Option Investor

Daily Newsletter, Thursday, 9/7/2017

Table of Contents

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

Market Wrap

The Calm Between The Storms

by Thomas Hughes

Click here to email Thomas Hughes


With Hurricane Harvey and the ECB behind us market eyes turn to Irma and the FOMC. Irma is a strong Category 5 storm and targeting a far larger swath of the US mainland, from the tip of Florida up into the heart of Appalachia and scouring the southeastern coastline from the Keys to Cape Lookout. There are already gas shortages reported as evacuees flee target areas, supplies are limited and destruction is expected to be heavy. Landfall is expected early Saturday, the approach and aftermath are sure to affect market sentiment.

On the International front markets were buoyed by the rally in US equities Tuesday but gains were minimal as the approaching storm, an ECB meeting and approaching FOMC meeting loom over the market. In Asia indices were mixed; both Chinese indices fell while Japan and Korea made small gains. European indices were more firmly bullish but gains were still small. Today's ECB meeting was as to be expected, a whole lot of nothing that left traders wondering what the bank really thinks. They left rates unchanged and gave little hint in the statement as to direction. The press conference was a different story, Draghi seemed to be both hawkish and dovish at the same time. He said a decision on “policy calibration” was coming this fall, commenting on the breadth and strength of recovery and then hedging those sentiments saying the bank was ready to increase QE if needed.

Market Statistics

Futures trading indicated a mildly negative open in the early hours. They crept higher as the morning wore on, reaching break even just before 8:30AM. The daily data releases and ECB statements lifted added a little lift to the trade and put the indices on track for a positive open. The SPX opened with a gain slightly greater than 2 points or 0.08% and gains held for the first 15 minutes or so of trading. After that the index dipped down to break even and then down into negative territory giving up about 5 points at the low of the day. The lowest low within the days narrow range came around 12:45 and resulted in nothing more than a small bounce and continuation of sideways trading. By late afternoon the indices had returned to near break even where they remained into the close of the day.

Economic Calendar

The Economy

This is the first week for Hurricane Harvey to impact economic data. The weekly initial jobless claims are perhaps the most current read on the economy and lag by a week only. The continuing claims lag that by a week, and the total claims figure by another week so the first impact of Harvey to those figures will be next week and the week after.

Initial jobless claims jumped 62,000 to hit a high not seen since April 18th, 2015. The number of initial claims is 298,000 and likely to remain elevated over the next few weeks. The previous week's figure was not revised. The four week moving average of claims rose 13,500 to hit 250,250. On a not adjusted basis claims 27.5% versus an expected 1.3% and are now up YOY by 15%. The caveat to these numbers is of course the storm, and the coming storm. Going into this week the numbers were good, trending low and lower with no expectations of change. I will assume trends will remain stable in unaffected parts of the nation but the overall affect on labor and economics is yet to be seen.

Continuing claims fell by -5,000 but expect this number to rise next week and in the coming weeks. Claims are now 1.940 million and in line with expectations. The previous week's figure was revised up by 3,000, the four week moving average fell by -4,000. At this time the figure is trending low and near the historic lows, consistent with labor market health.

The total number of claims fell -44,256 to 1.872 million. This is the lowest level since July 1st, consistent with seasonal expectations and long term labor market trends. Assuming no impact from the storm this number was expected to fall to a long term low over the next few weeks and is well on its way.

Unit Labor Cost and Productivity for the second quarter was released today as well. The data shows a 1.5% increase in productivity as output increased 4% and hours worked rose 2.5%. Year over year productivity is up 1.3% with a 2.8% increase in output and 1.5% rise in hours worked. This data is a win-win for the economy as it shows increased output, increased productivity and an increase in hours worked. Unit labor costs are up only 0.2% from the first quarter and down -0.2% over the past 12 months.

