Option Investor

Daily Newsletter, Thursday, 7/27/2017

Table of Contents

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

Market Wrap

Tech Falls On Profit Taking

by Thomas Hughes

Click here to email Thomas Hughes


Tech falls on profit taking but it was the transportation sector which led the market lower. Transportation stocks fell as much as 3.5% as rising oil prices take a toll on forward earnings outlook. Of course this happened after the SPX, NASDAQ and Dow Jones Industrial Average set new all time highs and amid a flurry of less than exceptional earnings reports from the tech sector.

Asian indices closed with marginal gains following yesterday's FOMC announcement. The policy statement did not materially affect forward outlook while reinforcing the idea of economic stability, sending a wave of relief through the market. The Heng Seng led with a gain near 0.70% followed by a 0.36% move in the Korean Kospi. European indices were not so buoyant. Markets there were positive in early trading but fell off later in the day as a setback for Astrazenaca weighed down health care stocks. The company says that two of its drugs failed to shrink target cancers during testing.

Market Statistics

Futures trading was flat to positive all morning, no indication of sell off there. The futures trade held steady through the release of earnings and economic data, gaining a little strength going into the open. The SPX began the day with a gain of 0.25%, quickly moved higher and then just as quickly began to move back to test yesterday's close. An early bottom was hit just before 10AM and just above yesterday's close. This level held for the next few hours until profit taking in tech drove the indices lower. The indices fell quickly once the selling began, the SPX shedding more than 16 points or roughly -0.65%. Bottom was hit shortly after 1:30PM at which time the index made a small bounce but did not recover the days losses. This level, about -0.50%, was held until late in the day. A late day rally drove the index back up to close with a loss of less than -0.10%.

Economic Calendar

The Economy

Initial claims for unemployment rose by 10,000 on top of an upward revision of 1,000 to hit 244,000. This is slightly above expectations but in line with labor market health. The four week moving average of claims was unchanged although the prior week was revised higher by 250. On a not adjusted basis claims fell by -14.7% versus an expectation of -18.4% and are down -5% over this time last year.

Continuing claims fell by -13,000 from last week's not revised figures to hit 1.964 million. The 4 week moving average of claims rose by nearly 5,000 to hit 1.963 million. The number of continuing claims persists in trending sideways near historic lows and consistent with labor market health.

At first glance the total number of Americans receiving unemployment benefits jumped alarmingly. At second glance the jump of 156,859 is a bit sharp but consistent with seasonal expectations, there have been similar spikes in the past. That being said the total number of claims is now 2.028 million and the highest level in 3 months. Based on historical and seasonal trends we can now expect to see this figure begin to fall off as fall seasonal hiring begins. If trends remain intact we should see a new long term and seasonal low late September or early October.

Durable Goods data was released alongside the jobless claims figures and came in above expectations. New orders for durable goods came in at a robust 6.5% versus an expected 5.3%. This increase reverses two months of decreases. Ex-transportation orders came in at 0.2% and ex-defense rose 6.7%. Transportation equipment led gains at +19%. Shipments were unchanged, unfilled orders rose 1.3%.

The Chicago Federal Reserve Activity Index is a gauge of 85 market indicators. The index rose to 0.13% from -0.30% as signs of manufacturing improve. All four for of the index's broad categories improved on a month to month basis, 3 of the 4 made positive contributions. The three month moving average is now positive and indicative of expanding economic growth.

The Dollar Index

The Dollar Index fell to a new 1 year low and is fast approaching the April, 2016 bottom at $92. Yesterday's FOMC statement pulled the rug out from under dollar bulls. The Fed has found a way to support positive economic outlook and weaken the dollar at the same time; They're bullish but they just aren't any hurry to raise rates. After the last round of Yellen testimony it may next spring or later befere the next hike comes. The CME Fedwatch tool shows a less than 50/50 chance of another one this year. The indicators are bearish and gaining strength, in support of lower prices, so I would expect to long term support targets near $92 reached.

