Option Investor

Daily Newsletter, Monday, 10/30/2017

Table of Contents

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

Market Wrap

Tax Talk Tanks Stocks

by Thomas Hughes

Click here to email Thomas Hughes


An idea was floated that tax reform would be phased in and the market wasn't happy about it. Soon after White House Press Secretary Sarah Huckabee Sanders came out with statements to the effect a phase-in wasn't going to happen. Regardless, we are expecting to hear more specific details sometime this week. We're also expecting to hear Trumps pick for Fed Chair on Thursday, as well as policy statements from the BOJ, FOMC and BOE.

International markets were mixed at best. In Asia Japan, Korea and Australia all moved higher while indices in China fell on consolidation within the market. The Nikkei closed up 0.1%, the Shang Hai composite fell -0.77%. European indices closed mixed as well as traders eye earnings and a big week for central bank meetings. Fortunately for them they also closed before the tax talk hit the market. Moves were small regardless of direction with none closing up or down more than 0.40%.

Market Statistics

Futures trading was weak all morning but did not indicate a major sell off. At most the SPX was indicated to open down about -6 points for the better part of the morning but moderated that to about -3 points by the open. The open was not too exciting, the SPX began the day down by roughly -3 points and quickly began moving higher. By 10:45 the index was flirting with break even but soon after that the tax reform news hit the market and drove them lower. The sell off was sharp and steep but found bottom by 12:15PM. The rest of the day saw the indices bounce from mid day lows and trend sideways within a narrow range.

Economic Calendar

The Economy

Personal Income and Spending data was released before the bell and came in fairly strong. Income is up 0.4% with spending up 1.0%. Income is in line with expectations while spending beat by a tenth. The really important data is the PCE which rose a mild 0.1% on the month and remains well below the FOMC's 2.0% target at +1.3% YOY.

Moody's Survey of Business Confidence regained 0.4% to hit 27.8% in this week's print. Despite the gain the index remains near lows not seen since before last year's elections. Despite this Mr. Zandi says the survey indicates a global economy growing at the high end of its potential. He adds that the recent hurricanes may have something to do with the recent fall in confidence but I don't see that in any other data, specifically the labor data. Quick reminder, this week is the first of the month again which means ADP, Challenger, NFP, Unemployment and Average Hourly Earnings data will be coming out over the next 4 days.

With 55% of the S&P reporting earnings for the 3rd quarter things are starting to look a little better. The blended rate rose 3% to 4.7% and a 2 month high. There are still only 6 sectors showing growth although the rate of earnings beat is well above average at 76%. Of those who have reported there are only 29 issuing negative guidance which is below average.

Looking forward the estimates have shifted a bit but remains positive and robust with double digit earnings growth expected for the next 5 quarters at least. Next quarter fell to 10.7% while full year 2017 edged up a tenth to 9.3%. Next year the first and second quarter are both still expected to show growth near 10.5% while full year expectations fell a tenth to 11.4%.

The Dollar Index

The dollar fell a bit in today's trade but held steady near Friday's close with a loss of roughly -0.20%. The index remains above resistance-turned-support at the $94 level and setting up to move higher. Last week's break above $94 was bullish and an early confirmation of a head and shoulders reversal. A move down to retest $94 with an accompanying bounce would be a stronger confirmation. This could come over the next few days as the BOJ and FOMC meetings come and pass. The BOJ is not likely to strengthen the yen, the FOMC is not expected to weaken the dollar. If the reversal is confirmed with a bounce from support upside target is near $97 in the near to short term.

The Gold Index

Gold prices also held steady and near Friday's close, edging up 0.4% on a slightly weaker dollar. In light of my DXY analysis I can't help but be bearish on gold, that being said it does look like the metal is bouncing from support. Support appears to be near $1,265 and the one month low. A further move higher may confirm this bounce if it is supported by central bank action, a break below would be bearish with target near $1,250 and below.

The Gold Miners ETF GDX moved higher on gold's strength, adding 0.84% in today's action. However, the ETF remains below support-turned-resistance with mixed indications. The moving averages and stochastic suggest that there may be support at current levels, near $22.50, while MACD suggests that bearish momentum is getting stronger. A bounce from here would be bullish within the range with upside target near $23.25 and the long term moving average, a move down would be bearish with targets along my down trend line and near $22.00.

The Oil Index

Oil prices moved higher today as a raft of what-if's propped up the market. The biggest what-if is what if OPEC really does extend and expand the production cap. Others include what-if supply is disrupted in Iraq, Libya, Nigeria, Venezuela or some other place where oil is produced and geo-political turmoil dominate daily life. Today's move saw the oil price gain nearly a half percent to close at an 8 month high and above $54. Near term outlook is bullish simply on the fact that expectations are likely to drive the market until the OPEC meeting, upside target is near $55.50.

