Option Investor

Daily Newsletter, Wednesday, 6/7/2017

Table of Contents

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

Market Wrap

Waiting Game

by Keene Little

Click here to email Keene Little
The market has been consolidating since last Friday as it waits to get through some potentially market-moving news this week. The consolidation looks like a bullish continuation pattern but a new rally might not get started until the market shakes out a few bulls.

Today's Market Stats

The market's consolidation has presumably been because it's waiting to get through Thursday when we'll hear ex-FBI Director Comey's testimony to Congress and learn what the ECB's next move will be. Thursday night we'll get the results of the UK election so Thursday/Friday could see the market break out/down from this week's consolidation.

Very little has happened in the market this week and economic reports have been quiet as well. There's been very little geopolitically as well and the consequence has been a market that doesn't know what to do next. The anticipation of Comey's testimony has become the latest reality-TV show and all 3 major news networks are going to be providing live coverage. I'm sure they'll all be offering unbiased coverage (cough).

Some Washington D.C. bars will open early to host "viewing parties," which shows us the whole event has captured the attention of people and obviously the market as well. The whole thing has become a staged show by the Democrats (and the left leaning major media) in an effort to further discredit Trump. Whether he did something illegal or not is now not the point. And would have Hillary and Bill in office been any better when it comes to lies, shenanigans and more lies? The whole system is about as corrupt as it can get without blatant violations of public trust (although I think we're there).

At any rate, let the show begin so that we can get our market back. How it will react is anyone's guess so all we can do is see if the charts should have us leaning one way vs. the other.

S&P 500, SPX, Weekly chart

From a weekly perspective I see upside potential for SPX around 2500, which I know a lot of analysts are looking for as well. For a 5-wave move up from 2009 the 5th wave would equal the 1st wave near 2490. This 5th wave, which is the leg up from January 2016, has formed a rising wedge pattern (common for a market that has gone too far and starts to peter out in the 5th wave) and the 5th of this 5th wave would be 62% of the 1st wave near 2507. There's another short-term projection for the 5th of the 5th wave that points to 2485. So we have confluence between 2485-2507 for a projection for a final high. Note also how the top of the rising wedge pattern is near 2500 next week. Now all we need to see is another rally leg to complete this.

S&P 500, SPX, Daily chart

The move up from March 27th is a choppy move, which fits for the move up inside the rising wedge pattern from January 2016. An A-B-C move up from March 27th could complete with just a minor new high (to give us a small 5-wave move up from May 18th). But a larger pullback before heading higher is very possible and that would mean more whippy price action into July. I see the potential for a quick high (positive reaction to Comey's testimony?) and then a hard reversal back down or a strong drop down, possibly to the 2340-2350 area, before reversing back up. Be careful with your positions over the next few days and maybe weeks.

Key Levels for SPX:
- bullish above 2435
- bearish below 2400

S&P 500, SPX, 60-min chart

The 60-min chart shows a depiction (in green) to a minor new high to complete a 5-wave move up from May 18th. The May 25-31 and June 2-7 consolidations are exactly the same amount of time and therefore it could be ready for another thrust higher, presumably from a positive reaction to Comey. But the 3rd wave of the leg up from May 18th was a little shy of 62% of the 1st wave and if the 5th wave achieves only 62% of the 3rd wave we'll see a rally to only 2447, or lower, before reversing back down. This short-term pattern suggests the weekly projection to the 2500 area might not happen. Or it might not happen until we get a large pullback (2340-2350) first.

Dow Industrials, INDU, Daily chart

The Dow has the same pattern as SPX and the same short-term and longer-term possibilities. If we do get a strong rally in the next week or so I see the potential for the Dow to reach 21600 by mid-June, which is where it would run into its trend line along the highs from May 2011 - December 2014.

But short term, if we get just a quick pop higher, we could see the rally finish around 21300 and then reverse back down. If we get a negative reaction to news and the Dow drops below its May 31st low at 20942 we could see a sharp drop down to its April 19th low near 20380 before setting up the next rally leg (a sharp decline would look like the completion of a larger pullback pattern and NOT the start of a more serious decline).

Key Levels for DOW:
- bullish above 21,212
- bearish below 20,942

Nasdaq-100, NDX, Daily chart

NDX has been consolidating just below its trend line along the highs from November 2014 - July 2015, currently near 5910. This is just above a price projection at 5906 where the move up from April 13th would achieve two equal legs up (for a possible a-b-c move). It's also up against the top of a parallel up-channel for its rally from March, the top of which crosses the 2014-2015 trend line near 5915 in the next few days. There's strong resistance just above but it also means a rally much above 5925 would be a bullish breakout.

Key Levels for NDX:
- bullish above 5925
- bearish below 5762

Russell-2000, RUT, Daily chart

The RUT has been a choppy mess since December and has been running much weaker than the big cap indexes. With all the 3-wave moves and reversals it's near impossible to figure out whether it's going to head higher or lower from here. It's simply not a helpful index to follow at the moment. If it does head higher we could see another test of the trend line along the highs from June 2007 - June 2015, now near 1435. This is the top of a possible large megaphone topping pattern so I wouldn't trust a move up to 1435 for a longer-term hold position.

Obviously a sustained move north of 1435 would be a bullish breakout. If we get a downside reaction to news we could see the RUT drop down to price-level support near 1347 and maybe down to the trend line along the lows since January (the bottom of a smaller megaphone pattern since December, which is at the end of the larger megaphone pattern).

Key Levels for RUT:
- bullish above 1400
- bearish below 1300

We have had a large difference this year between the small and large cap stocks, with SPX up +8.5% this year while the RUT is up only +2.8%. Some of the outperformance in the large caps has to do with the strength in foreign markets, which is when the large-cap multinationals tend to do better. The small caps reflect more of our local economy and smaller companies have been struggling more. So which index is our Goldilocks index that's not too strong and not too weak? Enter the midcap stocks, which I've now added to the Market Stats in the table at the top of the wrap.

S&P Midcap 400 index, MID, Daily chart

If the midcap index is a better reflector of the stock market I'd say the bulls are in good shape for months to come but not before we see a pullback, as depicted in green on its chart below. The sideways triangle fits well as the 4th wave correction in the rally from January 2016. A 4th wave leads to the 5th wave (up in this case) to complete the move, which is why sideways triangles (typical for 4th waves) tend to point to the final move. The bottom of the triangle and the uptrend line from January-November 2016, near 1680, gives us a downside target for now.

The wave count inside a triangle is typically a 5-wave move, labeled a-b-c-d-e and we're now waiting for a pullback for wave-e. Back down to the bottom of the triangle would be a very good setup to get long for the next rally. The 3rd wave of the leg up from January 2016 was a little more than 62% of the 1st wave (typical inside a rising wedge pattern) and if the 5th wave achieves a little more than 62% of the 3rd wave we get an upside projection around 1850-1875.

A projection from 1680, the presumed low for the completion of the 4th wave, to 1875 would be about a +12% rally. This is of course speculation at this time but it will be a pattern that I'll continue to watch since it could provide us with a good idea about what the market will do next.

Key Levels for MID:
- bullish above 1761
- bearish below 1673

I've been watching the bond market closely since December as yields pulled back their highs back then. Most people feel the bond market has bottomed and that we're now in a new bull market for bonds. I still hold onto my opinion that the bond's bull market has not ended yet and that we'll probably see the 10-year below 1% before the bull market is finished. This is part technical and part fundamental, with the fundamental part having to do with a deflationary cycle that I believe we're still in.