The Gold Index

Gold prices are rising on a weaker dollar. The spot price surged to a 6 week high in today's action but profit takers capped gains. By settlement the metal was trading with a marginal loss and below $1,260. Today's candle does give evidence of some resistance to higher prices but with the dollar falling to long term lows higher prices for gold are likely on the way. The caveat is that eventually economic data will support further rate hikes, labor markets are tight wages are rising and inflation is beginning to pick up in the underlying economy is only slightly. The LMCI and Leading Indicators both point to expanding economic growth later this year. Upside target for resistance are $1,270, $1,285 and $1,300.

The Gold Miners ETF GDX opened with a small gain but sold off during the day to close with a loss near -1.20%. The ETF created a medium sized red bodied candle confirming resistance at the long term moving average. The indicators are bullish but weak and showing signs of peaking in the near term. The move higher may continue in the near term but range bound conditions are likely to persist in the short to long term. Next upside target is near $24. A break above that would be more firmly bullish but still be within the greater 6 month trading range.

The Oil Index

Oil prices drifted higher again today, crossing above the $49 level, and set another new 8 week high.. Yesterday's draw down of US stockpiles along with the Saudi's indication to cut exports, shale drillers indicating shut-downs due to low prices and the dollar hitting new lows have created a near-term perfect storm for prices. That being said prices are likely to remain range bound as higher prices will bring more supply online and to the market. Upside target for resistance are $50 and then $55.

The Oil Index gained nearly a full percent and created a medium sized green bodied candle. The index appears to be reversing although there is still some technical work for prices to do before we can say that for sure. The indicators are both bullish, on the rise and showing strength so I do expect to see it continue to move higher near term. First target for resistance is just above today's close near the long term moving average and the 1,150 level. A move above that could go as high as 1,170 in the near term. Longer term I remain bullish on the sector and ready to start nibbling.

In The News, Story Stocks and Earnings

Tech earnings dominated the news today and most of it wasn't great. Twitter reported before the open and for one beat on the top and bottom lines. The proble is it did so without posting any user growth. And revenue and earnings both fell on a year over year basis. They were able to increase monthly and daily usage figures but nonetheless the company continues to flounder. Along with all that they also issued guidance that was below expectations. Shares of the stock fell nearly -15% to a one month low.

Amazon reported after the bell and did not please investors. The international online retail behemoth grew revenue by 25% and beat top line expectations but earnings were light and forward guidance is weak. The company is growing but there is a problem, the company keeps spending money to get that growth and that is hurting earnings. Shares of the stock fell a little more than -3% on the news.

Starbucks also reported after the bell and also delivered mixed results. The company missed revenue expectations, met earnings expectations and delivered positive guidance. A little later in the conference call guidance was updated to positive but not as positive as it was a short time ago. Earnings, revenue and comp store sales are all expected to fall short of consensus. Shares of the stock had been trading higher on the initial release but turned negative during the call.

The Indices

The indices looked like they were going to move higher and then they didn't, and then they looked like they were going to bounce back and they almost did. The techs were blamed for today's selling but the true carnage was in the transports. The Dow Jones Transportation Average closed with a loss of -3.10% and made the largest move by far of any index today. Today's action created a long red candle that qualifies as extremely large. It fell to the long term moving average and potentially strong support. Similar action has proven to be opportune buying times within the last year although the indicators support lower prices at this time. A break below the moving average could go as low as the long term up trend line near 9,000, a bounce would face resistance near 9,350 and the mid point of today's candle.

The NASDAQ lost only -0.63% and created a large red bodied candle with long lower shadow. This candle is indicative of both selling and buying although the sellers won the day. In terms of signal it is a Dark Cloud Cover indicative of impending bearishness. The indicators are both rolling over in confirmation of resistance so it is possible the index will move down to retest support at today's low. A break below there would be more firmly bearish in the near term but may find additional support just below that level at the short term moving average. That being said the index remains in up trend and likely showing a buying opportunity.

