Option Investor

Daily Newsletter, Monday, 8/14/2017

Table of Contents

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

Market Wrap

Buying The Dip

by Thomas Hughes

Click here to email Thomas Hughes


Monday morning traders buy the dip as geopolitical tensions ease and Japanese GDP grows faster than expected. On the Korean Front Secretary of State Rex Tillerson and Secretary of Defense James Mattis have indicated the US is still pursuing diplomatic solutions, on the economic front Japanese GDP came in at an annualized 4.5% and above the 1.5% forecast by economists. The move looks good, now let's see if there will be any follow through.

Market Statistics

International indices were mostly higher although Japan oddly enough fell by -1%. The fall is likely due to market reopening after a holiday week last week. Chinese index rose by a full percent despite weaker than expected factory output, up 6.4%, fixed asset investment, up 8.3%, and retail sales, up 10.2%. European indices rose by roughly 1% on the news. There was little in the way of headlines out of the region this morning but that will change beginning tomorrow. The EU economic calendar is full this week including EU and German GDP and inflation data.

Futures trading was positive all morning, lifted by easing fear of war with North Korea. The SPX was indicted to open with a gain near 0.5% and that held into the open. The open was a bit hectic, the indices opened with significant gains and immediately began moving higher. The SPX hit intraday high just after 11AM, just over 1.00%, and commenced sideways trading from there. At 1:15 the indices were still trading in a very tight range near the early high and beginning to look as if they may decline. Decline never happened, the mid day range persisted into the close leaving the indices near the highs of the day.

Economic Calendar

The Economy

There was no economic data today and not a lot this week but what there is is fairly substantial. Topping the list is the Wednesday release of FOMC Minutes but also included is housing starts/building permits, Leading Indicators and several reads on regional manufacturing/business activity.

Moody's Survey of Business Confidence gained 1.6% in the last week. The index is now sitting at a 1 month high of 32.0%. Mr. Zandi says the survey reveals that global business is still upbeat and growing at a pace above potential. He makes note that only about 10% of responses are negative while 40% are positive. The one caveat is that sentiment remains well below the all time highs set in 2015.

With a little more than 91% of the S&P having reported for the 2nd quarter earnings growth stands at 10.2%. After last quarter this is the 2nd highest rate of quarterly growth since Q4 2011. The blended rate rose by a tenth in the last week and may rise a bit more over the next two. Of those reporting 73% have beaten earnings estimates while 69% have beaten revenue estimates, both figures above average. This week we can expect reports from 18 S&P 500 companies and 3 Dow components.

Despite this quarters strength in earnings growth forward outlook continues to erode bringing the full year blended rate down to 9.4% from last week's high 10.1%. This is not the lowest level it has been but it is close. On a quarter to quarter basis 3rd quarter growth estimates shrank to 5.2% from 5.6% while 4th quarter estimates fell to 11.2% from 11.4%. Full year 2018 estimates stand pat at 11.10%.

The Dollar Index

The Dollar Index held steady in today's session, posting a marginal gain of 0.03%. The index created a small doji candle just above potential support and may be setting up for a bounce higher. The indicators are pointing lower in the near term but divergence with the recent low suggest support levels are near.

This week may prove pivotal for the index and the EUR/USD. Between the EU data and the FOMC minutes chances for the euro and/or the dollar to strengthen/weaken are very great, a move in one could undermine moves in another. A bounce from the current level would be bullish but face resistance near $94. First target for support is at the current low near $93.60.

The Gold Index

Gold prices fell back from last week's high on reduced safe haven inflows but the fall was not great. Spot gold fell a little more than a half percent intraday to trade near $1285. Prices are underpinned by dollar weakness and low expectations for interest rate hikes over the next 9 months. This may change with the minutes, or with EU data, and should the dollar fall below current support levels gold is likely to rise back test resistance again. A further drop could find support near $1,280 or $1,270, resistance is just above $1,290.

The Gold Miners ETF GDX continues to trade within near and short term trading ranges and below the down sloping resistance line. Today's candle helps confirms resistance at the trend line but also support at the short term moving average. The indicators are bullish and suggesting some strength as prices are pushed higher by the short term moving average. A move up and above the down sloping resistance line would be bullish with upside targets near $24 and $25.