We currently have a large credit bubble and when (not if) it pops it will create havoc in the financial system (again). Credit contraction is deflationary and I see no way to avoid what's coming. Stocks will tank during this time and the new TINA (there is no alternative) investment will be bonds, not stocks. But obviously I could be wrong (it happened once back in 1982) and that's why I'm watching the bond pattern carefully.

U.S. Treasury 30-year Bond, ZB emini contract, Monthly chart

The big picture is offered with the monthly chart of ZB, which is the emini futures contract for the 30-year Bond. There is more history with the 30-year than the 10-year so that's why I use it. ZB is unarguably in an uptrend that started from the low in 1981. It's been inside a parallel up-channel following the 1985 peak and suggesting bonds have peaked is really nothing more than top picking (I've been known to try that a time or two).

ZB dropped below the midline of its up-channel back in November when yields spiked up following Trump's election. It poked below its 50-month MA twice, in December and March, but is currently holding above this MA. If it gets back above its midline, currently near 157 (about 2-1/2 handles above its current price), it will remain bullish. If it drops below its 50-month MA we could then see a drop at least to the bottom of its up-channel, currently near 136. That would obviously spike yields higher. RSI has curled back up from above the 40 level, which it has consistently done while in its up-channel. From a monthly basis I don't see a reason (yet) to turn bearish bonds.

10-year Yield, TNX, Daily chart

The 10-year yield, TNX, has been chopping its way lower since December and that could be an indication that it's just a corrective pullback that will be followed by another climb higher. But so far TNX has been acting more bearishly than bullishly (coinciding with the opposite I'm seeing on the ZB chart since December).

As I've mentioned in previous market wraps, the double top between December and March, with the valley in between, gave us a trading range as a downside projection once TNX broke support near 2.321. The downside projection is near 2.00, which would easily have it closing its November 14th gap, at 2.117, but it would still have more work to do to reach its November 9th gap at 1.862. There's one wave count idea (double zigzag for the pullback from December) that points to 1.98 for two equal legs down. Therefore I think a break below 1.98 would be more bearish than what we've seen so far.

The bearish price action I've seen so far is breaks of support and then only back-tests before proceeding lower. The latest was a break of its 200-dma last Friday and then a quick bounce back up to it on Monday before dropping away to a new low. It was also a break of price-level support (the top of its November 14th gap and the April-May lows) near 2.19, which was also back-tested on Monday. Today's bounce up to 2.183 is another back-test of its broken 200-dma at 2.184.

Note also that the double top was above the downtrend line from June 2007 - December 2013 but then it dropped back below the trend line when it broke its uptrend line from July-September 2016. Again, bearish price action. We'll have to see if today's back-test can get some upside follow through, otherwise a continuation lower would continue to target the 2.00 projection.

KBW Bank index, BKX, Daily chart

BKX continues to leave us guessing about its next move. It remains above the neckline of a possible H&S top, which is the trend line along the lows since January and currently near 86.80. But it also remains below its crossing 20- and 50-dma's, near 90.50 and 90.95, and its downtrend line from March, currently near 90.75. A sustained breakout above 91 would be at least short-term bullish whereas a breakdown below 86.70 would likely see a decline to price-level support at its July 2015 high at 80.87 and potentially down to its H&S price objective at 75.25.

U.S. Dollar contract, DX, Daily chart

The US$ continues to work its way lower but it's starting to show minor bullish divergence against its May 23rd low. The bottom of its down-channel from January is currently near 95.75 and a downtrend line along the lows from March-May is near 96 so watch for possible support between those two levels. Lower than 95.50 would likely see a drop down to 94.79 where the 3rd wave of the decline from January would be 162% of the 1st wave down. Once any of these levels are achieved and we then get a bigger bounce/consolidation we'll get some more clues about whether or not we should expect lower.

Gold continuous contract, GC, Daily chart

On Tuesday gold made it up to its downtrend line from September 2011 - July 2016 (log price scale, whereas the trend line is lower when using the arithmetic price scale, which is usually not as accurate when looking at large price swings over a longer period of time). At the same time it achieved two equal legs up for the rally from May 9th at 1296.80 (yesterday's high was 1298.80 and it closed at 1296.60). Today it pulled back and we're left to wonder if we will now see a reversal back down.

Gold bulls need to see gold rally above 1300, although watch carefully if it reaches a price projection at 1317.20, which is where it will achieve two equal legs up from March 10th. The overall pattern of the bounce off the December low has it looking like it will all get retraced but I could argue for a little higher before it does that. A move up to the top of an up-channel for its rally from December would mean we'll see close to 1350 before potentially moving back down.

Oil continuous contract, CL, Daily chart

Oil has been in a whippy pattern for a long time and it's anyone's guess which way this will resolve. I think oil is in the process of rolling over and will start to accelerate lower but that opinion and $3.00 will get a decent cup of coffee. For now the key levels to watch are the May 5th low at 43.76 and the May 25th high at 52. Mind the chop in between.

Economic reports

There are no market-moving economic reports the rest of the week and other than maybe being moved by the ECB rate decision and/or the UK election results (late Thursday night), the biggest market-moving event will be Comey's Congressional testimony on Thursday. That could cause some volatile price action on Thursday.


The market has been on hold since last Friday and the presumed reason is that it's waiting to get through the Comey Congressional testimony on Thursday. If he drops a bombshell on the Trump Tower, indicating Trump tried to thwart an FBI investigation into Flynn and other accusations about ties to Russia, we can expect the market to tank. It would put a nail in the coffin of expectations for what the market perceives as positive changes (tax rules, business rules, infrastructure spending, etc.). The rally since November has been based on expectations that Trump would achieve his campaign promises and any trouble for Trump could torpedo those expectations.

If Comey indicates Trump was not trying to thwart any FBI investigation we'll probably see the market rally in relief. But a news-related spike could finish the leg up from May 18th, which in turn could complete a larger upside pattern. Therefore I'd be very careful chasing the market higher from here. It's possible we'll see a stronger rally develop and have SPX reach 2500 but first I'd want to see it can successfully get through 2450 before I would trust the move.

The bottom line is that I see the potential for a lot more price volatility in the next couple of days/weeks and it will likely remain a trader's market, not a buy/sell-and-hold. Trade carefully.

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

Keene H. Little, CMT

New Option Plays

Three Million Patients

by Jim Brown

Click here to email Jim Brown

Editors Note:

This company provides daily real time monitoring of more than 3 million patients in 100 countries. Their goal is 20 million lives changed by 2020.


RMD - ResMed Inc - Company Profile

ResMed Inc. designs, develops, manufactures, and markets medical devices and cloud-based software applications that diagnose, treat, and manage respiratory disorders. Its portfolio of products include devices, such as air flow generators, ventilators, and oxygen concentrators; diagnostic products; mask systems; headgear and other accessories; dental devices; portable oxygen concentrators; and cloud-based software informatics solutions. The company also produces continuous positive airway pressure, variable positive airway pressure, and AutoSet systems for the titration and treatment of sleep disordered breathing (SDB). In addition, it offers data communications and control products, such as EasyCare, ResLink, ResControl, ResControl II, TxControl, ResScan, and ResTraxx modules that facilitate the transfer of data and other information to and from the flow generators. The company markets its products to sleep clinics, home healthcare dealers, patients, hospitals, physicians, and third-party payers through a network of distributors and direct sales force in approximately 100 countries. Company description from FinViz.com.