The Oil Index 0.64% in today's action, extending Friday's bounce from the short term moving average and break the index out of the near term consolidation range. This is a bullish continuation signal within the current up trend and supported by earnings outlook. The energy sector is, to date, leading the market with 3rd quarter earnings growth and with forward outlook for earnings growth. Current target is equal in magnitude to the first leg of rally which puts it near 1,330.

In The News, Story Stocks and Earnings

Sprint and T-Mobile, along with most others in the telecom space, fell hard on news the proposed merger was going to be called off. This news was reported by Nikkei. Later in the day reports came out that the news was erroneous but no official word has been given. Details are sketchy for now but it seems as if there are some issues over governance and pricing. T-Mobile fell a little more than -5% to hit a short term support level while Sprint fell nearly -10% and hit a new 1 year low.

Mondelez reported after the bell beating on the top and bottom lines. The company reports that organic revenue is up 2.8% worldwide with particular strength in the Latin America segment. Revenue from the power brands rose more than 5.5%. Shares of the stock jumped more than 3.5% to bounce back from a new 52 week low set just today.

The VIX gained about 15% in today's action, moving back above the $10 level but also exhibiting signs of resistance to higher prices. Regardless, the fear index remains near long term lows and trending within a range at those lows, consistent with bull market conditions. The indicators are a bit mixed which leads me to believe there may be a bit more volatility to the volatility index, possibly related to the FOMC meeting, earnings, this week's data or more likely a combination of all three.

The Indices

Action across the indices was a bit mixed if to the downside. They all tanked on the tax reform rumors but not all the losses were large. Today's leader was the Dow Jones Transportation Average. The transports fell -1.29% creating a medium sized red bodied candle sitting on the short term moving average. Price action is a little iffy but does not yet break trend or indicate reversal. Action over the past couple of weeks is forming a consolidation pattern and, so long as support holds at the previous all time high, setting the index up for a trend following bounce. The indicators are both bearish so caution is due but again, so long as support holds this is setting up for trend following crossovers. A break below 9,800 would be bearish with target near the long term moving average. A bounce would be bullish and trend following.

The Dow Jones Industrial Average posted the 2nd largest decline, -0.36%. The blue chips created a small red bodied candle and the 5th in a row of candles forming a potentially bullish flag pattern. The indicators are a bit weak but remain bullish and consistent with consolidation within a strong trend. A move up from this level would be bullish and confirm the current trend, upside target is very near to 24,000 in the near to short term. A fall from this level would be bearish in the near term and could take the index down to 23,000.

The S&P 500 made the next smallest decline, -0.31%. The broad market created a small red bodied candle to the side of Friday's candle and within a consolidation which began a week or so ago. The indicators remain mixed but show some sign of support at this level and are consistent with consolidation within an up trend. A move higher, especially with a break to new all time highs, would be bullish and trend following with target at 2,600. A fall from this level would be bearish in the near term and may take it down to first support target of 2,550.

The NASDAQ Composite posted the smallest loss and may even have closed with a gain if not for today's D.C. based rumors. The index created a small doji candle near the top of Friday's candle and set a new all time intraday high. Price action is bullish although today's candle shows a bit of indecision, indecision that could soon pass should this week's earnings reports resemble the run of reports we received last week. The indicators are still weak but both showing bullish crossovers in line with the prevailing trend. A fall from this level may find support near 6,600. A move higher would be bullish and trend following.

The markets are in up trend regardless of today's declines. Today's declines are nothing more than knee-jerk reaction to rumor and, in light of the trend, a likely entry point for new short term positions for those who may have missed out last week, or simply wanted to add to current positions. This week may prove to kill the rally but I don't think it will, not unless earnings fall far short of expectations, which they are not likely to do. I remain bullish.

Until then, remember the trend!

Thomas Hughes

New Option Plays

Consumer Weakness

by Jim Brown

Click here to email Jim Brown

Editors Note:

Revenue from consumer grooming product sales down three consecutive quarters.