The Oil Index

Oil prices fell more than -2.5% in today's action as US production and global demand woes persist. The China data for one was taken as a sign of tepid demand growth although I will point out again that while it missed expectations all data points showed respectable increases. Regardless, WTI shed $1.25 to trade near $47.50 and looks like is heading lower to test for support levels. $47.50 is a possible level of support but $45 looks more likely.

The Oil Index fell through the 1,120 support level and looks like it is heading down to test for stronger support. Today's move is driven by the near term decline in oil prices and likely to find support near the recent low in the range of 1,080 to 1,100. Without news to support it oil prices are likely to continue falling in the near term. Longer term I remain bullish due to forward earnings growth outlook, the next test to long term and/or strong support is the next opportunity for the index to confirm that outlook with a bottom.

In The News, Story Stocks and Earnings

This week will be another big one for earnings, this time it will be the retail sector in the spotlight. If last week's results are any indication I think we can expect to see declining revenue and declining earnings for many in the sector, especially if they don't have adequate web presence. The stand outs are Wal Mart, Home Depot and Target all due out later in the week. The XRT Retail Sector SPDR gained in today's session but sellers dominated action. The ETF opened with a small gain and then sold off throughout the day created a red bodied candle moving lower from resistance. The indicators are bearish and pointing lower with a downside target near $38.75 in the near term.

Sysco, the nations largest purveyor to restaurants of all variety, announced earnings this morning and delivered lukewarm results. The company beat on the top and bottom lines with revenue growth of 5.5% YOY but internals left a lot to be desired. The US portion of business, which is more than 75% of revenue, declined more than 3% YOY despite a rise in comp sales. Offsetting US weakness was an 80.5% increase in International sales, about 25% of business, but not enough to inspire bullish behavior. Shares of the stock opened with a gain near 0.5% to sell off and close with a loss near -0.5% after testing lows near -1.5%.

The VIX fell more than -20% today as fear leaves the market. The SPX swift rise coupled with risk-off sentiment helped the fear index shed 3 handles to trade just above 12.50. The indicators remain bullish but show signs of topping and downward movement in the near term. Down side target is near 11.50 and the long term moving average with a chance of moving lower. The risk is that North Korea will flare up again and drive fear back up to test resistance.

The Indices

The indices were indicated to rise and rise they did. Today's move was led by the Dow Jones Transportation Average which gained more than 1.60% by the close. The index created a medium sized green candle moving up from the long term moving average, confirming support and trend along the way. The move closed above resistance at 9,300 and looks like it will continue higher in the near term. The indicators confirm this move with a strong trend following buy signal that could lead the index higher over the next several months. First upside target is resistance at 9,500, after that is the current all time high.

The NASDAQ Composite posted the 2nd largest gain at just over 1.30%. Today's candle is a small green one formed with a 0.5% gap up so basically a medium sized candle. It is moving up from the short term moving average confirming support and trend. The indicators are rolling over into what could be a trend following buy signal but has not yet confirmed; stochastic is making a weak crossover but MACD remains bearish. A move up would face resistance at the current all time high.

The S&P 500 comes in 3rd today with a gain just shy of 1%. Today's candle is medium and green, moving up to, crossing and closing above the short term moving average. The move is bullish and confirms trend although the indicators remain weak. MACD at least is peaking in confirmation of the bounce, stochastic is still moving lower suggesting the bounce may not be all that strong. Regardless, the move is trend following with target at the current all time high. Should the index resume the near term down slide support target is just above 2,400.

The Dow Jones Industrials closed with the smallest gains but gains it made, 0.61%. The blue chips created a small bodied green candle moving up from Friday's close and near term support above the short term moving average. Today's move is bullish and trend following but the indicators do not confirm. Both MACD and stochastic are pointing lower suggesting today's move is not all that it appears to be. A move up may find resistance at the all time high, a move lower may find support at the short term moving average.

Today's action was bullish, trend following and obvious dip buying. The caveat is that the North Korea situation is still there, we're approaching the end of the earnings season and next quarters growth outlook is tepid compared with this quarters final result. Additionally, this week is earnings from the retail sector and the expectations aren't that great not to mention all the data coming out of the EU. It's also OPEX which could, especially in light of last week's sell off, add additional volatility. I remain bullish in the long term, economic and earnings fundamentals demand it, but near to short term there is some risk so I am cautious.

Until then, remember the trend!