The Dollar Index

The Dollar Index fell more than -0.5% to break through support and set a new 2.5 year low. Today's move was driven by the ECB decision and comments as well as US data and impact from the storms. While Draghi's comments included lingering dovishness he can't seem to shake they did put a bid in the Euro. He raised forward outlook for GDP and indicated a policy decision would be made later this year. Assuming that there is no deterioration in the data this means taper/tightening.

The EUR/USD shot up to test long term resistance on the news and looks like it will break through. The dollar additionally lost ground against the yen and other world currencies as economic data remains in that Goldilocks range where we have growth and little to no inflation. The indicators are in support of today's drop in the DXY, suggesting targets low in the $80's range. The risk is that economic data will pick up and/or the FOMC will starting talking hawkish again.

The Gold Index

Gold prices firmed as the dollar weakened. The metal is supported by a weaker and weakening dollar as well as geopolitical turmoil that doesn't appear to be dissipating. Spot prices jumped more than 0.80% to trade above $1350 and at a one year high. Price is not at a significant resistance target and round number that could impact trading in the near term. A break through $1350 would be bullish and could take gold up to $1380 or $1400.

The gold miners moved higher in response to the increase in gold, the miners ETF GDX gaining a little more than 2.35% to set a new 7 month high. The move is supported by rising prices but is approaching a long term resistance level. This level is near $26 and the top of the long term trading range. The indicators are bullish and suggest that this level will be reached. That being said momentum remains weak and stochastic suggests an overbought asset within a trading range so caution is warranted.

The Oil Index

Oil prices were relatively stable today, trading in a tight range near $49 and closing with a small loss. Over the past few days prices have edged up as Texas oil country begins to come back to life and they may edge higher. Irma is putting an additional strain on gas supplies that will equate to draw-downs of supply in the coming weeks. In the near term resistance is at $50, a break above there would be bullish with targets near $52.50. Regardless, with oil trading near the high end of the short term trading range forward earnings outlook will stabilize and firm.

The energy sector is also moving higher. The Oil Index gained roughly 0.50% to set a one month high but still face resistance at the long term moving average. The index is bouncing higher from long term support and may have entered my long awaited reversal pattern. The indicators are bullish and gaining strength so a move up to test resistance at the long term moving average looks likely in the least. A break above the moving average would be bullish but face additional resistance before full reversal is assured.

In The News, Story Stocks and Earnings

GE took a hit today when analysts at JPMorgan said the company's fundamental's are most likely worse than we think. They say the company's reset is going to be undermined by structural weakness in power, a less than expected rebound in oil & gas and a more GAAP approach to accounting. They say there are downside risks to their already low estimates and compare the company's outlook to that of Tyco in the 1990's. Shares of the stock fell nearly -4% to hit an almost 2 year low.

GoPro updated its Q3 guidance before the bell. The company says that revenue and earnings will be at the top end of the range and above consensus as consumer trends strengthen. They also expect to see margins expand and to post a profit on a non-GAAP basis. Shares of the stock jumped more than 12% to create a pinbar doji at a significant resistance level.

The VIX closed with nearly no gain or loss, creating a small red bodied candle sitting on support at both moving averages. The index shows an elevated amount of fear but not an extreme amount and is trending near the middle of the 6 month range and appears to be stabilizing at that level. We may see additional spikes on news and events but so long as the index remains below the 16 level and within the trading range bull market conditions are likely to persist over the longer term.

The Indices

With so much hanging over the market's head right now the fact the indices are holding their levels shows some resilience. Today's action was impacted by data, the FOMC, the ECB and earnings. Disney and Comcast both issued profit warnings that took a bit of steam out of the media sector. Disney for one fell -3.9%. The Dow Jones Industrial Average posted the largest decline, -0.10%, creating a small red bodied candle. Today's candle is sitting on the short term moving average and closes below it, as well as the long term up trend line, but does not confirm a break of support. The indicators are mixed but generally consistent with support. A break below the moving average would be bearish with a target near the long term moving average. A move up would be trend following and bullish with potential resistance at 22,000 and then the all time high.

