Option Investor

Daily Newsletter, Tuesday, 7/25/2017

Table of Contents

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

Market Wrap

Dow Earnings Drive Rebound

by Jim Brown

Click here to email Jim Brown

The Dow rebounded from Tuesday's decline thanks to earnings from MCD, CAT and DD.

Market Statistics

We were very fortunate there were five Dow stocks reporting earnings this morning. McDonalds, Caterpillar and DuPont offset declined in United Technology and 3M. The MMM decline of -$10.61 points knocked nearly 73 points off the Dow. The UTX decline of $2.71 erased another 18.56 Dow points. Without the winners, it would have been a significantly different day.

Even with the winners offsetting the losers, the Dow was unable to break through resistance at 21,650 that has held for two weeks.

The economic news helped to lift the broader market but could not help the Nasdaq, which was suffering under the large decline in Google shares. The Richmond Fed Manufacturing Survey for July rose from the previously reported 7 to 14 on the headline number. That 7 in June was revised up to 11. The biggest news was the rise in the unfilled orders from -4 to +11. New orders also improved nicely. Employment jumped from 5 to 10.

Worries that consumer confidence might be declining after the first six months of a Trump presidency, appear to be unfounded. The confidence for July rose from 117.3 to 121.1 and halfway back to the March peak at 125. The present conditions component rose from 143.9 to 147.8 and the expectations component rose from 99.6 to 103.3.

Consumer buying plans were almost flat with June but still strong. The percentage of respondents planning on buying an auto rose from 12.6% to 12.7% and home 6.0% to 6.7%. Those planning on buying an appliance or big screen TV declined from 52.1% to 46.1%. That is the lowest in a year but still strong.

Confidence rose in the 35-54 and over 55 groups but declined in the under-35 age group.

The home price indexes rose slightly for May. The FHFA Purchase Price Index rose from 6.8% to 6.9% but that was well over the 5.9% analysts expected. The Case Shiller home price index was flat at 5.7%. These were lagging numbers for May and the reports were ignored.

The calendar for Wednesday is headlined by the Fed meeting announcement. Nobody expects any change in rates but a few analysts believe they could begin tapering their QE purchases. Since late 2014, the Fed has been reinvesting the proceeds from any securities that matured in order to keep their balance sheet at roughly $4.5 trillion. Back in early 2014, the Fed began to "taper" their purchases in the QE3 cycle and that resulted in the famous "taper tantrum" in early 2014.

Nobody expects another taper tantrum when they begin tapering their QE reinvestments because they have laid out in recent releases how they plan to do it and it will be very gradual. However, the market has never been known for rational reactions.

The New Home Sales are expected to rise slightly since this covers the June period. The existing home sales on Monday for the same period declined from 5.62 million to 5.52 million, annualized. We could see weakness in the new home sales because of the rising prices.

The Dow leader for the day was McDonalds (MCD). They reported earnings of $1.70 per share compared to expectations for $1.62. Revenue of $6.05 billion beat estimates for $5.96 billion but was down from the $6.27 billion in the year ago quarter.

Same store sales were up 6.6% internationally, up from 4%, and 3.9% in the U.S. Analysts were expecting 2.9% in the USA. McDonalds said their discounted cold beverage promotion and the new Signature Crafted sandwiches were responsible for the sales and increase in traffic.

Shares rocketed $7.22 to add 49 points to the Dow. This came after a $2 decline on Monday and a five-week closing low.

Caterpillar (CAT) reported earnings of $1.49 compared to estimates for $1.26. Revenue of $11.33 billion rose 9.6% and beat estimates for $10.99 billion. They guided for full year revenue of $42-$44 billion, up from $38-$41 billion and earnings of $5 per share, up from prior guidance at $3.75. Sales rose at all three units but mining/energy reported the biggest gain.

The CEO said a construction boom in China and gas compression business in North America were the highlights. Sales from Asia Pacific rose 23% thanks to China. The Beijing backed infrastructure push and increased investment in China's "Silk Road" project were responsible. U.S. sales rose 7% thanks to a rebound in mining and energy. Shares spiked $6.36 to add 43.5 points to the Dow.