Thomas Hughes

New Option Plays

Guided Lower for 2018

by Jim Brown

Click here to email Jim Brown

Editors Note:

The pharmacy business is suffering from generic deflation. The rising number of generic drugs competing for market share is weighing on Cardinal.


No New Bullish Plays


CAH - Cardinal Health - Company Profile

Cardinal Health, Inc. operates as a healthcare services and products company worldwide. The company's Pharmaceutical segment distributes branded and generic pharmaceutical, over-the-counter healthcare, specialty pharmaceutical, and consumer products to retailers, hospitals, and other healthcare providers. It offers distribution, inventory management, data reporting, new product launch support, and contract pricing and chargeback administration services to pharmaceutical manufacturers; pharmacy and medication therapy management, and patient outcomes services to hospitals, other healthcare providers, and payers; consulting, patient support, and other services to pharmaceutical manufacturers and healthcare providers. This segment also operates nuclear pharmacies and cyclotron facilities that manufacture, prepare, and deliver radiopharmaceuticals, as well as operates direct-to-patient specialty pharmacies; offers logistics, marketing, and other services; and repackages generic pharmaceuticals and over-the-counter healthcare products. The company's Medical segment distributes a range of medical, surgical, and laboratory products and services to hospitals, ambulatory surgery centers, clinical laboratories, and other healthcare providers, as well as to patients in the home. This segment also develops, manufactures, and sources medical and surgical products comprising surgical drapes, and gowns and apparel; exam and surgical gloves; fluid suction and collection systems; cardiovascular and endovascular products; and wound care and orthopedic products, as well as assembles and offers sterile and non-sterile procedure kits. In addition, it offers supply chain services, including spend, distribution, and inventory management services to healthcare providers; and post-acute care management, and transition services and software to hospitals, other healthcare providers, and payers. Company description from FinViz.com.

Cardinal reported earnings of $1.31 that beat estimates for $1.24. Revenue of $33.0 billion beat estimates for $32.7 billion. While the company may be winning some market share from McKesson, the cost of the wins means lower margins.

The company said generic deflation and competition was depressing margins. They had previously guided lower for 2018 in April and did it again with earnings. For fiscal 2018 they guided for earnings of $4.85 to $5.10 and analysts were expecting $5.25. They also said earnings would be impacted by some "company discrete items" that could result in a profit decline for the drug business. They reemphasized that in the recent earnings report saying these actions will be detrimental in the short term but improve our trajectory in 2019.

Investors like it when companies build for the future but in the case of CAH, the short term including the rest of 2017 and 2018 is actually long term for traders. They bailed on the stock and it is still falling.

President Trump tweeted about lowering drug prices this morning and it is a good bet it will eventually happen in some form. Just talking about it is going to pressure CAH.

Expected earnings Nov 1st.

Buy Sept $65 put, currently 95 cents, no initial stop loss.

In Play Updates and Reviews

Short Squeeze

by Jim Brown

Click here to email Jim Brown

Editors Note:

The event risk faded and the markets gapped higher at the open but there was no follow through. The Dow gained 135 points in the first few minutes and that is exactly where it closed. The Nasdaq spiked to resistance at 6,340 and that is exactly where it stopped.

There was no follow through any of the indexes although the Russell 2000 did tick up slightly in the afternoon. We could see another rally attempt at the open on Tuesday. If that succeeds then the market could move higher. If it fails, I would expect additional weakness in the days ahead.

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

AAPL - Apple Inc
The long call position was entered at the open.

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BULLISH Play Updates

AAPL - Apple Inc - Company Profile


BlueFin Research, as reported in Barrons, claims the production ramp for iPhones in Q3 is at record levels with 53 million phones expected. They will be split between the 7s, 7s Plus and the iPhone 8/Pro with the iPhone 8 only 5-6 million of that total. That will change in Q4 to 44 million of the model 8 with 30 million a quarter for the rest of 2018. They did not disclose sources but it is believed they are basing their estimates on the component quantities being shipped to manufacturers.

Aetna (AET) and Apple held talks last week with Aetna wanting to offer the Apple Watch either free or discounted to all 23 million of its members. They currently offer the watch to their 50,000 employees as part of a fitness program.

Another news story said that Google is paying Apple a license fee of up to $3 billion for 2017 to remain the default search engine on Apple devices. That would equate to 5% of Apple's total annual profit and 25% of their earnings growth. That is the largest contributor to the growth in service revenues. Bernstein said Google pays a fee to Apple of 34% of whatever it earns from ads delivered to Apple users. That is huge!