The S&P 500 also closed with a loss, -0.02%, and created a small red bodied candle. Today's candle is sitting on the short term moving average and confirms, in its small way, support at that level. The indicators are both bullish if on the weakside, as are both moving averages, suggesting additional upside is on the way. Support is near 2,460, a bounce from here would be bullish and trend following. A break below the short term moving average would be bearish but near term only, with target near 2,425 and the long term up trend line.

The NASDAQ Composite posted the smallest gain, 0.07%, and created a small doji candle. The index is sitting above the short term moving average appears to be consolidating after a trend following bounce from support. The indicators and both moving averages are rising in confirmation of the move and suggest higher prices are on the way. A bounce from the moving average would be bullish and trend following with upside target at 6,600 in the near term.

The Dow Jones Transportation posted the largest gain, 0.39%, and looks the most bullish. The index is consolidating above the long term up trend line, the long term moving average, the short term moving average and the 9,300 resistance line that has been in play over the last year. The indicators are bullish and support a strengthening market with both MACD and stochastic showing increasing strength. A bounce from this level would be bullish with possible resistance at 9,500 and then the current all time high.

With earnings season still a ways off and so much going on in the world it's a bit surprising to the see charts the way they are. Bullish. They are, as a group, bouncing up off long term support levels in line with prevailing trends and supported by the indicators. The only thing left for them to do, in most cases, is to break final resistance targets and move up to new highs. The VIX is a small concern but it's rise to current levels could be easily attributed to protective put buying rather than outright bearishness. I remain firmly bullish for the long term, and cautiously bullish for the near term. When and if the move higher begins I will be ready to add to bullish positions.

Until then, remember the trend!

Thomas Hughes

New Option Plays

Weekend Risk

by Jim Brown

Click here to email Jim Brown

Editors Note:

The markets are cautious ahead of potential weekend event risk. The S&P futures are down -5.50 as I type this. With North Korea expected to launch another ICBM on Saturday on their Founders Day anniversary, there is likely to be some event risk selling on Friday. Secondly, about 8:PM the ECB said it would consider tapering QE purchases and the Euro soared in the evening session with the dollar index falling to the lowest level since January 2015.


No New Bullish Plays


No New Bearish Plays

In Play Updates and Reviews

Disney Drop

by Jim Brown

Click here to email Jim Brown

Editors Note:

A $4 drop on an earnings warning from Disney erased 30 Dow points. Goldman accounted for a loss of 20 and JPM and TRV subtracted 23 points. Even without these headline events the Dow was weak. On Friday, with North Korea expected to launch an ICBM on Saturday, we could see a drag from weekend event risk. The political compromise in Washington is not yet complete but moving in that direction. That will remove a large cloud from the market when it happens.

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

SPLK - Splunk
The long call position was entered at the open.

If you are looking for a different type of option strategy, try these newsletters:

Credit spreads and naked puts = OptionWriter

Long term option investments = LEAPS Investor

3-6 month Option Trades = Ultimate Investor

Iron Condors = Couch Potato Trader

Long and short equity trades = Premier Investor

BULLISH Play Updates

ALB - Albermarle - Company Profile


No specific news. Retested resistance at $120 once again.

Original Trade Description: Aug 21st.