Du Pont (DD) reported earnings of $1.38 compared to estimates for $1.29 per share. Revenue of $7.42 billion rose 5.1% and beat estimates for $7.26 billion. The company is benefitting from a resurgence of farming and they will get a bigger boost when the $75 billion merger with Dow Chemical completes next month. Farmers sowed a record soybean crop. Seed sales jumped with new varieties of soybeans and pesticide sales spikes on demand for fungicides and insecticides. Shares rose $1.14 to add 7.8 points to the Dow.

3M (MMM) reported earnings of $2.58 compared to estimates for $2.59. Revenue of $7.81 billion missed estimates for $7.88 billion. Revenue in electronics and energy rose 7.5% with industrial sales up 2.5%. They guided for full year earnings of $8.80 to $9.05 compared to the prior guidance of $8.70-$9.05. They expect organic sales will rise 3-5% compared to prior guidance for 2-5%. Shares were knocked for a 5% drop or -$10.61 to erase 72.7 points off the Dow.

United Technology (UTX) reported earnings of $1.85 that beat estimates for $1.78. Revenue of $15.3 billion rose 3% and matched analyst estimates. They guided for full year revenue of $58.5-$59.5 billion, up from $57.5-$59.0 billion. They guided for earnings of $6.45-$6.60, up from $6.30-$6.60. Shares declined -$2.71 to erase 18.5 points off the Dow.

Biogen (BIIB) reported earnings before the bell of $5.04 compared to estimates for $4.37. Revenue of $3.08 billion beat estimates for $2.81 billion. They raised their guidance due to faster than expected acceptance of the Spinraza drug for spinal muscular atrophy. The new guidance is $11.5-$11.8 billion in full year revenue and earnings of $20.80 to $21.40, up from $20.45 to $21.25. Shares spiked at the open but faded to lose $1.74 for the day.

After the bell, Amgen (AMGN) reported earnings of $3.27 compared to estimates for $3.11. Revenue of $5.81 billion also beat estimates for $5.67 billion. For the full year, they guided for earnings of $12.15 to $12.65 up from $12.00 to $12.60. Unfortunately, that midpoint of $12.40 only matched analyst expectations. Revenue is expected to be $22.5 to $23.0 billion and in line with estimates for $22.69 billion. Shares declined $4 on the news.

Chipotle Mexican Grill (CMG) reported earnings of $2.32 compared to estimates for $2.16. Revenue of $1.17 billion missed estimates for $1.19 billion. Same store sales of 8.1% were strong but missed estimates for 9.5%. The company said the recent norovirus outbreak in Virginia was due to a sick employee. The store offers paid sick leave but workers claim they are routinely forced to work even when they are sick. They are adding cheese queso to the menu in 350 stores because of constant requests. Some analysts believe this could add 2-3% to sales because consumers want it and traffic could increase when it is added. Shares rallied $9 in afterhours.

Texas Instruments (TXN) reported earnings of $1.01 compared to estimates for 96 cents. Revenue of $3.69 billion beat estimates for $3.57 billion. Shares rose $2 in afterhours.

AT&T (T) reported earnings of 79 cents compared to estimates for 73 cents. Revenue of $39.84 billion barely beat estimates for $39.79 billion. The company lost 89,000 subscribers in the quarter but analysts had been expecting a loss of 256,000. AT&T added 178,000 prepaid subscribers. Shares rose $1 in afterhours.

Wynn Resorts (WYNN) reported earnings of $1.18 compared to estimates for $1.19. Revenues of $1.53 billion beat estimates for $1.45 billion. Revenue in Macau rose 6.8% but industry revenue in Macau rose 22%. Shares declined $6 in afterhours.

US Steel (X) reported earnings of $1.07 compared to estimates for 40 cents. Revenue rose 22% to $3.14 billion beating estimates for $2.98 billion. They guided for full year earnings of $1.70 compared to estimates for 90 cents. They declared a 5-cent dividend payable September 8th to holders on August 9th. Shares rallied $2.50 in afterhours.

Advanced Micro Devices (AMD) reported earnings of 2 cents on revenue of $1.22 billion. Analysts were expecting zero earnings and revenue of $1.16 billion. They guided for annual revenues to increase by mid to high-teens percentages compared to prior guidance for low double-digit growth. Shares spiked about 10% in afterhours. This should be a preview of Nvidia's earnings, which are expected to be strong.

Earnings for Wednesday are headlined by Facebook and Paypal. There are two Dow components with Boeing and Coke reporting. Boeing could be a market mover but Coke is not likely to impress. Amazon follows after the bell on Thursday. Apple closes out the FAANG earnings next week.