ResMed reported earnings of 71 cents that rose 2.8% and beat estimates by a penny. Revenue of $514.2 million rose 13.3% but missed estimates for $519 million. Revenue in the America's rose 18% compared to a 9% rise in EMEA and APAC. Gross margin was 58.3%. They ended the quarter with $827.3 million in cash. They announced a quarterly dividend of 33 cents, payable on June 15th.

Expected earnings July 27th.

ResMed's recent claim to fame is the ResMed AirMini, the world's smallest CPAP mask. Their goal is to change 20 million lies by 2020 with products that improve patient outcomes and daily lives. They manufacture and market products for chronic diseases where there is a large patient base.

They currently provide remote monitoring for more than three million patients around the world.

Shares closed at a two year high on Wednesday. Earnings are July 27th and the July options will deflate too quickly. I am recommending the October strikes but we will exit before the earnings. We can always buy time but we do not have to use it.

Buy Oct $75 call, currently $3.10, initial stop loss $69.45.


No New Bearish Plays

In Play Updates and Reviews

Testimony Relief

by Jim Brown

Click here to email Jim Brown

Editors Note:

The release of Comey's opening statement took some of the worry out of the market. Comey is going to say President Trump asked him nicely if he could ease up on Flynn and he did not ask him to halt the Russian investigation. The release of the 7 pages of opening remarks gave the market a sense of relief that he was not going hostile and try to sink the president.

Obviously, after the remarks tomorrow, the senators will drill him in every way possible trying to get him to say something incriminating about the president. Comey is a smart man and I expect him to carefully word his responses to tell the truth but also favor neutral territory.

I am slightly encouraged by the potential for a market rebound after he speaks as long as he does not develop foot in mouth disease.

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

The long call position was entered at the open.

OA - Orbital ATK
The long call position was stopped at $99.85.

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

AAPL - Apple Inc - Company Profile


Argus Research raised the price target from $160 to $175 saying all the positives are not yet priced into the stock. Credit Suisse reiterated an outperform rating and $170 price target. Shares closed at $155.

Original Trade Description: May 27th.

Apple Inc. designs, manufactures, and markets mobile communication and media devices, personal computers, and portable digital music players to consumers, small and mid-sized businesses, and education, enterprise, and government customers worldwide. The company also sells related software, services, accessories, networking solutions, and third-party digital content and applications. It offers iPhone, a line of smartphones; iPad, a line of multi-purpose tablets; and Mac, a line of desktop and portable personal computers. The company also provides iLife, a consumer-oriented digital lifestyle software application suite; iWork, an integrated productivity suite that helps users create, present, and publish documents, presentations, and spreadsheets; and other application software, such as Final Cut Pro, Logic Pro X, and FileMaker Pro. In addition, it offers Apple TV that connects to consumers' TV and enables them to access digital content directly for streaming high definition video, playing music and games, and viewing photos; Apple Watch, a personal electronic device; and iPod, a line of portable digital music and media players. Further, the company sells Apple-branded and third-party Mac-compatible, and iOS-compatible accessories, such as headphones, displays, storage devices, Beats products, and other connectivity and computing products and supplies. Additionally, it offers iCloud, a cloud service; AppleCare that offers support options for its customers; and Apple Pay, a mobile payment service. The company sells and delivers digital content and applications through the iTunes Store, App Store, Mac App Store, TV App Store, iBooks Store, and Apple Music. It also sells its products through its retail and online stores, and direct sales force, as well as through third-party cellular network carriers, wholesalers, retailers, and value-added resellers. Company description from FinViz.com.

The eyes of the world will be focused on Apple in two weeks as it updates application developers on all the new features and software in its various products. This covers the iPhone, iPads, Macs and Watches. Apple routinely tries to keep from giving away its best secrets but it is impossible for developers to develop unless they know what they are developing. There are always leaks. This typically provides a boost to Apple shares.

Apple reports earnings on August 1st. That is getting close to the normal September announcement date for the iPhone 8. If the buzz from the developers conference is good we could see shares rise into that earnings report.

Shares have been flat for the last three weeks despite the constantly rising Nasdaq. The WWDC could be the catalyst that lifts Apple shares out of this consolidation pattern.

Update 5/31/17: ZDNet said Apple has already started production on its competitor to the Amazon Echo. The device will not be announced publicly until later but there will be clues at the WWDC that starts on Monday. Reportedly, it will have surround sound and better quality than Amazon and Google. Apple will need to release some info to developers at the conference if they want any applications available when the smart device begins shipping.

Update 6/5/17: Apple announced a ton of new features and a couple new devices on the opening day of the WWDC. The Apple Watch was upgraded with dozens of new features that will actually make is useful. They announced the new macOS called High Sierra and a bunch of new MacBooks to go with the OS. They announced a new iMac, MacBook Pro, MacBook Air. The iMac Pro will start at $4,999 with a 5K display from Nvidia. Buyers will have a choice of a 8, 12 or 18 core processor, which is maximum overkill. They announced peer-to-peer payments to compete with Paypal, Venmo and Square Cash. They announced the ARKit which will allow developers to easily creare augmented reality apps for iOS devices. They upgraded the 105 and 12.9 inch iPads but left the 9.7 inch model alone. They announced the Apple HomePod speaker, powered by Siri, to compete with Google and Amazon's Echo.

I am using the August strikes so the earnings expectations will keep the premium inflated. I do not plan on holding over earnings. We will exit in July or earlier depending on how the stock reacts to the WWDC news.

The August strikes are expensive so I am recommending a spread.

Position 5/30/17:

Long Aug $155 call @ $4.89, see portfolio graphic for stop loss.
Short Aug $165 call @ $1.67, see portfolio graphic for stop loss.
Net debit $3.22.

ADP - Automatic Data - Company Profile


No specific news. Minor gain in a mixed market.

Original Trade Description: June 1st.

Automatic Data Processing, Inc., together with its subsidiaries, provides business process outsourcing services worldwide. The company operates through two segments, Employer Services and Professional Employer Organization (PEO) Services. The Employer Services segment offers a range of business outsourcing and technology-enabled human capital management (HCM) solutions, including payroll services, benefits administration services, talent management, human resources management solutions, time and attendance management solutions, insurance services, retirement services, and tax and compliance solutions. This segment's integrated HCM solutions include RUN Powered by ADP, ADP Workforce Now, ADP Vantage HCM, and ADP GlobalView, which assist employers of all sizes in all stages of the employment cycle from recruitment to retirement; and ADP SmartCompliance and ADP Health Compliance. The PEO Services segment provides a human resources (HR) outsourcing solution through a co-employment model to small and mid-sized businesses. This segment offers ADP TotalSource that provides various HR management services and employee benefits functions, such as HR administration, employee benefits, and employer liability management into a single-source solution. Company description from FinViz.com.

When ADP reported they beat on earnings with $1.29 compared to estimates for $1.23 but revenues of $3.41 billion missed estimates of $3.43 billion. The news that tanked the stock was a 7% decline in new bookings. Every other metric was fine. The company guided for full year revenue growth of 6% and earnings to rise 17-18%.

Who would not want to own a company growing revenue 6% and earnings 17% per year. Those are good solid numbers.