Albemarle Corporation develops, manufactures, and markets engineered specialty chemicals worldwide. The company offers lithium compounds, including lithium carbonate, lithium hydroxide, lithium chloride, and lithium specialties and reagents for applications in lithium batteries, high performance greases, thermoplastic elastomers for car tires, rubber soles and plastic bottles, catalysts for chemical reactions, organic synthesis processes, life science, pharmaceutical, and other markets; cesium products for the chemical and pharmaceutical industries; and zirconium, barium, and titanium products for pyrotechnical applications. It also manufactures cesium products for the chemical and pharmaceutical industries; and zirconium, barium, and titanium products for various pyrotechnical applications, including airbag igniters; and performance catalyst solutions, such as polymer catalysts, curatives, organometallics, and electronic materials for polyolefin polymers, packaging, non-packaging, films, injection molding, alpha-olefins, electronic materials, solar cells, polyurethanes, epoxies, and other engineered resins markets. In addition, the company offers bromine and bromine-based solutions for fire safety, chemical synthesis, mercury control, water purification, beef and poultry processing, and various other industrial applications, as well as for the oil and gas well drilling, and completion fluids applications. Further, Albemarle Corporation provides clean fuels technologies, which is primarily composed of hydroprocessing catalysts; and heavy oil upgrading, which is primarily composed of fluidized catalytic cracking catalysts and additives for application in the refining industry. It serves petroleum refining, consumer electronics, energy storage, construction, automotive, lubricants, pharmaceuticals, crop protection, food safety, and custom chemistry services markets. Company description from FinViz.com.

With production of electric cars exploding with more than 1 million expected to be manufactured in 2018, the demand for Lithium-ion (Li-ion) rechargeable batteries is also exploding. When Tesla's Gigafactory reaches full production in 2020 of 35 gigawatt-hours, that will be more battery capacity than the entire world produced in 2014. Tesla has blamed the battery shortage for misses in auto production and they are already planning on building a second Gigafactory. The demand for lithium is suddenly huge and Albemarle is already responsible for 35% of global production.

They reported Q2 earnings of $1.13, up 22%, that beat estimates for $1.11. However, revenue of $737.3 million missed estimates for $740.6 million. They guided for full year earnings of $4.20-$4.40, a 21% rise and revenue of $2.90-$3.05 billion. The revenue miss was due to a divestiture of a specialty chemicals business and currency exchange issues. They repurchased $250 million in stock in the first 6-months of 2017 and paid dividends of $69.8 million.

Next earnings Nov 6th.

Shares declined after the revenue miss but rebounded exactly from long-term uptrend support.

Position 8/22:

Long Oct $120 call @ $1.75, see portfolio graphic for stop loss.

BBY - Best Buy - Company Profile


No specific news. Shares continue to rebound from the post earnings drop.

Original Trade Description: Sept 2nd.

Best Buy Co., Inc. operates as a retailer of technology products, services, and solutions in the United States, Canada, and Mexico. The company operates through two reportable segments, Domestic and International. Its stores provide consumer electronics, such as home theater, home automation, digital imaging, health and fitness, and portable audio products; computing and mobile phones, including computing and peripherals, networking, tablets, smart watches, and e-readers, as well as mobile phones comprising related mobile network carrier commissions; and entertainment products, such as gaming hardware and software, movie, music, technology toy, and other software products. The company's stores also offer appliances, which include refrigeration and laundry appliances, dishwashers, ovens, coffee makers, blenders, etc.; and other products comprising snacks, beverages, and other sundry items. In addition, it provides services, such as consultation, design, delivery, installation, set-up, protection plan, repair, technical support, and educational services. The company offers its products through stores and Websites under the Best Buy, bestbuy.com, Best Buy Mobile, Best Buy Direct, Best Buy Express, Geek Squad, Magnolia Home Theater, Pacific Kitchen and Home, bestbuy.com.ca, and bestbuy.com.mx brand names, as well as through call centers. It has approximately 1,200 large-format and 400 small-format stores. Company description from FinViz.com.

On August 29th, Best Buy reported earnings of 69 cents that beat estimates for 63 cents. Revenue of $8.9 billion also beat estimates for $8.7 billion. Same store sales rose 5.4%. They raised full year guidance for revenue to rise 4% compared to prior guidance for 2.5%. Operating income is expected to rise 4.0-9.0% compared to prior guidance of 3.5-8.5%. Shares were crushed for a $9 loss on the news.

There was no specific reason except that Best Buy had been doing so well and the stock was trading at a record high. Analysts came out after the crash saying the selloff was overdone because the Apple product announcement in mid September would create additional store traffic the rest of the year and likely boost earnings.