With the Fed announcement on rates on Wednesday afternoon, the dollar recovered slightly from its 12 month low. The falling dollar is going to be beneficial to stocks that do business internationally. Currently about 40% of S&P earnings are generated overseas. A low dollar will increase those earnings.

The yield on the ten-year treasury jumped 3.2% or 7 basis points to 2.326% on strong earnings and the potential for a positive healthcare vote. Stocks are starting to be preferred over treasuries leading to a mild bout of selling in the fixed income sector.

Crude prices rose $2.25 in regular trading and helped lift energy equities. The outcome of the OPEC meeting on Monday was positive and Halliburton said they were seeing a plateau forming in the U.S. rig count. That suggests the rapid pace of new production could slow.

The API inventory report after the bell showed a drop of 10.2 million barrels for last week. Gasoline supplies rose 1.9 million barrels and distillates were down -111,000 barrels. Crude prices gained an additional 47 cents to trade over $48 on the API news. If the decline is repeated in the EIA inventories on Wednesday, we could see another sharp spike higher.

The Volatility Index ($VIX) came very close to dipping below 9 today. We are already at historic lows with the December 1993 low close at 9.31. We closed at 9.36 on Friday and dipped as low as 9.04 today before rebounding in the afternoon. This was the 9th consecutive day for the VIX to close under 10. There will be a volatility event in our future. We just do not know what or when but it will be painful. Fundstrat said "go long volatility" because there is a 50% chance of a 10% correction in the S&P over the next three months.


The markets saw a boost from the Dow component earnings and from the Fed meeting trend. Typically, the day before a Fed announcement sees a positive market as short positions are trimmed and long bets taken.

The S&P gained 7 points to close at a new high and just over resistance at 2,475. The close was not high enough to take us out of the gravitational pull from that resistance so this could have been just a temporary high close. If the earnings cycle remains strong and there are no unexpected headlines, I would not be surprised to see an attempt to tag 2,500 before the week is out. I would be a seller on the SPY at $249.50.

The Dow was the index leader today along with the Russell 2000. The Dow added 100 points but failed to close above resistance at 21,650. We did trade over that level intraday but the declines UTX/MMM were too strong and we could not achieve liftoff. With only one material Dow component with earnings on Wednesday, there may not be enough fuel to break through that resistance level. Initial support remains 21,500.

The Nasdaq Composite closed at a new high by one point. This was due to the drag by Google and the biotech sector. The Biotech Index lost -1.2% to erode support for the tech index. The Nasdaq 100 Index lost 10 points because it was impact much more by the Google loss.

The big cap techs were mixed but it was clearly Google causing all the trouble. The single point gain on the Composite Index is not enough to lift it out of congestion. Facebook could accomplish that task on Thursday if their earnings are strong on Wednesday night.

The Russell 2000 broke over uptrend resistance and held the gains. The 1,450 close could be a psychological stall point but we will not know until this week is over. The small caps are doing great after six months of consolidation.

The FANG stocks had pulled back into a tight group as they moved to new highs but Google clearly broke free and began a decline. If Facebook and Amazon can manage to post big gains and breakout to the upside it would do wonders for the broader market sentiment.

Wednesday morning could be calm with a slight upside bias assuming Europe and Asia do not spoil the party. The volatility after the Fed announcement should be light since no change is expected. However, it all depends on the wording of the statement.

I continue to recommend not being overly long as we move into next week. The high profile earnings will be behind us with the exception of Apple. That report has the potential to disappoint. We could see the post earnings depression phase begin next week. Be prepared if it appears.

There will always be another day to trade if you have capital in your account.

Enter passively, exit aggressively!

Jim Brown

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New Option Plays


by Jim Brown

Click here to email Jim Brown

Editors Note:

I am growing increasingly concerned we could see a volatility event in August. I could be just a nervous Nellie but when things are going so well, it is sometimes worthwhile to take out some insurance.


No New Bullish Plays


SPY - S&P-500 ETF - ETF Profile

• The SPDR S&P 500 ETF Trust seeks to provide investment results that, before expenses, correspond generally to the price and yield performance of the S&P 500 Index (the "Index") The S&P 500 Index is a diversified large cap U.S. index that holds companies across all eleven GICS sectors.