Apparently there were enough knee jerk sellers to crash the stock from $104 to $95. After two weeks in the doghouse shares began to rise again and they are almost back to $104.

The stock has tried to break out three times this year and each time gets just a little higher before failing. This time, I expect a breakout, market permitting.

Earnings August 2nd.

Position 6/2/17:

Long Aug $105 call @ $1.05, see portfolio graphic for stop loss.

ATVI - Activision Blizzard - Company Profile


No specific news. Minor gain to a new closing high.

Original Trade Description: May 22nd.

Activision Blizzard, Inc. develops and publishes games for video game consoles, personal computers (PC), mobile devices, and online social platforms. The company operates through three segments: Activision Publishing, Inc., Blizzard Entertainment, Inc., and King Digital Entertainment. The company develops, publishes, and sells interactive software products and entertainment content through retail channels or digital downloads; and downloadable content. It also publishes subscription-based massive multiplayer online role-playing games; and strategy and role-playing games. In addition, the company maintains a proprietary online gaming service, Battle.net that facilitates the creation of user generated content, digital distribution, and online social connectivity in its games. Further, it engages in creating original film and television content; and provides warehousing, logistics, and sales distribution services to third-party publishers of interactive entertainment software, as well as manufacturers of interactive entertainment hardware products. The company serves retailers and distributors, including mass-market retailers, consumer electronics stores, discount warehouses, game specialty stores, and consumers through third-party distribution and licensing arrangements in the United States, Australia, Brazil, Canada, China, France, Germany, Ireland, Italy, Japan, Malta, Mexico, the Netherlands, Romania, Singapore, South Korea, Spain, Sweden, Taiwan, and the United Kingdom. Activision Blizzard, Inc. was incorporated in 1979 and is headquartered in Santa Monica, California. Company description from FinViz.com.

Activision reported Q1 earnings of 56 cents, up 17%. Sales rose 19% to $1.73 billion. Activision had originally guided for 25 cents and $1.55 billion. Analysts were expecting 22 cents and $1.1 billion so it was a major blowout. For the full year, they raised guidance to 88 cents and $6.1 billion, up from 72 cents and $6.0 billion.

Blizzards's monthly active users rose to 431 million. King Digital has 342 million active users. The new Overwatch game was the fastest Blizzard title to hit 25 million registered players and now has more than 30 million. Revenues from in game purchases rose 25% driven by World of Warcraft and Overwatch customization features.

Activision is a powerhouse with rapidly rising revenue and multiple game titles arriving in the coming months.

Earnings August 3rd.

Shares dropped sharply with the market last Wednesday and have already rebounded to close at a new high today.

Position 5/23/17:

Long August $60 calls @ $2.66, see portfolio graphic for stop loss.

BA - Boeing - Company Profile


Boeing said the current Arab argument with Qatar has not hurt the $21.1 billion order for 72 F-15QA multirole fighters. The State Dept said they still expect the order to be signed soon. Canada said it planned to increase its military spending by 73% over the next ten years and would involve a significant number of new planes. The spokesman said Canada would hold an open competition to buy 88 advanced fighters to replace its fleet of 77 CF-18 planes. Previously, the government had planned to buy 65 fighters. Part of the requirement is that the planes would have to operate seamlessly with planes and communication systems of Canada's allies. That gives Boeing a big edge up plus they are the incumbent having made and maintained the CF-18s.

Original Trade Description: May 25th.

The Boeing Company, together with its subsidiaries, designs, develops, manufactures, sells, services, and supports commercial jetliners, military aircraft, satellites, missile defense, human space flight, and launch systems and services worldwide. It operates in five segments: Commercial Airplanes, Boeing Military Aircraft, Network & Space Systems, Global Services & Support, and Boeing Capital. The Commercial Airplanes segment develops, produces, and markets commercial jet aircraft for various passenger and cargo requirements; and provides related support services to the commercial airline industry. This segment also offers aviation services support, aircraft modifications, spare parts, training, maintenance documents, and technical advice to commercial and government customers. The Boeing Military Aircraft segment researches, develops, produces, and modifies manned and unmanned military aircraft, and weapons systems for global strike, vertical lift, and autonomous systems, as well as mobility, surveillance, and engagement. The Network & Space Systems segment researches, develops, produces, and modifies strategic defense and intelligence systems, satellite systems, and space exploration products. The Global Services & Support segment provides integrated logistics services comprising supply chain management and engineering support; maintenance, modification, and upgrades for aircraft; and training systems and government services that include pilot and maintenance training. The Boeing Capital segment offers financing services and manages financing exposure for a portfolio of equipment under operating and finance leases, notes and other receivables, assets held for sale or re-lease, and investments. The company was founded in 1916 and is headquartered in Chicago, Illinois. Company description from FinViz.com.

Boeing dipped last week after the test flights for the 737-MAX were halted temporarily. Boeing is expecting to begin deliveries of that model later this month. The problem was a low pressure disk in the LEAP-18 engine built by CFM International. That is a joint venture between GE and France's Safran. The halt was only a day before Boeing announced they were resuming flights of the planes without the LEAP-18 engines. CFM said the problem would be fixed within "weeks" because an alternate supplier was increasing production of the specific part. That problem has already been forgotten.

Boeing has dozens of projects underway and the biggest backlog of plane orders in history. The 787 Dreamliner is already on its third revision. The first plane was the 787-8 then there was the 787-9 and now the 787-10. The 787-8 was barely profitable because of higher than expected production costs. However, the improved 787-9 and 10 are highly profitable and in high demand. The delivery mix fell to only 25% model 8s in Q1. Currently there are 672 Dreamliners on order and only 89 are for the model 8. By the time the planes are actually built that will probably decline much further. Orders being transferred from airlines to leasing companies are typically upgraded to the more desirable models because the leasing companies want the longest lasting, fully featured models so the lease rates remain higher longer. The newest version the 787-10 already has 169 orders and it costs $40 million more than the model 8 but only costs a couple million more to produce. Analysts believe Boeing's profitability will rise $1.5 billion on this order shuffle alone.

Boeing got another windfall when Trump was elected and suddenly took an interest in producing more F-18 Hornet's than F-35s. Boeing was only expected to produce 5 Hornets this year with a big order for F18 Growlers filling out the production line. The Growlers are the radar jamming planes that protect a flight of fighters. In the budget that was just passed, an additional $1.1 billion was allocated for 14 additional F-18s in this year. Trump had asked for 24 but Congress only approved 14. There will be a lot more in the budget for 2018. The F-18 is the workhorse of the Navy and many of their older planes are reaching the 6,000 flight hour maximum threshold. That means the Navy will need hundreds over the next several years to replace the aging aircraft. Boeing expects the production line to increase to 3-4 per month starting in 2020. Boeing expects another 100 planes to be ordered over the next five budget cycles and possibly more as the military scales down requests for F-35s in favor of the much cheaper F-18s. Boeing has an enhancement called Block III that basically gives the F-18 the networking capability of the F-35. They envision a stealthy F-35 entering hostile airspace and doing reconnaissance and then transmitting back threat and target information to the heavily armed F-18s to actually carry out the attacks. Over the last five years, the Navy has requested five times as many F-18s as F-35s. A F-18 costs $75 million and F-35 $121 million.

Boeing said on any given day 2 out of every three F-18 planes are out of commission waiting for repairs. Planes have been flown hard in the post 9/11 world with multiple theaters of war and planes down for a single part end up getting cannibalized for other parts to keep the remaining planes flying.