No New Bullish Plays


PG - Procter & Gamble - Company Profile

The Procter & Gamble Company provides branded consumer packaged goods to consumers in the United States, Canada, Puerto Rico, Europe, the Asia Pacific, Greater China, Latin America, India, the Middle East, and Africa. The company's Beauty segment offers hair care products, including conditioners, shampoos, styling aids, and treatments; and skin and personal care products, such as antiperspirant and deodorant, personal cleansing, and skin care products. It markets its products under Head & Shoulders, Pantene, Rejoice, Olay, Old Spice, Safeguard, and SK-II brands. The company's Grooming segment provides shave care products comprising female and male blades and razors, pre- and post-shave products, and other shave care products; and appliances that include electric razors and epilators under the Braun, Fusion, Gillette, Mach3, Prestobarba, and Venus brands. Its Health Care segment offers toothbrushes, toothpastes, and other oral care products; and gastrointestinal, rapid diagnostics, respiratory, vitamin/mineral/supplement, and other personal health care products under the Crest, Oral-B, Prilosec, and Vicks brands. The company's Fabric & Home Care segment provides fabric enhancers, laundry additives, and laundry detergents; and air care, dish care, P&G professional, and surface care products under the Ariel, Downy, Gain, Tide, Cascade, Dawn, Febreze, Mr. Clean, and Swiffer brands. Its Baby, Feminine & Family Care segment offers baby wipes, diapers, and pants; adult incontinence and feminine care products; and paper towels, tissues, and toilet paper under the Luvs, Pampers, Always, Tampax, Bounty, and Charmin brands. The company sells its products through mass merchandisers, grocery stores, membership club stores, drug stores, department stores, distributors, baby stores, specialty beauty stores, e-commerce, high-frequency stores, and pharmacies. The Procter & Gamble Company was founded in 1837 and is based in Cincinnati, Ohio. Company description from FinViz.com.

P&G survived a proxy fight from activist investor Nelson Peltz but that does not mean their problems are over. Peltz said, "I believe that there is a direct correlation between how poorly a company is doing and how big of a fight they put up." Peltz estimated the company spent $100 million in their fight to keep him off the board. He said that is a lot of money for a company to spend to keep a knowledgeable investor from seeing the real numbers inside the company. Peltz has not conceded and an official recount of the votes is being conducted.

PG reported adjusted earnings of $1.09 that beat estimates by a penny. Revenue of $16.65 billion rose only 1% and missed estimates for $16.69 billion. Revenue from their grooming business has declined for three consecutive quarters. Peltz believes the entire company is in decline and they are massaging the numbers to put some lipstick on the pig. That only works for a short time.

Earnings January 19th.

Shares have declined $5 since the Oct 18th earnings and they are on the verge of breaking below 52-week support at $86. If the market is going to weaken on post earnings depression after this week, PG could be a leader to the downside given the negative analyst views.

Buy Jan $85 Put, currently $1.89, initial stop loss $89.25.

In Play Updates and Reviews

Headlines Matter

by Jim Brown

Click here to email Jim Brown

Editors Note:

The headline about a phasing in of tax cuts over five years mattered to the markets. You never know when the next headline will appear that tanks the markets. With investors counting on a sharp drop in corporate tax rates to boost S&P earnings and justify the recent rally, the news mattered a lot. There are rumors that a 20% corporate tax rate would not be reached until 2022 with a minor decrease every year starting in 2018. That would remove a major brick in the market's foundation. With the current S&P PE at 18.6 on expectations for $10-$12 in 2018 earnings coming from tax reform, the current rally could see a significant setback if the actual details on Wednesday are either negative or lacking in actual details. With the Dow very overbought this could be the beginning of a slippery slope if there is no immediate light at the end of the tax tunnel.

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

DLTR - Dollar Tree
The long call position was stopped at $90.75.

BA - Boeing
The long call position remains unopened until a trade at $253.

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

AABA - Altaba - Company Profile


No specific news. Alibaba shares spiked with another $5 gain.

Alibaba's singles day is coming on November 11th and that will produce a lot of headlines in the two weeks ahead of the event. In 2016, they sold $17.7 billion on that day, up 32% from the prior year. With 466 million active customers, they could do well over $20 billion this year.

Original Trade Description: October 18th.

Altaba Inc. operates as a non-diversified, closed-end management investment company in the United States. Its assets consist primarily of equity investments, short-term debt investments, and cash. The company was formerly known as Yahoo! Inc. and changed its name to Altaba Inc. in June 2017. Altaba Inc. was founded in 1994 and is based in New York, New York. Company description from FinViz.com

Altaba owns a 15% stake in Alibaba, currently worth about $70 billion. They hold a stake in Yahoo Japan currently worth $7.7 billion. They have $130 million in investments. They have a $740 million stake in Excalibur, a unit of the new company that holds all the Yahoo patents that were not sold to Verizon. The company has $12 billion in cash. They recently announced a $5 billion stock buyback and the company has committed to returning nearly all the cash in the bank plus any thrown off by the investments, to the shareholders.

Owning Altaba is just like owning Alibaba only without the expensive options and a lot less volatility. We get the other parts for free. Obviously Altaba is reactive to Alibaba movement so there will still be some volatility, it is just comes with a lower risk.

Alibaba is growing much faster than Amazon and they have a larger market with 4.5 billion consumers in Asia.