The S&P is marching slowly towards a date with destiny and 2,500. Since the median estimate by the top 16 analysts was a 2,450 yearend price target on the S&P, the arrival at 2,500 could be a tripwire that triggers an August correction. We have not had a 5% drop in a year and it has been 9 months since a 3.5% decline. With earnings rapidly playing out and most of the high profile companies will finish reporting by next Wednesday, I am going to recommend a bearish position for August/September.

I am going to set an entry trigger for a SPY put with the S&P at 2,495. Since aggressive traders normally want to anticipate a particular number, I want to enter the position just before we reach that level.

With a S&P trade at 2,495:

Buy Oct $245 put, estimates premium $3.00, initial stop loss 2,510 on S&P.

In Play Updates and Reviews

Dow Up, Nasdaq Down

by Jim Brown

Click here to email Jim Brown

Editors Note:

The flurry of earnings from Dow components lifted the index but Google's loss knocked 10 points off the Nasdaq 100. The Dow crashed into resistance at 21,650 for the fifth time and resistance held. The Dow remains the weakest index despite today's 100-point gain.

The Nasdaq Composite gained 1 point but the Nasdaq 100 lost 10 because of Google's decline. The Nasdaq did not have any big tech companies reporting today so it was handicapped in the earnings race. The Russell 2000 soared to a new high with a 12-point gain. That is a very positive event. Now we just need the rest of the FAANG stocks to report strong earnings.

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

ADSK - Autodesk
The long call position was entered at the open.

ROST - Ross Stores
The long put position was stopped at $54.45.

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BULLISH Play Updates

ADSK - Autodesk Inc - Company Profile


No specific news. Shares gained $1.45 in a bullish market.

Original Trade Description: July 24th.

Autodesk, Inc. operates as a design software and services company worldwide. The company's Architecture, Engineering and Construction segment offers Autodesk Building Design Suites to manage various phases of design and construction; Autodesk Revit products that offer model-based design and documentation systems; Autodesk Infrastructure Design Suites; AutoCAD Civil 3D, a surveying, design, analysis, and documentation solution; and AutoCAD Map 3D software for infrastructure planning, design, and management. Its Platform Solutions and Emerging Business segment offers AutoCAD software, a professional design, drafting, detailing, and visualization software; and AutoCAD LT, a professional drafting and detailing software. The company's Manufacturing segment provides Autodesk Product Design Suites for digital prototyping; Autodesk Inventor to go beyond 3D design to digital prototyping; AutoCAD Mechanical software to accelerate the mechanical design process; Autodesk Moldflow, an injection molding simulation software; Autodesk Delcam, a CAD and computer-aided manufacturing software; Autodesk PLM 360, a product lifecycle management application; and Autodesk Fusion 360, a product development environment. Its Media and Entertainment segment offers Autodesk Maya and Autodesk 3ds Max software products that offer 3D modeling, animation, effects, rendering, and compositing solutions; and Autodesk Flame and Autodesk Lustre software applications that offer editing, finishing, and visual effects design and color grading solutions. Autodesk, Inc. sells consumer products for digital art, personal design and creativity, and home design in digital storefronts and over the Internet. It licenses or sells its products to customers in the architecture, engineering, and construction; manufacturing; and digital media, consumer, and entertainment industries directly, as well as through resellers and distributors. Company description from FinViz.com.

For Q1, Autodesk (ADSK) reported a loss of 28 cents that beat estimates for a loss of 33 cents. Revenue of $478.8 million beat estimates for $474.1 million. The company is losing money because they are converting from a software sales model to a subscription model and that always causes a short fall in the first 12-24 months of the process but results in larger profits in the future. New subscriptions rose 26% to 1.09 million, up 227,000 from the same period in 2015.

The company guided for the current quarter for a loss of 21-27 cents on revenue of $460-$480 million. Analysts were expecting $503 million and a 13-cent loss. Shares declined $2 on the news.

The CEO said today the global building boom is a big boost for Autodesk revenue. You have to have a program to build a building today and that program has to be linked to dozens or even hundreds of smartphones. All of that is a positive for Autodesk.

Earnings Aug 17th.

The stock spiked to $114.50 on the earnings in May and then faded on consolidation until the Nasdaq flash crash the prior week. Being a tech stock it imploded with the rest of the tech sector. The rebound followed the pattern of the rest of the large cap tech stocks. A couple days higher and then a retest of the decline. Shares rebounded from the early July lows and are moving back towards the May high at $114. Monday's close was a 6-week high.