Unfortunately, the Dow gapped open 135 points at the open and Apple gapped up $1.75 to fill us near the high of the day.

Original Trade Description: Aug 12th.

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. Company description from FinViz.com.

Earnings Oct 31st.

We exited a position on Apple just prior to earnings. The report was strong and shares spiked $9 at the open the following day. After 9 days of trading they have been higher and lower but they refuse to give up their gains. Shares were up $2 on Friday when the rest of the big cap market was flat.

The reason Apple may have less risk than the rest of the market is the expected production announcement in September. They are expected to announce 2 new iPhone 7s and the iPhone 8/Pro plus some other upgrades. This is going to be a major product announcement that could propel Apple to $200 over the next six months. We know Apple shares normally ramp into an announcement and then decline shortly thereafter on a sell the news event. We will decide a couple days ahead of the announcement if we want to hold over.

I am using the November strikes because that is after earnings and the options should hold their value more in case of market volatility than an option that expires before earnings. Just because we buy more time does not mean we have to use it. I am recommending a spread because of high option premiums.

Position 8/14:

Long Nov $160 call @ $8.05, see portfolio graphic for stop loss.
Short Nov $175 call @ $2.72, see portfolio graphic for stop loss.
Net debit $5.33.

MMM - 3M Co - Company Profile


No specific news. Shares rebounded to new resistance at $207.50.

Original Trade Description: Aug 9th.

3M Company operates as a diversified technology company worldwide. The company's Industrial segment offers tapes; coated, non-woven, and bonded abrasives; adhesives; advanced ceramics; sealants; specialty materials; separation and purification products; closure systems for personal hygiene products; acoustic systems products; automotive components; and abrasion-resistant films, and paint finishing and detailing products. Its Safety and Graphics Business segment provides personal protection products, traffic safety and security products, commercial graphics systems, commercial cleaning and protection products, floor matting, roofing granules for asphalt shingles, and fall protection products. The company's Health Care segment offers medical and surgical supplies, skin health and infection prevention products, inhalation and transdermal drug delivery systems, dental and orthodontic products, health information systems, and food safety products. Its Electronics and Energy segment provides optical films; packaging and interconnection devices; insulating and splicing solutions; touch screens and touch monitors; renewable energy component solutions; and infrastructure protection products. The company's Consumer segment offers sponges, scouring pads, high-performance cloths, repositionable notes, indexing systems, home improvement and care products, protective materials, and consumer and office tapes and adhesives. Company description from FinViz.com.

On July 25th, 3M reported earnings of $2.58 that missed estimates for $2.59. Revenue of $7.81 billion missed estimates for $7.88 billion. The company guided for full-year earnings of $8.80-$9.05. Traders were in knee-jerk mode and the stock fell $14 on the news.

The miss was minimal and the company did increase earnings 22.6% for the quarter. They reported organic growth of 3.5% and reaffirmed their full year estimate for 3-5% organic growth. There is nothing wrong with this company.

Expected earnings Oct 24th.

Shares have recovered half of their post earnings losses and the dip over the last couple of days has weakened the option premiums to allow us to enter. Resistance is $212.

Bear in mind that the market is struggling and it would not be a surprise to see further declines in the Dow. Today's rebound from the opening drop was encouraging enough for me to take a chance on 3M because MMM shares have already been hit. They could look like a safe port in the coming storm.

If the market does extend its rebound, 3M could be a Dow leader again.

Position 8/10/17:

Long Oct $210 call @ $2.91, see portfolio graphic for stop loss.

VAR - Varian Medical Systems - Company Profile


Varian announced an investor meeting starting at 7:30 on Sept 26th in Houston. It will include multiple presentations on their new treatments.

Original Trade Description: Aug 2nd.

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. Company description from FinViz.com.

Expected earnings October 26th.

On July 26th, Varian reported earnings of $1.04 that beat estimates for 95 cents. Revenue of $662.4 million just barely missed estimates for $663.2 million due in part to currency translation issues. They sell their high dollar imaging systems all over the world.

The guided for the current quarter for earnings of $1.15-$1.23 and analysts were expecting $1.18. This should have been positive but the stock fell $6 because of the minor revenue miss.