Boeing will also profit from the $110 billion arms deal with Saudi Arabia and the escalation to $350 billion over the next decade.

All of this means Boeing is going to remain highly profitable for a very long time and this is just two production lines of the dozens of products being manufactured by the company.

Earnings July 26th.

Shares made a new high on May 9th at $187 before dropping back to $182 on the market decline. That drop has been erased and shares are poised to break out to a new high and probably begin a new leg even higher.

Update 5/27/17: Tom Cruise said he was planning on filming a new Top Gun movie in 2018. Since the F-14 is no longer flown and the F-35 is not yet available for its film debut, Boeing will probably receive a major public relations bonanza with the F/A-18 Super Hornet in the title role. If it stars in the movie it would be a major advertising win because the capabilities will be shown all around the world and that could generate additional orders.

Boeing received a new $58.6 million contract to demonstrate a new generation of technology to intercept and destroy multiple missiles fired at the USA. This is a result of the accelerated missile testing currently in progress in North Korea. The technology is called the Multi-Object Kill Vehicle (MOKV). Basically, it would be one missile that would be launched at an incoming swarm of hostile missiles. As the MOKV nears the intercept point it would itself launch multiple interceptors and each would be directed to a different target by the radar and communication systems on the MOKV. Instead of firing one missile from the ground to target one incoming missile, the MOKV would be like launching a launching pad of missiles to a predetermined location and then having it attack the swarm on its own. This is not going to be cheap technology.

Boeing also said it won a $89 million contract from the Navy to incorporate the Block II Infrared Search Track System in the F/A-18 E/F aircraft.

Update 5/31/17: The Boeing Midcourse Defense anti-missile system performed flawlessly and knocked down a target ICBM fired from the Marshal Islands on Tuesday. This is the equivalent of a bullet hitting a bullet with a closing speed of more than 2,000 mph in space. That is pretty impressive. Boeing is the prime contractor with Northrop Grumman (NOC), Raytheon (RTN) and Orbital ATK (OA) the key subcontractors. Shares closed at a new high.

Update 6/1/17: Boeing shares dipped at the open after the company got into a fight with the Canadian Defense Minister. Boeing complained that Canadian firm Bombardier was selling jets to U.S. customers below cost because of subsidies from the Canadian government. The defense minister became irate and cut off contact with Boeing regarding a potential order for 18 F-18 Super Hornets to replace some of their aging CF-18 fighters. This was just a headline storm. It is not material to Boeing at this time.

Options are expensive so I am recommending a spread.

Position 5/26/17:

Long Aug $190 call @ $5.15, see portfolio graphic for stop loss.
Short Aug $200 call @ $1.79, see portfolio graphic for stop loss.
Net debit $3.36.

COST - Costco - Company Profile


No specific news. Only 26 cents from a new high.

Original Trade Description: June 1st.

Costco Wholesale Corporation, together with its subsidiaries, operates membership warehouses. It offers branded and private-label products in a range of merchandise categories. The company provides dry and packaged foods, and groceries; snack foods, candies, alcoholic and nonalcoholic beverages, and cleaning supplies; appliances, electronics, health and beauty aids, hardware, and garden and patio; meat, bakery, deli, and produces; and apparel and small appliances. It also operates gas stations, pharmacies, optical dispensing centers, food courts, and hearing-aid centers; and engages in the travel businesses. In addition, the company provides gold star individual and business membership services. As of August 28, 2016, it operated 715 warehouses, including 501 warehouses in the United States, Washington, District of Columbia, and Puerto Rico; 91 in Canada; 36 in Mexico; 28 in the United Kingdom; 25 in Japan; 12 in Korea; 12 in Taiwan; 8 in Australia; and 2 in Spain. Further, the company sells its products through online. Company description from FinViz.com.

Costco reported earnings of $1.59 compared to estimates for $1.30. Revenue of $28.22 billion rose 8% but missed estimates for $28.6 billion. Same store sales rose 5% and beat expectations for 4%. Shares spiked $2.50 on the report.

Earnings August 24th.

On May 31st, Costco reported May sales results of $9.86 billion, an increase of 7%. Same store sales rose 4.5% in the U.S. and 6.4% internationally with the company average at 4.5%.

Guggenheim said the May comps reinforce the case for 20% earnings growth in Q4. Costco customers are on track to spend more than $100 billion on their Visa branded credit cards and 70% will be at retailers that are not Costco. The company stands to make $170 million on the commissions from Visa.

People love to shop at Costco and they spend a lot of money. A weekend shopping trip to the local Costco store will expose you to roughly 30 tables of free samples as Costco employees cook up concoctions available for sale in the store. Broiled salmon, cocktail weenies, crab dip, jalapeno biscuits, barbecue, etc, are all available for tasting. Weekend shopping takes on a party atmosphere and the local stores are always full. Amazon cannot crack this code.

We played Costco before the earnings and exited with a nice gain after they announced $7 special dividend for mid May. Now that earnings are over and shares are breaking out to a new high, it is time to play them again.

Position 6/5/17:

Long July $183 Call @ $2.60, see portfolio graphic for stop loss.

FB - Facebook - Company Profile


No specific news.

Original Trade Description: May 17th.

Facebook, Inc. provides various products to connect and share through mobile devices, personal computers, and other surfaces worldwide. Its solutions include Facebook Website and mobile application that enables people to connect, share, discover, and communicate each other on mobile devices and personal computers; Instagram, a mobile application that enables people to take photos or videos, customize them with filter effects, and share them with friends and followers in a photo feed or send them directly to friends; Messenger, a messaging application to communicate with people and businesses across platforms and devices; and WhatsApp Messenger, a mobile messaging application. The company also offers Oculus virtual reality technology and content platform, which allow people to enter an immersive and interactive environment to play games, consume content, and connect with others. Company description from FinViz.com.

Facebook also blew away earnings estimates and they are growing earnings at the fastest rate of any of the FAANG stocks. They have multiple revenue streams and sites like Instagram and WhatsApp that are just starting to accelerate earnings. They said Instagram had reached 50,000 advertisers. Facebook's problem is they do not have enough page views to monetize despite the 1.9 billion users. They have more advertisers than they have space.

Earnings August 2nd.

Facebook had been moving sideways since hitting the $153 high post earnings. Volatility was low and investors were just waiting for a market dip so they could get a better entry point. Share fell to uptrend support at $145 and even if they due decline further there is strong support around $140.

Update 5/18/27: Facebook was fined $122.4 million by EU regulators for giving them false information in the WhatsApp acquisition process. The EU asked how many WhatsApp users were also Facebook users and the company said it did not know and did not have way of matching the usernames. A year after the acquisition Facebook launched a service that did match users and the EU said they had the capability all the time.

The company also announced a new effort to reduce "clickbait" headlines and punish websites that continually publish fake news. I hope they are successful.

Update 5/19/17: Facebook is going to live stream 20 Major League Baseball Friday night games. The company also said it was adding an "Order Food" option to let some users order, pay and have food delivered or be available for pickup. The service works with restaurants that use Delivery.com or Slice.

Update 5/22/17: Facebook shares were weak after the BROWSER bill was introduced in the House. Websites and browsers must get explicit permission from users in order to collect and use personal data including browser history, search terms, cookies, etc. They also cannot deny you the use of their program if you decline to give them permission to use your data. While the bill has little chance of passing it was a wet blanket on Facebook today.