This is a short term position since ADSK reports earnings on August 17th and the option expires on the 18th. We will decide the day before earnings if we want to hold over the report. Normally we do not. I would like to see a gain of a couple bucks in the premium and a quick exit before the report.

Position 7/25/17:

Long Aug $115 call @ $2.30, see portfolio graphic for stop loss.

AMAT - Applied Materials - Company Profile


No specific news. Shares traded down slightly with a decline in the semiconductor sector.

Original Trade Description: July 17th.

Applied Materials, Inc. provides manufacturing equipment, services, and software to the semiconductor, display, and related industries worldwide. It operates through three segments: Semiconductor Systems, Applied Global Services, and Display and Adjacent Markets. The Semiconductor Systems segment develops, manufactures, and sells a range of manufacturing equipment used to fabricate semiconductor chips or integrated circuits. It offers products and technologies for transistor and interconnect fabrication, including epitaxy, ion implantation, oxidation and nitridation, rapid thermal processing, chemical vapor deposition, physical vapor deposition, chemical mechanical planarization, and electrochemical deposition; patterning, selective removal, and packaging products and systems that enable the transfer of patterns onto device structures; and metrology, inspection, and review systems for front- and back-end-of-line applications. The Applied Global Services segment provides integrated solutions to optimize equipment and fab performance and productivity, including spares, upgrades, services, remanufactured earlier generation equipment, and factory automation software for semiconductor, display, and other products. The Display and Adjacent Markets segment offers products for manufacturing liquid crystal displays, organic light-emitting diodes, and other display technologies for TVs, personal computers, tablets, smart phones, and other consumer-oriented devices, as well as equipment for flexible substrates. The company serves manufacturers of semiconductor wafers and chips, liquid crystal and other displays, and other electronic devices. Applied Materials, Inc. was founded in 1967 Company description from FinViz.com

Estimated earnings date August 17th.

AMAT is an old chip company founded in 1967. In chip terms this company is an antique. However, they are growing by focusing on new products rather than fight it out for low margin chip products everyone else is making. One of their focus products is OLED screens. The adoption rates for OLED screens means strong demand for chips to power those screens. By 2021 more than two-thirds of smart phones could have OLED screens. AMAT is shooting for 30% to 40% of the total addressable market two years from now. They currently have 15% share. They have grown their display revenue by 20% annually for the last five years.

The company said the demand for memory, which is currently off the charts, is just getting started. The coming of big data, IoT, streaming video and massive data storage requirements has caused a surge in demand that is just the tip of the coming iceberg. AMAT grew its memory revenue to 35% of the total in the last quarter. Manufacturers are raising prices by about 15% per quarter because of the shortages and there is no end in sight.

The upgraded analyst price targets after the big semiconductor show last week is now $65 on the high side and $55 on the low end. AMAT closed at $46 today.

Position 7/18/17:

Long Aug $47 call @ $1.30, see portfolio graphic for stop loss.

BABA - Alibaba - Company Profile


No specific news. Shares weak with the Nasdaq.

Original Trade Description: June 10th.

Alibaba Group Holding Limited, through its subsidiaries, operates as an online and mobile commerce company in the People's Republic of China and internationally. It operates Taobao Marketplace, an online shopping destination; Tmall, a third-party platform for brands and retailers; Juhuasuan, a sales and marketing platform for flash sales; Alibaba.com, an online wholesale marketplace; Alitrip, an online travel booking platform; 1688.com, an online wholesale marketplace; and AliExpress, a consumer marketplace. The company also provides pay-for-performance and display marketing services through its Alimama marketing technology platform; Taobao Ad Network and Exchange (TANX), a real-time bidding online marketing exchange in China; and data management platform through TANX for marketers to execute their campaigns with proprietary and tailored data. In addition, it offers cloud computing services, including elastic computing, database, storage and content delivery network, large scale computing, security, and management and application services through its Alibaba Cloud Computing platform; Web hosting and domain name registration services; payment and escrow services; and develops and operates mobile Web browsers. The company provides its solutions primarily for businesses. Company description from FinViz.com

Alibaba is the poor investor's Amazon. With shares at $135, the options are at least reasonable but not cheap. Alibaba is growing as fast or faster than Amazon and tries to copy everything Amazon does.