If the market is going to be historically weak in August, shares that have already been beaten up will fare better than the rest of the market. I am choosing the $105 strike instead of the $100 strike for reduced cost/risk going into August.

Position 8/3/17:

Long Nov $105 call @ $1.75, see portfolio graphic for stop loss.

VIX - Volatility Index - Index Profile


The VIX gave back the majority of its gains when the market gapped higher at the open.

Plenty of time with our November option. We still have to get past the budget battle and the debt ceiling fight.

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 $20 to exit.

BEARISH Play Updates (Alpha by Symbol)

DIA - Dow ETF - ETF Profile


The Dow gapped open +135 points and that is exactly where it closed. There was no follow through. I raised the stop loss back to where we started. With the lack of follow through we could get another day of gains but I am skeptical the market will continue higher.

I am recommending we target 215.50 for an exit.

Original Trade Description: July 27th.

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.

Position 7/28/17:

Long Oct $215 put @ $3.33, see portfolio graphic for stop loss.
Short Oct $205 put @ $1.29, see portfolio graphic for stop loss.
Net debit $2.04.

FTNT - Fortinet - ETF Profile


No specific news. A short squeeze with the market lifted shares back to resistance at $37.

Original Trade Description: July 29th.

Fortinet, Inc. provides cybersecurity solutions for enterprises, service providers, and government organizations worldwide. The company offers FortiGate physical and software licenses that provide various security and networking functions, including firewall, intrusion prevention, anti-malware, virtual private network, application control, Web filtering, anti-spam, and wide area network acceleration; FortiManager product family to provide a central management solution for FortiGate products comprising software updates, configuration, policy settings, and security updates; and the FortiAnalyzer product family, which offers a single point of network log data collection. It also provides FortiAP secure wireless access points; FortiWeb, a Web application firewall; FortiMail email security; FortiDB database security appliances; FortiClient, an endpoint security software; and FortiSwitch secure switch connectivity products. In addition, the company provides FortiSandbox advanced threat protection solutions; FortiDDos and FortiDB database security appliances; and FortiSIEM family of products to provide a cloud-ready security information and event management (SIEM) solution for enterprises and service providers. Further, it offers security subscription, technical support, training, and professional services.Company description from FinViz.com.

Expected earnings October 25th.

The company reported Q2 earnings of 14 cents that beat estimates for 8 cents. Revenue of $363.5 million also beat estimates for $361 million. All the normal metrics were good to great but their guidance failed to impress. Full year guidance was higher but Q3 guidance disappointed.

They guided for revenues in the $367-$373 million range and analysts were expecting $372 million. Earnings guidance for 22 cents matched estimates. Investors normally do not want a match, they want a raise. The lower level on the revenues is also a caution. Shares fell $3 over the last three days and are right on the verge of breaking through support.

The entire cybersecurity sector has been weak despite the recent attacks. This is another weight on FTNT.

Position 8/1/17:

Long Sept $36 put @ $.90, see portfolio graphic for stop loss.

IBM - International Business Machines - ETF Profile


No specific news and only a minor gain despite the short squeeze in the Dow.

Original Trade Description: July 29th.

International Business Machines Corporation provides information technology (IT) products and services worldwide. Its Cognitive Solutions segment includes Watson, a cognitive computing platform that interacts in natural language, processes big data, and learns from interactions with people and computers. The company's Cognitive Solutions segment also offers data and analytics solutions, including analytics and data management platforms, cloud data services, enterprise social software, talent management solutions, and solutions tailored by industry; and transaction processing software that runs mission-critical systems in banking, airlines, and retail industries. The company's Global Business Services segment offers business consulting services; delivers system integration, application management, maintenance, and support services for packaged software applications; and business process outsourcing services. Its Technology Services & Cloud Platforms segment provides cloud, project-based, outsourcing, and other managed services for enterprise IT infrastructure environments. This segment also offers technical support, and software and solution support; and integration software solutions. The company's Systems segment offers servers for businesses, cloud service providers, and scientific computing organizations; data storage products and solutions; and z/OS, an enterprise operating system for z systems. It has a strategic collaboration with ABB Ltd to develop industrial artificial intelligence solutions. The company was formerly known as Computing-Tabulating-Recording Co. and changed its name to International Business Machines Corporation in 1924. Company description from FinViz.com.

Expected earnings October 17th.

