintenance of ground and maritime systems; logistics; training and simulation; operation and program support services; and end-to-end services, such as design, development, integration, deployment, management and operations, sustainment, and security of its customers' IT infrastructure. It serves the U.S. military comprising Army, Air Force, Navy, Marines, and Coast Guard; the U.S. Defense Logistics Agency; the National Aeronautics and Space Administration; the U.S. Department of State; and the U.S. Department of Homeland Security. The company was formerly known as SAIC Gemini, Inc. and changed its name to Science Applications International Corporation in September 2013. Company description from FinViz.com.

Back in late March, SAIC reported earnings of 79 cents that missed estimates for 80 cents. Revenue of $1.03 billion also missed estimates for $1.09 billion. Shares were knocked for a $16 loss. They paid a dividend of 31 cents and bought back 457,000 shares for $38 million.

The company explained in detail several different items that caused them to miss estimates including the constant challenges with government contracting. The government never does anything on schedule including awarding contracts or making payments when contracts are completed.

During the quarter, they received awards of $800 million and net bookings for the full year were $5.3 billion with a book to bill ratio of 1.2 and their strongest ever. Their order backlog at the end of the quarter was $8 billion.

Earnings June 29th.

This is a good solid company that was punished for some minor execution issues and for the calendar challenges of dealing with the government. Shares cruised along in the $72 range for three weeks and begin rising this week. I am sure the market short squeeze did not hurt.

Now that the shares have started to rebound we can take a position.

I am going to reach out to the August option cycle to get past their earnings date. Open interest is thin so I would use a limit order to enter the position. Once we get closer to June the volume will increase.

Position 4/27/17:

Closed 5/10/17: Long August $80 call @ $1.90, exit $1.30, -.60 loss.

SYMC - Symantec - Company Profile


Good thing we closed this position this morning. Symantec reported earnings of 28 cents that matched estimates. Revenue of $1.12 billion rose 28% but missed estimates for $1.18 billion. They guided for the current quarter to earnings of 30 cents and revenue of $1.13 to $1.16 billion. Analysts were expecting 38 cents and $1.27 billion. Shares fell $3 in afterhours.

Original Trade Description: March 16th

Symantec Corporation, together with its subsidiaries, provides cybersecurity solutions worldwide. It operates through two segments, Consumer Security and Enterprise Security. The Consumer Security segment offers Norton-branded services that provide multi-layer security and identity protection on desktop and mobile operating systems to defend against online threats to individuals, families, and small businesses. Its Norton Security products help customers protect against complex threats and address the need for identity protection, while also managing mobile and digital data, such as personal financial records, photos, music, and videos. The Enterprise Security segment provides threat protection products, information protection products, cyber security services, and Website security offerings. Its products protect customer data from threats, such as advanced protection threats, malicious spam and phishing attacks, malware, drive-by Website infections, hackers, and cyber criminals; prevent the loss of confidential data by insiders; and help customers achieve and maintain compliance with laws and regulations. This segment delivers its solutions through various methods, such as software, appliance, software-as-a-service, and managed services. The company serves individuals, households, and small businesses; small, medium, and large enterprises; and government and public sector customers. It markets and sells its products and related services through direct sales force, e-commerce platforms, distributors, direct marketers, Internet-based resellers, system builders, Internet service providers, wireless carriers, retailers, original equipment manufacturers, and retail and online stores. Company description from FinViz.com.

You cannot even turn on your phone or PC without being subjected to dozens if not hundreds of potential attackers. Worse than stealing your ID and maybe being able to cause you grief down the road, the biggest attacks today are the ransom ware attacks. If you click on an email link or leave your PC unguarded by a security program, the hacker encrypts all your files and charges you a fee to get them back. All of your documents, pictures, bank account info, Quickbooks, etc, all disappear in a heartbeat. Even if you pay the blackmail, you still may not get them back.