When the company reported earnings for the last quarter at 63 cents, they missed estimates for 68 cents. Revenue of $5.6 billion easily beat estimates for $5.2 billion. Other than the earnings miss it was a solid quarter with ecommerce up 47% and cloud computing up 102%. Digital media growth was up 234%. Mobile MAUs rose from 493 to 507 million. That is important because 90% of China's ecommerce occurs on a mobile device.

The company announced plans to buy back $6 billion in stock over a two-year period.

Earnings August 18th.

Shares dipped on the earnings miss then spiked on the guidance to $125.50, which was a new high. After a little more than two weeks of post earnings consolidation, shares returned to that $125.50 level and closed at a new high.

There was an analyst day last week and that kicked the stock up to another level with a $10 gain. The company guided for 45% to 49% revenue growth in this year and analysts were only expecting 37%. MKM partners raised the price target to $177. Pacific Crest raised their price target to $160 from $137. Needham raised their target to $155. The Benchmark Company is targeting $175.

Shares declined on Tuesday on no news. With the stock overbought after the analyst meeting we could be seeing some simple profit taking. I am going to put an entry trigger on the position. If shares continue lower I will revise the entry.

Update 6/20/17: Alibaba is hosting a forum for 3,000 entrepreneurs in Detroit to explain how easy it is for them to begin selling products on Alibaba's websites. CEO Jack Ma said in another interview he expects to employ 1 million workers in the USA.

Update 6/27/17: JP Morgan initiated coverage with an overweight rating and $190 price target. Barclays said it valued Alibaba in a sum of the parts method at $200 but their price target for the parent is $175 with an overweight rating.

Update 6/29/17: Mott Capital said Alibaba could be worth $210 on a fundamental basis. A "source" in China said Alibaba will launch a device similar to Amazon's Echo but Chinese speaking, next week. That should give the stock a decent pop.

Update 7/5/17: Alibaba announced the Alexa clone called Genie X1, which will be available to the first 1,000 people for a one-month trial. The cost will be $73 during this live test and it only speaks mandarin.

Update 7/10/17: RBC analyst Mark Mahaney raised his price target on BABA from $140 to $160 and reiterated an outperform rating saying fundamental trends remain impressive. Alibaba said recently it is targeting $1 trillion in gross merchandise volume in 2020. Alibaba's Singles Day promotion is 40 times larger in sales than Amazon's Prime Day, which starts tonight.

Position 6/19/17 with a BABA trade at $139.50

Long Aug $145 call @ $5.95, see portfolio graphic for stop loss.
Short Aug $155 call @ $2.92, see portfolio graphic for stop loss.
Net debit $3.03.

THO - Thor Industries - Company Profile


No specific news. Nice gain to push through resistance, thanks to the bullish Dow.

Original Trade Description: July 15th.

Thor Industries, Inc., through its subsidiaries, designs, manufactures, and sells recreational vehicles, and related parts and accessories primarily in the United States and Canada. It operates through Towable Recreational Vehicles and Motorized Recreational Vehicles segments. The company offers travel trailers under the Airstream International, Classic Limited, Sport, Flying Cloud, Land Yacht, and Eddie Bauer trade names, as well as Interstate and Autobahn Class B motorhomes; gasoline and diesel Class A and Class C motorhomes under the Four Winds, Hurricane, Chateau, Challenger, Tuscany, Axis, Vegas, Palazzo, Synergy, Quantum, Compass, Gemini, A.C.E, Alante, Precept, Greyhawk, and Redhawk trade names; and fifth wheels under the Redwood and DRV Mobile Suites trade names. It also provides conventional travel trailers and fifth wheels under the Montana, Springdale, Hideout, Sprinter, Outback, Laredo, Alpine, Bullet, Fuzion, Raptor, Passport, Cougar, Coleman, Kodiak, Aspen Trail, Voltage, Cameo, Cruiser, ReZerve, Sunset Trail, Zinger, Landmark, Bighorn, Sundance, Elkridge, Trail Runner, North Trail, Cyclone, Torque, Prowler, Wilderness, Shadow Cruiser, Fun Finder, Stryker, Sportsmen, Spree, Venom, Durango, SportTrek, Connect, Sportster, Sonic, Jay Flight, Jay Feather, Eagle, Pinnacle, Seismic, AR-One, Launch, Autumn Ridge, Travel Star, Highlander, Roamer, and Open Range trade names. In addition, the company offers equestrian recreational vehicle products with living quarters under the Premiere, Silverado, Ranger, Laredo, Trail Boss, and Trail Hand trade names; lightweight travel trailers and specialty products under the Camplite and Quicksilver trade names; and Class A motorhomes under the Insignia, Aspire, Anthem, and Cornerstone trade names, as well as provides aluminum extrusions and specialized component products. Company description from FinViz.com