Update 5/24/17: Reuters reported that Facebook has signed content deals with Vox Media, Buzzfeed, ATTN, Group Nine Media and others to begin creating shows for its upcoming video service. They are going to develop both short and long form content with ad breaks included. The first scripted shows will be up to 30 min which Facebook will own. The second tier will be shorter scripted and unscripted shows with episodes lasting 5-10 minutes.

Position 5/18/17:

Long Aug $150 call @ $4.90, no initial stop loss.

LB - L Brands - Company Profile


No specific news.

Original Trade Description: May 30th.

L Brands, Inc. operates as a specialty retailer of women's intimate and other apparel, beauty and personal care products, and accessories. The company operates in three segments: Victoria's Secret, Bath & Body Works, and Victoria's Secret and Bath & Body Works International. Its products include loungewear, bras, panties, swimwear, athletic attire, fragrances, shower gels and lotions, aromatherapy, soaps and sanitizers, home fragrances, handbags, jewelry, and personal care accessories. The company offers its products under the Victoria's Secret, PINK, Bath & Body Works, La Senza, Henri Bendel, C.O. Bigelow, White Barn, and other brand names. L Brands, Inc. sells its merchandise through company-owned specialty retail stores in the United States, Canada, the United Kingdom, and Greater China, which are primarily mall-based; through its Websites comprising VictoriasSecret.com, BathandBodyWorks.com, HenriBendel.com, and LaSenza.com; and through franchises, licenses, and wholesale partners. As of January 28, 2017, the company operated 2,755 retail stores in the United States; 270 retail stores in Canada; 18 retail stores in the United Kingdom; and 31 retail stores in the Greater China area. It also operated 203 La Senza stores in 24 countries; 159 Bath & Body Works stores in 30 countries; 23 Victoria's Secret stores in 12 countries; 391 Victoria's Secret Beauty and Accessories stores in 70 countries; and 5 PINK stores in 3 countries. The company was formerly known as Limited Brands, Inc. Company description from FinViz.com.

The company reported its seventh consecutive quarter of positive earnings surprises despite a minor revenue miss. Earnings of 33 cents beat estimates for 29 cents. That was well above the company's own guidance for 20-25 cents. Revenue of $2.436 billion was slightly lower than the estimate for $2.456 billion.

The bad news was a 9% decline in same store sales. The majority of that was due to the exit from swimwear and related apparel categories. This has been in progress for about two years. Those two categories created a 6% decline for the lack of swimwear and 9% decline for the related apparel. Excluding those the comp sales were in line with estimates. However, Victoria Secret lingerie sales declined -12% while PINK sales rose in the low single-digits.

They raised their 2017 guidance to earnings of $3.10-$3.40, up from $3.05-$3.35. Q2 earnings guidance was 40-45 cents. Analysts were expecting $3.19 and 45 cents.

Expected earnings Aug 16th.

Update 6/1/17: The company said despite a 10-14% impact from the discontinued swimsuit and swim apparel lines, same store sales for May only declined -7%. That means without that impact sales would have been up 3% or more.

Shares were down ahead of earnings to $47.50. They have rebounded to a two-week high and appear to be on the road to recovery. Resistance is $53.50.

Position 5/31/17:

Long August $52.50 call @ $2.35, see portfolio graphic for stop loss.

MCD - McDonalds - Company Profile


No specific news. Minor rebound but the market was weak intraday.

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.

Update 5/15/17: McDonald's Bar-B-Que opened on May 15th, 1940. The store closed and was later reopened in 1948 with only 9 items on the menu. Hamburgers were 15 cents, cheeseburgers 19 cents and cokes/coffee were 10 cents. Today, McDonalds serves 77 million customers a day. Short history of MCD in pictures The stock celebrated today with a new high.

Update 5/18/17: McDonald's added 1,000 additional restaurants to its McDelivery program utilizing UberEATS food delivery service. They had been testing at 200 stores in Florida since January. Apparently, McDonalds customers are loving it.

Update 5/22/17: The Chicago Tribune said restaurants offering the delivery service were seeing a surge in large orders. People are ordering the 40-piece Chicken McNuggets in quantity as well as the Big Mac and Chicken McNuggets Meal Bundle. That is 2 Big Macs, a 20-piece McNugget, 3 medium fries and 3 beverages for $14.99, which were also being ordered in quantities. When you think about it, if you are having friends over, ordering multiples of those deals gives everyone a choice and plenty to eat. Having UberEats deliver it is simpler than having someone gather up everyone's orders and money and then driving to McDonalds, waiting in line and then waiting while they put together your large order. If you can get it all home without spilling french fries and soda all over your car you are very lucky. This is another reason why McDonalds sales are going to rise in the coming quarters.

Update 5/31/17: McDonalds said they were expanding the mobile delivery from 1,100 stores to 3,500 by the end of June. They are planning on expanding to all 14,000 stores by the end of the year. This is a very big deal for McDonalds.

Update 6/1/17: Telsey Advisory Group reiterated an outperform but raised their price target from $150 to $165.

Position 5/4/17:

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

NFLX - Netflix - Company Profile


No specific news.

Original Trade Description: May 17th.

Netflix, Inc., an Internet television network, engages in the Internet delivery of television (TV) shows and movies on various Internet-connected screens. The company operates in three segments: Domestic Streaming, International Streaming, and Domestic DVD. It offers members with the ability to receive streaming content through a host of Internet-connected screens, including TVs, digital video players, television set-top boxes, and mobile devices. The company also provides DVDs-by-mail membership services. It serves approximately 100 million streaming members in 190 countries. Netflix, Inc. was founded in 1997 and is headquartered in Los Gatos, California. Company description from FinViz.com.

Netflix posted blowout earnings and shares rocketed higher to hit $161 on Monday. I have been waiting for three weeks for a pullback. Analysts are projecting higher highs with the high price targets at $175. There have been continuous rumors that either Disney or Apple will try to buy them not only to acquire the platform but to keep the other company from acquiring it. Both have said they want to have a big presence in streaming. Tim Cook just said it last week. Both have the cash and Disney has billions of dollars in content it can immediately add to the platform.

Netflix is expected to add 3 million subscribers in Q2. They are testing higher prices in Australia to see what price levels will cause subscriber flight. Once they figure it out you can bet they will apply it to the rest of their 100 million customers. That is instant profit. Bumping rates by $5 gets them another $500 million a month in revenue.

They announced with earnings they were finally entering China through a partnership with the largest existing streamer in China. This is one more step to a full release in the future.

Update 5/18/17: The FCC voted 2-1 to roll back the 2015 net neutrality order from President Obama. Some say this will impact major internet users like Netflix. However, the company said last month that elimination of the order would not have any impact on their business because they were big enough and had a broad enough customer base that ISPs would not try to slow down their streaming traffic. The order prevented ISPs from charging for faster bandwidth for heavy users. Netflix is responsible for 40% of the internet traffic in peak hours.

Update 5/22/17: Netflix expects to have 102 million subscribers by the end of Q2 with 51.45 million in the U.S. and 50.49 million internationally. Three years ago the company only had 11 million international subscribers. They expect international numbers to exceed U.S. subscribers by the end of the third quarter. With international subscribers growing roughly 3 million per quarter they should reach 100 million in 2020 as acceptance continues to grow. That puts them on track for 200 million total subscribers by 2025.