Symantec is the leading cybersecurity vendor for personal computers and small business servers. Enterprise class operations will normally go with higher fee organizations like Fire Eye, Palo Alto Networks, etc. Symantec has the entire personal computer space to themselves. There are some competitors like PC Magic and McAfee but they are distant competitors. Since Intel partnered with McAfee an TPG in September, they are improving but Symantec has a big head start.

Because of the daily headlines on cyberattacks, more and more consumers are reaching out and deploying more sophisticated antivirus programs. It is not just for the closet geeks anymore. Everyone needs a real security program.

Strangely, the biggest risk is still the individual. In a recent study of 19,000 individuals by Intel Security they showed each person 10 different emails and asked them to identify the real ones and the fake ones. Only 3% identified all ten correctly. That means 18,430 would have clicked on a phishing email. Clearly, everyone needs a security program to protect us from ourselves.

Update 3/23/17: Morgan Stanley raised their price target from $33 to $37 saying Symantec's recent wave of acquisitions, including Blue Coat Systems and LifeLock, have improved Symantec's position with their rivals. In June, they bought Blue Coat for $4.65 billion to beef up their enterprise offerings. In February, they paid $2.3 billion for LifeLock to enhance their consumer security business. Morgan Stanley expects Symantec to make more acquisitions after their recent $1 billion debt offering.

Update 4/26/17: Symantec said cyber criminals were upping the fees to get your data back after they infect your computer with ransomware. The average fee in 2016 was $294 and that has risen to $1,077 in 2017. DON'T click those links in emails!!!

Update 4/27/17: Symantec, Google and Mozilla have reached an agreement on the life cycle of Symantec trust certificates. There is a push on in the browser community to shorten the duration of security certificates because of the proliferation of bogus websites. If the certificates expire faster, then the websites have to be revalidated more often and the bogus sites will slowly be weeded out.

Earnings May 10th.

Position 3/17/17:

Closed 5/10/17: Long July $32 call @ $1.29, exit $1.65, +.36 gain.

$VIX - Volatility Index - Index Description


The VIX traded up slightly on the continued weakness in the Dow.

Monday's close at 9.77 was the lowest close since December 1993. That is a 24 year low!!

This is a July call. We have plenty of time and the odds of a market sell off over the next 2.5 months are close to 100%. The VIX cannot go much lower but it can go a lot higher.

While holding the VIX call is an insurance play for us, I hope we are never in a position to profit from it. That would mean a lot of our long positions would be under water or stopped out.

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.

Update 5/1/17: The VIX made a new intraday low at 9.90 and closed at a 10-yr low at 10.11. The government shutdown has been avoided according to reports out of Washington and that helped to deflate the VIX. Marine Le Pen is rapidly gaining on Macron in the French election runoff for next Sunday. She gained 6 points in two days to 41% in the recent polls compared to Macron's 59%. If she can gain another 6% early this week then the entire event risk scenario comes back into play with a potential come from behind win.

Position 3/30/117
Long July $14 call @ $2.55, no stop loss. Added 5/9/17: Long July $14 call @ $1.60, no stop loss.
Average cost now $2.07.

Previously Closed 2/1/17: Long March $12 call @ $2.60, exit $2.50, -.10 loss.
Previously Closed 2/22/17: Long March $12 call @ $1.75 adj, exit $1.65, -.10 loss.
Previously Closed 4/10/17: Long Apr $13 call @ $2.30, exit $1.80, -.55 loss.

BEARISH Play Updates (Alpha by Symbol)

PG - Procter & Gamble - Company Profile


No specific news. No excitement. Only a minimal rebound. Still waiting on that $86 level to break.

Original Trade Description: May 1st.