In a weak economy, Thor is kicking butt. The company reported earnings of $2.11 which rose 41.6% compared to estimates for $1.87. Revenue of $2.02 billion rose 57% beat estimates for $1.96 billion. Operating cash flow rose 26.2% and gross profits rose 45.5%.

Sales of towable travel trailers rose 52.6% and sales of motorized RVs rose 78.7%. There was no bad news in the Thor report.

Estimated earnings date September 4th.

With the company posting record earnings the stock spiked from $94 to $104 on June 6th. When the market dipped, shares only pulled back to $102. In late June they rebounded to $110. During the market volatility over the last three weeks they dipped back to $102 and found support there once again. Now that the market has turned positive shares are rebounding.

I am using the September strike because of the September earnings date. We will exit well before then but that date will keep the premiums inflated.

Position 7/17/17:

Long Sept $110 call @ $3.00, see portfolio graphic for stop loss.

VIX - Volatility Index - Index Profile


The VIX opened lower on the Dow spike but rebounded slightly in the afternoon to close flat. The 9.43 closing low was the 9th consecutive day under 10. This is extremely abnormal.

Original Trade Description: July 12th.

The CBOE Volatility Index (VIX Index) is a key measure of market expectations of near-term volatility conveyed by S&P 500 stock index option prices. Since its introduction in 1993, the VIX Index has been considered by many to be the world's premier barometer of investor sentiment and market volatility. Several investors expressed interest in trading instruments related to the market's expectation of future volatility, and so VX futures were introduced in 2004, and VIX options were introduced in 2006.

The VIX closed at a 24-year low on July 14th at 9.51. The index has been spending a lot of time under 10 over the last three months and this is highly abnormal. The VIX typically trades up to 20 or more three times a year or more. That has not happen since the days before the election. This period of abnormal volatility WILL eventually end.

With the Trump administration getting more desperate to achieve some legislative goals there is always the risk they will go to extremes to get them accomplished. Add in the unknown but rapidly expanding Russian probes and anything is possible. We saw the Dow fall triple digits intraday on just the release of 5 emails from Trump Jr. If the probe actually uncovered something material, it could cause a major market meltdown.

The debt ceiling and the budget expire on Sept 31st. If Congress cannot get a budget passed and raise the debt ceiling, the government would shut down on October 1st. We have seen this before. The last time it happened the U.S. lost its AAA credit rating and the market declined sharply for more than a week.

What about North Korea? Military force could be used at any time but North Korea seems dead set on testing another nuke and expanding its ICBM tests. If fighting breaks out between the U.S. and North Korea it would cause a significant market decline because of the geopolitical concerns and the potential loss of life in Seoul, South Korea.

Even if none of those events occurred, there is always the risk of a 10% market decline just because we have not had one in a very long time. With August and September the worst months of the year for the market, the potential for a correction this year could be higher than normal. The Nasdaq is already up 18% and the Dow 9% for the year. The FAANG stocks are at record highs, which many say are unsupported by fundamentals.

There are so many potential opportunities for a market disaster. It only makes sense to take out some protection while the volatility is at record lows. I am recommending a November call to get us past the Aug/Sep period and the potential for a debt ceiling event in early October.

Position 7/20/17:

Long Nov $15 call @ $1.85, no stop loss. Target $22 to exit.

BEARISH Play Updates (Alpha by Symbol)

HOG - Harley-Davidson - Company Profile


No specific news. Shares closed at a new 52-week low.

Original Trade Description: July 24th.