Sometimes events cause unexpected reactions. Given their earnings beat, strong comps and raised guidance, I think we should buy the dip. Support has appeared at $54 and the next move should be positive as saner investors realize this is a bargain.

Earnings Nov 24th.

Position 9/5/17:

Long Dec $57.50 call @ $2.59, see portfolio graphic for stop loss.

CAT - Caterpillar - Company Profile


No specific news. Minor rebound in a weak market.

Original Trade Description: Aug 29th.

Caterpillar Inc. manufactures and sells construction and mining equipment, diesel and natural gas engines, industrial gas turbines, and diesel-electric locomotives for heavy and general construction, rental, quarry, aggregate, mining, waste, material handling, oil and gas, power generation, marine, rail, and industrial markets. Its Construction Industries segment offers backhoe, compact, track-type, small and medium wheel, knuckleboom, and skid steer loaders; small and medium track-type, and site prep tractors; mini, wheel, forestry, small, medium, and large track excavators; and motorgraders, pipelayers, telehandlers, cold planers, asphalt pavers, compactors, road reclaimers, and wheel and track skidders and feller bunchers. The company's Resource Industries segment provides electric rope and hydraulic shovel, landfill and soil compactor, dragline, large wheel loader, machinery component, track and rotary drill, electronics and control system, work tool, hard rock vehicle and continuous mining system, scoop and hauler, wheel tractor scraper, large track-type tractor, and wheel dozer products; longwall, highwall, and continuous miners; and mining, off-highway, and articulated trucks. Its Energy & Transportation segment offers reciprocating engine powered generator set and engine, integrated system, turbine, centrifugal gas compressor, diesel-electric locomotive and component, and other rail-related products and services. The company's Financial Products segment offers finance for Caterpillar equipment, machinery, and engines, as well as dealers; property, casualty, life, accident, and health insurance; and insurance brokerage services, as well as purchases short-term trade receivables. Its All Other operating segments provides parts distribution and digital investments services. Company description from FinViz.com.

CAT has been alternately ignored or talked down for the last couple years but the shares keep rising. Part of the recent gains came from the guidance. The company has been bitten by the global slowdown in construction since the financial crisis. Then it was hit by the slowdown in the energy sector. Every expected rebound falied to appear and CAT continued to give cautious guidance. That changed over the last several months.

The global economy is rebounding. There are massive construction projects now underway in China and Asia. The Eurozone is also seeing a resurgence in consrtuction. Commodity metals are booming and mines are reopening shuttered capacity and opening new mines. Everything is suddenly positive for CAT.

In December they guided for full year 2017 revenues of $38 billion "as a reasonable midpoint expectation." Analyst estimates for earnings of $3.25 were "too optimistic" according to CAT.

In January they guided for $36-$39 billion in revenue and $2.90 in earnings.

In April they guided for $38-$41 billion in revenue and $3.75 in earnings.

In July they guided for $42-$44 billion in revenue and $5 in earnings.

In April they guided for revenue from construction at flat to 5%. In July they guided for 10% to 15% growth.

In April they guided for revenue from mining at 10% to 15%. In July they guided for 20% to 25% growth.

In April they guided for energy revenue at flat to 5%. In July they raised it to 5% to 10%.

After the devastation in Houston, there were new estimates from analysts today for 17% or higher revenue growth in construction equipment.

Shares spiked at the open to a new high before fading slightly with the market. I believe revenue estimates will continue to rise because they are running out of year and their conservative guidance will have to become more accurate.

Earnings October 24th.

CAT is reactive to Dow movement but shares have ignored the recent Dow weakness. Today's close at $116.01 is a record high.

Position 8/30/17:

Long Nov $120 call @ $2.75, see portfolio graphic for stop loss.

HD - Home Depot - Company Profile


Home Depot joined forces with Google Home to allow voice ordering of products from its 2,282 stores. Users will have to link their personal info in order to reorder and build a shopping history.