The Procter & Gamble Company provides branded consumer packaged goods to consumers in North America, Europe, the Asia Pacific, India, the Middle East, Africa, and Latin America. The company's Beauty segment offers hair care products comprising conditioners, shampoos, styling aids, and treatments; and antiperspirants and deodorants, personal cleansing, and skin care products. This segment markets its products under the Head & Shoulders, Olay, Pantene, Rejoice, Old Spice, Safeguard, and SK-II brands. Its Grooming segment provides blades and razors, pre- and post-shave products, and other shave care products, as well as appliances under the Braun, Fusion, Gillette, Mach3, Prestobarba, and Venus brands. The company's Health Care segment offers toothbrushes, toothpaste, and other oral care products; and gastrointestinal, rapid diagnostics, respiratory, vitamins/minerals/supplements, and other healthcare products under the Oral-B, Crest, Prilosec, Vicks, Metamucil, Pepto Bismol, and Align brands. Its Fabric & Home Care segment provides fabric care products, including fabric enhancers, laundry additives, and laundry detergents; and home care products comprising air care, dish care, P&G professional, and surface care products under the Tide, Ariel, Downy, Gain, Cascade, Dawn, Febreze, Mr. Clean, and Swiffer brands. The company's Baby, Feminine & Family Care segment offers baby care products, such as baby wipes, diapers, and pants; adult incontinence and feminine care products; and family care products, such as paper towels, tissues, and toilet papers. This segment markets its products under the Pampers, Always, Bounty, Charmin, Luvs, and Tampax brands. The company sells its products through mass merchandisers, grocery stores, membership club stores, drug stores, department stores, distributors, baby stores, specialty beauty stores, e-commerce, high-frequency stores, and pharmacies. The Procter & Gamble Company was founded in 1837. Company description from FinViz.com.

P&G is never going out of business but their continual slowdown in sales it a testament to the changing retail environment. Even their age old, die hard brands, like Tide and Mr. Clean are losing market share to the dozensof new products in the same category. Tide was the old reliable that everyone used 50-70 years ago. Now it is just one of the group of brand name products for washing clothes.

P&G posted adjusted earnings of 96 cents compared to estimates for 94 cents. Revenue of $15.61 billion declined -1% and missed estimates for $15.71 billion. The strong dollar caused a 2% decline in revenue. The company guided for a 1% decline in revenue for the year compared to prior guidance of flat revenue. The affirmed earnings estimates for $3.67. This was the 13th consecutive decline in quarterly revenue.

Earnings July 26th.

Shares dropped $3 on the revenue miss and weak guidance. Investors are not excited about owning a company with declining revenue. That always squeezes profits as well.

I am recommending a September option instead of July because the July expires the week before earnings. We are not going to hold over but I would like to have those earnings expectations in the premium when we exit. Buying longer dated options does not mean you have to hold them until maturity. We can buy time but we do not have to use it.

Position 5/2/17:

Long Sept $85 put @ $2.05, see portfolio graphic for stop loss.

SPY - S&P-500 SPDR ETF - ETF Profile


Only one of the FAANG stocks were up today and that was Netflix. The S&P still managed to gain 2 points but the Dow was weak all day. The Nasdaq rally slowed. We could be nearing a point where the market picks a vertical direction.

The Dow and S&P have reached levels where we should begin worrying about a potential double top in the markets. The rally last week has erased nearly all the option premium. There is no reason to close the position for pennies.

Original Trade Description: March 25th.

The SPDR S&P 500 trust is an exchange-traded fund which trades on the NYSE Arca under the symbol. SPDR is an acronym for the Standard & Poor's Depositary Receipts, the former name of the ETF. It is designed to track the S&P 500 stock market index.

The S&P-500 is in danger of a material drop, possibly to 2,250 or the equivalent 225 level on the SPY ETF. The chart is unsupported and we are entering into a typically volatile period of the year over the next five weeks. I am recommending we buy insurance with a put on the SPY only IF the SPY trades at a new five-week low of 232.75. That way if the market opens higher on Monday we can watch to see if that direction holds before putting money at risk.

I believe if the market goes lower next week it could be the beginning of a major decline.

Position 3/27/17:

Long May $230 put @ $3.49, see portfolio graphic for stop loss.

If you like the trade setups you have been receiving and you are on a free trial then now is the time to subscribe. Don't wait until you miss a newsletter to decide you want to take the plunge.

subscribe now