Harley-Davidson, Inc. primarily manufactures and sells cruiser and touring motorcycles. The company operates through two segments, Motorcycles & Related Products, and Financial Services. The Motorcycles & Related Products segment designs, manufactures, and sells wholesale on-road Harley-Davidson motorcycles, as well as motorcycle parts, accessories, general merchandise, and related services. It offers motorcycle parts and accessories, such as replacement parts, and mechanical and cosmetic accessories; general merchandise, including MotorClothes apparel and riding gears; and various services to its independent dealers comprising motorcycle services, business management training programs, and customized dealer software packages. This segment also licenses the Harley-Davidson name and other trademarks. It sells its products to retail customers through a network of independent dealers, as well as ecommerce channels in the United States, Canada, Latin America, Europe, the Middle East, Africa, and the Asia-Pacific. The Financial Services segment provides wholesale and retail financing services; and insurance and insurance-related programs primarily to Harley-Davidson dealers and retail customers in the United States and Canada. This segment offers wholesale financial services, such as floorplan and open account financing of motorcycles, and motorcycle parts and accessories; and retail financing services, including installment lending for the purchase of new and used Harley-Davidson motorcycles. It also operates as an agent providing point-of-sale protection products, including motorcycle insurance, extended service contracts, credit protection, and motorcycle maintenance protection. Harley-Davidson, Inc. was founded in 1903 and is based in Milwaukee, Wisconsin. Company description from FinViz.com.

A week ago, they reported earnings of $1.48 compared to estimates for $1.38. Revenue of $1.77 billion also beat estimates for 1.59 billion. That was the good news. The bad news was a 6.7% drop in motorcycle sales, with a 9.3% decline in the USA. They warned they only expected to ship 241,000 to 249,000 for the full year, down 6% to 8% from 2016 .Prior guidance was for flat sales to 1% lower. For Q3 they only expect to ship 39,000 to 44,000 units, down 10% to 20% from Q3-2016.

Finding consumers who can afford a new bike and finding financing is getting tough. The major banks are pulling back from auto and motorcycle loans because of the rising defaults. The situation for Harley is not going to improve this year.

Expected earnings Oct 17th.

Friday's close was a 52-week low.

Position 7/24/17:

Long Nov $45 put @ $1.80, initial stop loss $50.65.

ROST - Ross Stores - Company Profile


No specific news. Shares collapsed yesterday to a 52-week low but rebounded $1.50 intraday today to stop us out for a breakeven.

Original Trade Description: July 11th.

Ross Stores, Inc., together with its subsidiaries, operates off-price retail apparel and home fashion stores under the Ross Dress for Less and dd's DISCOUNTS brand names in the United States. It primarily offers apparel, accessories, footwear, and home fashions. The company's Ross Dress for Less stores sell its products at savings of 20% to 60% off department and specialty store regular prices primarily to middle income households; and dd's DISCOUNTS stores sell its products at savings of 20% to 70% off moderate department and discount store regular prices to customers from households with moderate income. As of March 6, 2017, it operated 1,363 Ross Dress for Less stores in 37 states, the District of Columbia, and Guam; and 198 dd's DISCOUNTS stores in 15 states. Company description from FinViz.com.

Expected earnings August 17th.

They reported Q1 earnings of 82 cents compared to estimates for 79 cents. Revenue of $3.31 billion beat estimates for $4.27 billion. Same store sales rose 3%. Operating margins shrank. The company is planning on operating 90 stores in 2017.

Unfortunately, they guided for the full year for earnings of $3.07 to $3.17 and analysts were expecting $3.15 at the midpoint. The guidance from Ross also includes an extra week in 2017 over 2016 and that means it is even weaker than it seems.

They guided for same store sales of 1-2% and well below the 3% in Q1. They also guided for margins to contract again from 15.2% in Q1 to 13.9%-14.1%. A week later regulators posted criminal charges against a California man that generated $8.2 million in profits on insider trading in Ross shares. The insider was not named. Shares rolled over and are still falling. Three analysts have cut their estimates for Ross since the earnings.

With the retail sector getting hit every day by some store closure notice or analyst downgrade, Ross could continue falling until their earnings report.

Update 7/14/17: Telsey Advisory Group upgraded Ross from market perform to outperform with a $70 price target. Shares spiked $1.60 at the open to stop us out but then gave back all but 34 cents. I am recommending we reload this position using the same option/strike.

Update 7/17/17: The company said they opened 28 new stores in June/July as part of their plans to open 90 stores in 2017. The company currently has 1,384 locations and are planning on 2,500 in the years ahead. That is a lot of additional overhead in a declining retail market.

Position 7/17/17:

Closed 7/25/17: Long August $52.50 put @ $.80, exit .80, breakeven.

Previously closed 7/14: Long August $52.50 put @ $1.04, exit .65, -.39 loss.

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