The S&P 500 closed with a loss of only -0.09% after moving as low as -0.60% intraday. Today's candle is small and red with long lower shadow reminiscent of a hanging man but unconfirmed. Price action fell from the long term moving average confirming resistance but the long lower shadow shows support at levels just above the short term moving average. The indicators are showing near term weakness within an up trend and set up for a trend following entry should prices recover. A bounce from support would be bullish, first target is today's low and then just below that at the short term moving average near 2,450. A break below there would be more firmly bearish in the near term with targets near 2,400.

The Dow Jones Industrial Average closed with a gain after moving lower to flirt with break even levels during the day. The blue chip index gained 0.39% and closed at the high of the day. The index created a small bodied green candle and broke above the long term moving average with the indicators in support. Both stochastic and MACD are bullish and on the rise in support of higher prices, the only caveat is that MACD is still pretty weak. Upside target is 22,000 in the near term.

The charts are mixed to say the least. The blue chips are breaking out to new highs while the other three are showing some form of bearishness. The silver lining is that they are all showing some for of buy signal as well. Considering that the market is in uptrend of a short and long term nature, that the uptrend is supported by economic and earnings growth, a break to new highs or a touch to support levels are both considered buying opportunities. Because I don't want to get left out of the next big move I am bullish in the near term and buying on the dip. Because I don't want to get caught with my pants down I am doing so cautiously. Long term I am still firmly bullish and am going to start looking to the transports for new opportunities.

Until then, remember the trend!

Thomas Hughes

New Option Plays

Double Up

by Jim Brown

Click here to email Jim Brown

Editors Note:

When playing craps and have a winning position, sometimes you press your bet. We currently have a put position on the S&P but I am doubling our downside exposure with a put position on the Dow.


No New Bullish Plays


DIA - Dow ETF - ETF Profile

The SPDR Dow Jones Industrial Average ETF Trust seeks to provide investment results that, before expenses, correspond generally to the price and yield performance of the Dow Jones Industrial Average (the "Index"). The Dow Jones Industrial Average (DJIA) is composed of 30 "blue-chip" U.S. stocks. The DJIA is the oldest continuous barometer of the U.S. stock market, and the most widely quoted indicator of U.S. stock market activity. The DJIA is a price-weighted index of 30 component common stocks.

The Dow closed at a new high in an ugly market solely because of big gains in Boeing, Disney and Verizon. If the rest of the market continues lower, the Dow will eventually crater as well. I am recommending we enter a put position on the Dow ETF at the current high.

Buy Oct $215 put, currently $3.30, initial stop loss $221.
Sell short Oct $205 put, currently $1.21, initial stop loss $221.
Net debit $2.09.

In Play Updates and Reviews

Trouble Ahead

by Jim Brown

Click here to email Jim Brown

Editors Note:

The Nasdaq fell -105 points intraday while the Dow surged again thanks to Boeing, Disney and Verizon. This is not a recipe for a continued rally. The Dow is surging on single stock results while the big cap tech stocks are getting clobbered.

The S&P futures are down -9 as I am typing this. Tomorrow could see a continuation of the decline since today's since the intraday drop seriously damaged sentiment.

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

SPY - S&P-500 ETF
The long put position was opened with a SPX print at 2,465.

ADSK - Autodesk
The long call position was stopped at $110.85.

AMAT - Applied Materials
The long call position was stopped at $45.65.

BABA - Alibaba
The long call position was stopped at $151.85.

HOG - Harley-Davidson
The long put position was stopped at $49.25.

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

ADSK - Autodesk Inc - Company Profile


No specific news. Shares dropped -$6 intraday with the Nasdaq crash and we were stopped out for a minor loss.

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:

Closed 7/27: Long Aug $115 call @ $2.30, exit $1.95, -.35 loss.

AMAT - Applied Materials - Company Profile


No specific news. Shares crashed with the Nasdaq to stop us out for a minor loss.