Update 5/27/17: Piper Jaffray reiterated an overweight rating this morning but raised the price target from $166 to $190. The analyst said Netflix probably low-balled the company's 2020 earnings expectations by as much as half. The analyst said it the international viewers grow as well over the next 10 quarters as the last 10 then expectations could be 100% too low. They believe Netflix could have 180 million international subscribers by 2020. Jaffray said the total addressable market of broadband viewers could be more than 765 million by 2020.

MKM Partners also raised their price target from $175 to $195.

Update 6/2/17: Tom Lee of Fundstrat said "stick with the FANG stocks in 2H-2017 for 20% to 40% additional gains." Netflix added $2 to a new high close.

Update 6/6/17: Cantor Fitzgerald raised their price target from $165 to $190 saying international subscriptions are set to surge. The analyst said Netflix has 50% penetration in the US households with broadband access but only 5.7% internationally. He expects that international number to rise dramatically as advertising and acceptance grows.

Earnings July 17th.

We have to use a spread because options are still expensive.

Position 5/18/17:

Long July $160 call @ $6.45, no initial stop loss.
Short July $175 call @ $2.16, no initial stop loss.
Net debit $4.29.

OA - Orbital ATK - Company Profile


No specific news. OA declined for the 3rd day to stop us out.

Original Trade Description: May 24th.

Orbital ATK is a global leader in aerospace and defense technologies. The company designs, builds and delivers space, defense and aviation systems for customers around the world, both as a prime contractor and merchant supplier. Its main products include launch vehicles and related propulsion systems; missile products, subsystems and defense electronics; precision weapons, armament systems and ammunition; satellites and associated space components and services; and advanced aerospace structures. (Company supplied description.)

The company reported earnings on May 11th of $1.23 that missed estimates for $1.39. The miss was due to a surprise hike in the tax rate that analysts were not expecting. There was an event two years ago that caused a lower tax rate in the year ago quarter. Analysts factored in that repeat rate without realizing it was a one-time event. Revenue of $1.085 billion beat estimates for $1.083 billion.

Revenue in the Flight Systems Group, Defense Systems Group and Space Systems Group was up between 4.6% and 5.2%. Order backlogs at the end of the quarter were up 12% to $9.8 billion. Total backlogs including options and indefinite quantity contracts were $14.8 billion.

The company guided for 2017 earnings of $5.80-$6.20 and revenues of $4.550-$4.625 billion. Free cash flow is expected to be $250-$300 million.

Earnings August 10th.

Today Orbital received a $76 million order for 50 caliber ammunition from the U.S. Army. Orbital operates the Lake City ammunition plant for the military under an $8 billion facilities management contract. Last month they announced a $92 million order for 5.56mm and 7.62mm ammunition. Since taking over the plant they have produced more than 17 billion rounds of small caliber ammunition. They also received a $53 million contract to produce 120mm and 105mm ammunition including the new M1002 and M724A2 rounds for howitzers and tanks. To date they have produced more than 5 million rounds of large caliber ammunition.

Orbital ATK's Defense Systems Group is an industry leader in providing innovative and affordable precision and strike weapons, advanced propulsion and hypersonics, missile components across air-, sea- and land-based systems, ammunition and related energetic products.

Shares broke over resistance at $99.75 today on the award win. With the emphasis on higher defense spending and a war fighter now in charge of the military, we can expect future orders to continue. Add in their missile systems, space launch systems, etc and Orbital is a good candidate to play this sector.

Update 5/30/17: Orbital was awarded a $9- million contract to produce composite structures for the B-2 Sprit stealth bomber. The new parts will increase the survival ability and the life span of the B-2 bombers.

Update 5/31/17: The Boeing Midcourse Defense anti-missile system performed flawlessly and knocked down a target ICBM fired from the Marshal Islands on Tuesday. This is the equivalent of a bullet hitting a bullet with a closing speed of more than 2,000 mph in space. That is pretty impressive. Boeing is the prime contractor with Northrop Grumman (NOC), Raytheon (RTN) and Orbital ATK (OA) the key subcontractors. Shares rebounded sharply.

Position 5/15/17:

Closed 6/7/17: Long Aug $105 call @ $2.60, exit $1.95, -.65 loss.

PTC - PTC Inc - Company Profile


No specific news. Only a 4 cent decline from Tuesday's high close.

Original Trade Description: June 6th.

PTC Inc. develops and delivers software products and solutions worldwide. It operates in two segments, Software Products and Services. The company computer-aided design products, including PTC Creo, an interoperable suite of product design software for design engineers; and PTC Mathcad software for solving, analyzing, and sharing vital engineering calculations. It also offers product lifecycle management products comprising PTC Windchill that provides lifecycle intelligence; and PTC Creo View, which enables enterprise-wide visualization, verification, annotation, and automated comparison of various product development data formats. In addition, the company provides application lifecycle management products, such as PTC Integrity that enables users to manage system models, software configurations, test plans, and defects, as well as model-based systems engineering solutions that connect requirements engineering, architecture modeling, physical product definition, and system verification functions. Further, it offers service lifecycle management products that include PTC Servigistics, a suite of software products that enable a systematic approach to service lifecycle management; and PTC Arbortext, an enterprise software suite that allows manufacturers to create, illustrate, manage, and publish technical and service parts information. Additionally, the company provides Internet of Things products, such as ThingWorx, KEPServerEX, Vuforia Studio, and Vuforia, which enable customers to design, connect, operate and service smart and connected products. In addition, it provides consulting, implementation, training, cloud, and license and support services. The company was formerly known as Parametric Technology Corporation and changed its name to PTC Inc. in January 2013. Company description from FinViz.com.

PTC is similar to AutoDesk (ADSK) and business is booming for both of them. PTC just announced ThingWorx Manufacturing Apps that will drive 3D printers.

They reported earnings of 30 cents that beat estimates for 28 cents. Revenue of $280 million missed estimates for $283.2 million. They guided for the current quarter for earnings of 24-29 cents and revenue in the $288-$293 range. For the full year they guided to $1.13-$1.23 and revenue of $1.16-$1.17 billion.

Expected earnings July 19th.

Like AutoDesk, Adobe Systems, etc, they are shifting from a software sales model to a cloud subscription model. This is impacting current earnings as they lose the short-term cash flow from sales but replace it with the long-term cash flow from subscriptions. Subscriptions now account for 71% of bookings. Q2 license and subscription revenue rose 11%. License and subscription bookings rose 20% to $185 million.

They project that every 1% increase in subscription revenue will add $4 million in annual revenue and 3 cents in earnings.

Shares spiked on earnings then went sideways for two weeks while those gains were consolidated. Shares began rising over the last three days and closed at a new high on Tuesday.

They report earnings on July 19th and the July options expire on the 21st. However with the stock at $59.65, the $60 strike is inflated and the July $65 may be out of range for the limited time. I am recommending we go with the October strikes so the earnings expectations will still be in the premium when we exit before earnings. Because it is a longer strike the premium will not fade as quickly. We get the benefit of the higher strike and lower premium and the potential build in expectations. Just because we buy times does not mean we have to use it.

Position 6/7/17:

Long Oct $65 call @ $2.10, see portfolio graphic for stop loss.

SHOP - Shopify - Company Profile


No specific news.

Original Trade Description: May 31st.