Original Trade Description: Aug 26th.

The Home Depot, Inc. operates as a home improvement retailer. It operates The Home Depot stores that sell various building materials, home improvement products, and lawn and garden products, as well as provide installation, home maintenance, and professional service programs to do-it-yourself, do-it-for-me (DIFM), and professional customers. The company offers installation programs that include flooring, cabinets, countertops, water heaters, and sheds; and professional installation in various categories sold through its in-home sales programs, such as roofing, siding, windows, cabinet refacing, furnaces, and central air systems, as well as acts as a contractor to provide installation services to its DIFM customers through third-party installers. It primarily serves home owners; and professional renovators/remodelers, general contractors, handymen, property managers, building service contractors, and specialty tradesmen, such as installers. The company also sells its products through online. It operates through approximately 2,278 stores, including 1,977 in the United States, including the Commonwealth of Puerto Rico, and the territories of the U.S. Virgin Islands and Guam; 182 in Canada; and 119 in Mexico. Company description from FinViz.com.

Home Depot and Wal-Mart have two of the best responses to national disasters. When a storm is named and the track is posted, both companies immediately begin to route truckloads of supplies to the affected areas.

Home Depot activated its Hurricane Response center in reaction to Harvey and truck loads of buliding supplies, generators, roofing materials, etc were already headed to Texas before the storm ever made landfall. Home Depot has been responding to storms for more than 30 years and they know exactly what products will be in high demand.

Home Depot has four distribution centers that support hurricane response. Once a storm forms they rush trucks to the areas likely to be hit to prestock stores with disaster supplies. When people come to the stores to buy plywood, nails and supplies, it is already there in surplus quantities. As the storm nears landfall, the center guages severity, potential impact and they pre stage a number of preloaded trucks just out of the danger areas ready to rush in once the storm passes.

On a moderately strong hurricane, Home Depot can see a boost in revenue from $150 to $350 million over a three month period.

HD shares were hit with a post earnings decline not because the earnings were bad but because analysts were worried the home building boom would end soon. Home Depot beat on earnings, revenue and issued higher guidance.

If there is a port in the coming volatility storm, it should be Home Depot as they provide the supplies to rebuild the Texas coast.

Update 9/6/17: Home Depot has already sent 300 truckloads of supplies to Florida ahead of Hurricane Irma. They sent prepositioned generators, plywood, batteries, water, building materials, plastic tarps and hundreds of other items that experience has shown will be needed before and after a storm. CNBC had a reporter in a Home Depot store in Florida and there was a steady stream of customers rolling carts of supplies out the door. Irma and Harvey in the same quarter are going to cause a monster boost to sales and Q4 could be off the charts.

Position 8/28/17:

Long Nov $155 call @ $2.87, see portfolio graphic for stop loss.

SPLK - Splunk - Company Profile


No specific news. Minor gain in a weak market. New three month high close.

Original Trade Description: Sept 6th.

Splunk Inc. provides software solutions that enable organizations to gain real-time operational intelligence in the United States and internationally. The company's products enable users to collect, index, search, explore, monitor, and analyze data regardless of format or source. It offers Splunk Enterprise, a machine data platform with collection, indexing, search, reporting, analysis, alerting, monitoring, and data management capabilities; and Splunk Cloud service. The company also provides Splunk Light, which offers log search and analysis for small IT environments; and Splunk Analytics for Hadoop, a software for exploring, analyzing, and visualizing data stored in Hadoop and Amazon S3. In addition, it offers Splunk Enterprise Security, which addresses emerging security threats; Splunk User Behavior Analytics that detects cyber-attacks and insider threats; and Splunk IT Service Intelligence, which monitors health and key performance indicators of critical IT services, as well as Splunk App for AWS to ensure cloud security and compliance; Splunk Stream to capture, analyze, and correlate network wire data; and DB Connect to get enterprise context; Palo Alto Networks App for Splunk to gain visibility to Palo Alto Networks firewalls; and Splunk App for Salesforce. Further, the company operates Splunkbase and Splunk Answers Websites, which provide an environment to share apps, collaborate on the use of its software, and provide community-based support, as well as offers application programming interfaces and software development kits. Additionally, it offers maintenance and customer support, training, and consulting and implementation services. The company serves cloud and online services, education, financial services, government, healthcare/pharmaceuticals, industrials/manufacturing, media/entertainment, retail/ecommerce, technology, and telecommunications industries. Company description from FinViz.com.