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:

Closed 7/27/17: Long Aug $47 call @ $1.30, exit .96, -.34 loss.

BABA - Alibaba - Company Profile


No specific news. Shares crashed with the Nasdaq to stop us out.

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

Closed 7/27: Long Aug $145 call @ $5.95, exit $10.37, +4.42 gain.
Closed 7/27: Short Aug $155 call @ $2.92, exit $4.40, -1.48 loss.
Net gain $2.94.

COST - Costco - Company Profile


No specific news. I wrote in the play description that in the event of a market decline, Costco would act as a safe haven and see buyers. That was exactly what happened today.

Original Trade Description: July 26th.

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 shares were knocked for a $32 loss on the news that Amazon was buying Whole Foods. There was panic that Amazon was getting into the grocery business and would decimate the sector. Nothing could be further from the truth. Even if it was it would cause the most trouble for chains like Kroger, Safeway, Sprouts Farmers Market, etc.

If the acquisition goes through, and there is growing doubt, I do not foresee Whole Foods selling big screen TVs, winter parkas, cameras, caskets, cruises or ketchup and toilet paper by the case. The two stores are not compatible.

Furthermore, 45% of Costco members are already Amazon Prime members we as well based on a Morgan Stanley survey. Members of both services are looking for deals.

Costco makes the majority of its money from memberships (75%) and very little margin on its products. Amazon and Whole Foods are not going to undercut Costco on prices. Costco had 48.3 million members at the end of last quarter, up from 47.9 million. There were 37.4 Gold Star members and 18.3 million executive memberships. Total cardholders rose from 88.1 million to 88.9 million. Whole Foods has 350 stores and only about 12 million estimated repeat shoppers.

Did you know that Costco sells its products on Amazon. Costco's private label brand, "Kirkland" makes up about 20% of Costco's sales in the stores and those same products are available on Amazon. Actually, sales of the Kirkland products on Amazon are higher than in the stores.

Earnings August 24th.

Costco shares are starting to recover from the decline. Shares appear to have bottomed at support at $1.50. I expect them to rise as we get closer to earnings. Any remaining shorts will not want to hold over an earnings report that is likely to be strong. It the market decides to weaken in August, Costco is insurance since it has already sold off. Investors will be looking to buy the beaten down stocks as a safety play.

Position 7/27/17:

Long Sept $155 Call @ $2.40, see portfolio graphic for stop loss.

THO - Thor Industries - Company Profile


No specific news. Excellent relative strength thanks to the big gain on the 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 rebounded slightly and streak of closes under 10 ended at 10. The afternoon recovery in equities saw the VIX decline from the 11.50 high but tomorrow is not looking good for the market with the S&P futures down 9 points.

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 spiked $3 at 11:30 on no news. We were stopped at $49.25.

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:

Closed 7/27: Long Nov $45 put @ $1.80, exit $1.53, -.27 loss

SPY - S&P-500 ETF (Updated) - ETF Profile


That was not exactly how I pictured entering this position but it may work out for the best. The market crashed at 12:30 with a sharp decline that triggered the downside entry at 246.50. The sharp crash inflated the premiums but there is more than likely another decline in our future. There was also a sharp rebound but the S&P futures are down -9 tonight. The initial plan was to try and pick a market top at 2,495 but when I saw the market breadth weakening I added the downside entry yesterday. Sure glad I did given all the market warnings making headlines today.

Original Trade Description: July 24th.

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.

Update 7/26/17: The Dow was up +100 points, Nasdaq +10, Nasdaq 100 +20 and the S&P only gained 70 cents. The Russell 2000 lost -6 and the S&P-400 lost -15. We may not get to that 2,495 level. I am going to add another trigger/strike in case we get a failure from this level.

The upside entry trigger has been cancelled.

Position 7/27/17 with a S&P trade at 2,465:

Long Oct $243 put @ $3.65, see portfolio graphic for stop loss.

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