IBM reported revenue of $19.29 billion, down -5% annually and the 21st consecutive quarterly decline. Analysts were expecting $19.49 billion and that was already on the low side. Earnings were $2.97 and beat estimates for $2.74 thanks to a lower tax rate of 9.2%. Full year guidance was reiterated for "at least" $13.80. Several years ago, they made a big deal out of forecasting $20 a year in earnings. That is not likely to happen in this decade. All five of IBM's reporting segments posted revenue declines.

The problem with IBM is the lack of a light at the end of the tunnel. There is no way out of this problem without major changes which could include splitting the company up or going on an acquisition spree. Shares hit $182.50 in February but hopes have now been dashed twice with Q1 and Q2 earnings. The outlook is dim.

If the market were to roll over and the Dow decline materially, IBM would be a leader in that decline. It has been losing ground even when the Dow is setting new highs.

With earnings Oct 17th we can use the Oct options which expire on the 20th. They should hold their premium well.

Update 8/5/17: Wedbush initiated coverage with a neutral rating saying IBM is going to face "structural headwinds" and free cash flow will continue to be consumed by "aggressive M&A." The analyst said the world has moved away from the labor intensive model of IT services with cloud computing and cloud software replacing those IT consultants. Legacy IT services contracts are going to see margins decline due to "pricing resets" and an industry wide "skills mismatch." He said IBM's lack of transparency about its current business models suggests they are lagging the evolution curve.

Update 8/7/17: A judge in Indiana ruled IBM must pay the state $78 million for failing to complete the automation of much of the state's welfare services system. The court case came after the state cancelled the $1.3 billion automation contract because of numerous complaints about long wait times, lost documents and improper rejections. An appeals court found that IBM had committed a material breach of its contract by failing to deliver improvements to the welfare system.

Position 7/31/17:

Long Oct $140 put @ $3.10, see portfolio graphic for stop loss.

PCRX - Pacira Pharmaceuticals - Company Profile


No specific news. Only a minor rebound along with the market short squeeze.

Original Trade Description: August 7th.

Pacira Pharmaceuticals, Inc., a specialty pharmaceutical company, develops, manufactures, and commercializes proprietary pharmaceutical products primarily for use in hospitals and ambulatory surgery centers in the United States. It develops pharmaceutical products based on its proprietary DepoFoam drug delivery technology. The company's lead product includes, EXPAREL, a liposome injection of bupivacaine, an amide-type local anesthetic indicated for infiltration into the surgical site to produce postsurgical analgesia. Its development pipeline comprises DepoTranexamic Acid, a long-acting local antifibrinolytic agent, which is in Phase II clinical development for the treatment or prevention of excessive blood loss during surgery by preventing the breakdown of a clot; and DepoMeloxicam, a long-acting non-steroidal anti-inflammatory drug, which is in preclinical development for the treatment of acute postsurgical pain. Company description from FinViz.com.

Pacira reported a loss last week of 29 cents that missed estimates for 28 cents and was well over the 2 cent loss in the year ago period. Revenue of $70.9 million ros eonly 1.9% and misses estimates for $74 million. Rising revenues for their top product, Exparel, were offset by falling revenues elsewhere. Exparel revenues rose 6.1% but DepoCyte and other product revenues declined -81.1%. Research and development costs rose 10`% and G&A costs rose 9.4%. Revenues slowing and expenses rising are never a good combination.

The company reaffirmed their full year revenue guidance for Exparel in the range of $290-$310 million.

Shares declined to a 6 month low after earnings.

Expected earnings November 3rd.

The optimistic outlook faded in late July when a Phase III trial of Exparel did not produce the desired results in treatment of total knee arthoplasty or TKA. Pacira is trying to expand the uses for Exparel as a way of expanding sales. This was a blow for the stock in July and the weak earnings is causing further declines.

Support is well below at $30.

Position 8/8/17:

Long Sept $35 put @ $1.44, see portfolio graphic for stop loss.

SPY - S&P-500 ETF - ETF Profile


Big short squeeze at the open with a $2.50 gain but there was no follow through and the SPY gained only $2.42 at the close. I am raising the stop again because this gap higher and stop suggests there will be further weakness ahead. I want to avoid a false spike at the open on Tuesday.

I am recommending we target $241 for an exit.

August has been down 5 of the last 7 years and up only 5 of the last 20 years.

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.

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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