Splunk reported earnings on August 24th of 8 cents that beat estimates for 6 cents. Revenue of $280 million beat estimates for $268.8 million. The company guided for the full year for revenue of $1.21-$1.22 billion, up from prior guidance of $1.19 billion. Analysts were expecting $1.2 billion. Billings are projected to be $1.450 billion, up from $1.425 billion in prior guidance.

Revenue rose 31.8% and "billings" rose 32% to $303.4 million. For the current quarter, they guided for revenue of $307-$309 million and analysts were expecting $306.8 million. They added 500 customers in the quarter to bring the base to more than 14,000.

The company has finally caught fire with the corporate sector and 32% sales growth is huge. The CEO said sales in Europe, Middle East and Africa were surging.

Earnings Nov 23rd.

Shares spiked to $66 on the news and faded $2 on post earnings depression for about three days before rising again. They closed at a three month high on Wednesday and are very close to a historic high.

Most importantly, they did NOT decline on Tuesday and showed great relative strength.

Position 9/7/17:

Long Nov $70 call @ $2.80, see portfolio graphic for stop loss.

TER - Teradyne - Company Profile


No specific news. Shares still fighting resistance at $36. Opening dip followed by afternoon rebound.

Original Trade Description: Aug 30th.

Teradyne is a leading supplier of automation equipment for test and industrial applications. Teradyne Automatic Test Equipment (ATE) is used to test semiconductors, wireless products, data storage and complex electronic systems which serve consumer, communications, industrial and government customers. Our Industrial Automation products include collaborative robots used by global manufacturing and light industrial customers to improve quality and increase manufacturing efficiency. In 2016, Teradyne had revenue of $1.75 billion and currently employs approximately 4,400 people worldwide. Company description from Teradyne.

For Q2 they reported earnings of 90 cents compared to estimates for 86 cents. Revenue of $696.9 million beat estimates for $684.2 million. They raised revenue guidance to $455-$485 million and analysts were expecting $445 million.

In just the last 30 days analyst estimates for Q3 have risen from 38 cents to 43 cents. Full year estimates have risen from $1.88 t $1.97 per share. Zacks rates the Electronics Testing Equipment sector as #6 out of 250 industry sectors. Every new electronic device manufactured needs a new set of testing equipment.

Earnings October 26th.

Shares have been stuck under resistance at $35 for six weeks and broke out today. Analysts believe they will continue higher and make new highs. The $36 level is the next resistance.

Position 8/31/17:

Long Oct $37 call @ .90, see portfolio graphic for stop loss.

VAR - Varian Medical Systems - Company Profile


No specific news. BTIG downgraded from buy to neutral. Shares dipped back below resistance aith a -$1.42 loss.

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 25th.

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


Minor decline in the VIX as the major indexes flirted with negative territory. September, the most volatile month of the year.

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, see portfolio graphic for stop loss.

BEARISH Play Updates (Alpha by Symbol)

DIA - Dow ETF - ETF Profile


The Dow declined most of the day but recovered slightly with a buy program at the close. The Dow was not bullish after GE was downgraded again and Disney warned on earnings.

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.

SPY - S&P-500 ETF - ETF Profile


The S&P traded flat for the day thanks to a minor buy program at the close. The index was not bullish.

I am recommending we target $242.75 for an exit.

September is the most volatile month of the year.

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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