Shopify Inc. provides a cloud-based multi-channel commerce platform for small and medium-sized businesses in Canada, the United States, the United Kingdom, Australia, and internationally. Its platform provides merchants with a single view of their business and customers in various sales channels, including Web and mobile storefronts, physical retail locations, social media storefronts, and marketplaces; and enables them to manage products and inventory, process orders and payments, ship orders, build customer relationships, and leverage analytics and reporting. The company was formerly known as Jaded Pixel Technologies Inc. and changed its name to Shopify Inc. in November 2011. Company description from FinViz.com.

The company reported a Q1 loss of 4 cents compared to estimates for a loss of 11 cents. Revenue rose 75% to $127.4 million and beat estimates for $122.1 million. Merchant solution revenue rose 92% to $65.3 million and subscription revenue rose 60% to $62.1 million. They guided for Q2 to revenues of $142-$144 million and the full year for $615-$630 million. That is above their prior guidance of $580-$600 million.

Expected earnings August 1st.

The company was very positive about the future outlook. On May 18th they announced a secondary offering for $500 million at $91 per share. The stock dropped from $91 to $81 on the news but immediately recovered. Wednesday's close was a two-week high after that announcement.

SHOP has been discussed multiple times as takeover bait for Ebay or Amazon. Neither company will comment but Amazon would be the likely player. They could gobble up Shopify at $7 billion like a late night snack.

I believe shares are going to resume their upward momentum now that the secondary offering has been consumed by the market.

Update 6/5/17: The S&P/TSX index is considering whether to add SHOP to the Canadian index. That would equate to about 5.4 million shares of additional buying from index funds. The rule change that would allow SHOP to benefit is out for comment until June 9th.

I wanted to buy calls that expire after earnings but there are no August strikes yet. The next strike in October is too expensive. Even the short-term strikes are expensive so I am going with a July spread to reduce the risk.

Position 6/1/17:

Long July $95 call @ $5.25, see portfolio graphic for stop loss.
Short July $105 call @ $2.35, see portfolio graphic for stop loss.
Net debit $2.90.

TTD - The Trade Desk - Company Profile


No specific news and shares dropped back to support with a $1.46 loss.

Original Trade Description: June 5th.

The Trade Desk is a technology company that empowers buyers of advertising. Through its self-service, cloud-based platform, ad buyers can create, manage, and optimize more expressive data-driven digital advertising campaigns across ad formats, including display, video, audio, native and, social, on a multitude of devices, such as computers, mobile devices, and connected TV. Integrations with major data, inventory, and publisher partners ensure maximum reach and decisioning capabilities, and enterprise APIs enable custom development on top of the platform. Headquartered in Ventura, CA, The Trade Desk has offices across the United States, Europe, and Asia. Company description from Trade Desk.

In May the company reported adjusted earnings of 18 cents on revenue of $53.4 million. They did not give earnings guidance but their revenue guidance was $43 million. They guided for EBITDA of -$2 to +$2 million and posted $6.3 million.

Since going public last September they have beaten guidance on all three quarterly reports. Year over year revenue growth has risen 84%, 70% and now 76% for those three reports. Customer retention has been over 95% for 13 consecutive quarters.

The company guided for full year revenue of $291 million, up from $270 million in the prior guidance. The adjusted EBITDA goal was raised from $72 million to $78 million.

Earnings August 10th.

Shares have been in a steady uptrend since mid-April. The $14 earnings spike only took a couple days to consolidate and shares are moving up again.

There are no August options so we have to use July and exit well before earnings.

Position 6/6/17:

Long July $60 call @ $2.20, see portfolio graphic for stop loss.

VAR - Varian Medical - Company Profile


No specific news but an excellent gain to another new high.

Original Trade Description: May 20th.

Varian Medical Systems, Inc. designs, manufactures, sells, and services medical devices and software products for treating cancer and other medical conditions worldwide. It operates through two segments, Oncology Systems and Imaging Components. The Oncology Systems segment provides hardware and software products for treating cancer with radiotherapy, fixed field intensity-modulated radiation therapy, image-guided radiation therapy, volumetric modulated arc therapy, stereotactic radiosurgery, stereotactic body radiotherapy, and brachytherapy. Its products include linear accelerators, brachytherapy afterloaders, treatment simulation, verification equipment, and accessories; and information management, treatment planning, image processing, clinical knowledge exchange, patient care management, decision-making support, and practice management software. This segment serves university research and community hospitals, private and governmental institutions, healthcare agencies, physicians' offices, oncology practices, radiotherapy centers, and cancer care clinics. The Imaging Components segment offers X-ray imaging components for use in radiographic or fluoroscopic imaging, mammography, special procedures, computed tomography, computer aided diagnostics, and industrial applications. It also provides Linatron X-ray accelerators, imaging processing software, and image detection products for security and inspection purposes. This segment serves original equipment manufacturers, independent service companies, and end-users. In addition, the company offers products and systems for delivering proton therapy; and develops technologies in the areas of digital X-ray imaging, volumetric and functional imaging, and improved X-ray sources. The company was formerly known as Varian Associates, Inc. and changed its name to Varian Medical Systems, Inc. in April 1999. Varian Medical Systems, Inc. was founded in 1948. Company description from FinViz.com.

Drugs are not the only opportunity to rid yourself of a terrible disease. Varian produces multiple products for discovering and targeting cancer. They are the sector leader in imaging and radiation therapy.

Varian reported earnings of 89 cents that beat estimates for 88 cents. Revenue of $655 million beat estimates for $643 million. They guided for ful lyear earnings of $3.56-$3.64 per share.

Earnings July 26th.

On May 6th, the company announced a "game-changing treatment platform" to combat the cancer challenge. (their words) The new Halcyon system is an entirely new device that "simplifies and enhances virtually every aspect of image-guided volumetric intensity modulated radiotherapy (IMRT). This new treatment system is designed to expand the availability of high quality cancer care globally and help save the lives of millions more cancer patients." The new system requires only 9 steps compared with the 30 treatment steps required by current generation equipment. "Halcyon is well suited to handle the majority of cancer patients, offering advanced treatments for prostate, breast, head & neck, and many other forms of cancer." Press Release

The company demonstrated the new device to packed crowds at the ESTRO 36 conference in Vienna on May 8th. Shares spiked $4 on the announcement.

ASCO is about cancer treatment and the conference begins on June 2nd for four days. While the drug community will be getting plenty of press, the Varian equipment should also be benefitting from the headlines.

The market decline knocked $2 off Varian shares and gave us a buying opportunity.

Update 5/24/17: Varian announced it was going to install its first Proton Therapy System in Thailand. The first one in a country is always the hardest. The order will be booked in this quarter's earnings. Shares rallied to close right on resistance at $96.75 but a breakout is imminent.

Update 5/25/17: Varian will be hosting multiple events at the ISRS meeting in Switzerland from May 28th - June 1st. They will be demonstrating their leading edge radiosurgery systems for cancer treatment.

Update 6/5/17: Varian announced it has joined a partnership to develop radiotherapy centers in Vietnam. This will eventually mean the deployment of multiple installations in Vietnam.

Position 5/22/17:

Long August $100 call @ $2.00, see portfolio graphic for stop loss.

$VIX - Volatility Index - Index Description


The VIX posted a minor gain in the morning but faded in the afternoon market rebound.

The June 2nd close at 9.75 was the lowest close since December 1993.

This is a July call. We have plenty of time and the odds of a market sell off over the next 2 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.

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