Alibaba reports earnings on Nov 2nd and Altaba reports on Nov 29th. Because of the lower volatility and cheaper option prices, we can own AABA over the BABA earnings and profit from any post earnings gains.

Last week Alibaba said it was going to spend an additional $15 billion over the next three years on research. They already spend $3 billion and have more than 25,000 engineers on the payroll.

The new effort will create the Alibaba DAMO Academy, short for Discovery, Adventure, Momentum and Outlook. The academy will set up labs in China, USA, Russia, Israel and Singapore and fund collaborations with universities. They plan to explore AI, IoT, quantum computing, visual computing, machine learning and network security.

BABA shares fell $6 on the announcement because of the impact to profits. AABA shares followed Alibaba shares down and they bounced today off the 30-day average, which has been strong support. If the trend holds, this should be a buying opportunity.

I am using the Jan options so there will still be earnings expectations in the premium when we exit.

Position 10/19/17:

Long Jan $70 call @ $3.10, see portfolio graphic for stop loss.

ADI - Analog Devices - Company Profile


ADI partnered with China Mobile IoT to create a wide variety of IoT devices for consumers and business. This long-term deal will be very good for ADI.

Original Trade Description: Sept 30th.

Analog Devices, Inc. designs, manufactures, and markets a portfolio of solutions that leverage analog, mixed-signal, and digital signal processing technology, including integrated circuits (ICs), algorithms, software, and subsystems. It offers data converter products, which translate real-world analog signals into digital data, as well as translates digital data into analog signals; high-performance amplifiers to condition analog signals; and radio frequency ICs to support cellular infrastructure. The company also provides MEMS technology solutions, including accelerometers used to sense acceleration, gyroscopes to sense rotation, and inertial measurement units to sense multiple degrees of freedom. In addition, it offers isolators for various applications, such as universal serial bus isolation in patient monitors; and smart metering and satellite applications. Further, the company provides power management and reference products; and digital signal processing products for high-speed numeric calculations. Its products are used in electronic equipment, including industrial process control systems, medical imaging equipment, factory automation systems, patient monitoring devices, instrumentation and measurement systems, wireless infrastructure equipment, energy management systems, networking equipment, aerospace and defense electronics, optical systems, automobiles, and portable electronic devices. The company serves clients in industrial, automotive, consumer, and communications markets through a direct sales force, third-party distributors, and independent sales representatives in the United States, rest of North/South America, Europe, Japan, China, and rest of Asia, as well as through its Website. It has a collaboration with TriLumina Corp. to provide illuminator modules for automotive flash LiDAR systems. Analog Devices, Inc. was founded in 1965. Company description from FinViz.com.

Expected earnings Nov 29th.

ADI is a 52-year-old chip company. Yes, they had chips in 1965. The company is doing great and tends to make chips nobody else is making and that gives them an edge. They reported Q2 earnings of $1.26, which rose 54% snf beat analyst estimates at $1.15. Revenue of $1.43 billion rose 65% and beat estimates for $1.40 billion.

They guided for the current quarter for earnings of $1.29-$1.43 and analysts were only expecting $1.25. Revenue guidance was $1.45-$1.55 billion and analysts were expecting $1.46 billion.

Shares gapped up on the late August earnings then worked through the post earnings depression cycle before moving higher. They closed at a new high on Friday.

Last week IBD raised their composite rating from 93 to 96, which means ADI is outperforming 96% of all stocks in terms of fundamental and technical stock ranking criteria. The stock has an EPS rating of 97 with moderate institutional buying over the last several weeks.

I believe the breakout will continue and we could see $90+ before earnings in November. Options are still cheap because ADI is not a high profile stock.

Position 10/2/17:

Long Dec $90 call @ $1.95, see portfolio graphic for stop loss.

BA - Boeing - Company Profile


Position unopened until a trade at $253.

Original Trade Description: October 28th.

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

Business is booming. Boeing finalized a $13.8 billion order with Singapore Airlines last week. The order is for (20) 777-9 and (19) 787-10 planes. The rumor that will never die surfaced again and that being an Amazon order for (100) 767 freighters. This first appeared in March and keeps resurfacing. Amazon's leases for its current (40) 767 freighters do not expire until 2023. That means there is no rush to order more since it would take years for Boeing to make them but still deliver before 2023. There is another rumor that surfaced last week that Amazon is shopping for financing/lease arrangements for (400) 767s to be delivered over the next ten years. Boeing went to its managers and workers last week to see what would be needed to "significantly" boost production rates for a large and important customer. Boeing is rumored to be looking at a doubling of the production rate. They currently produce (2) 767s per month and they are planning on raising this to 4 per month from January 2020 through January 2021 then slowly scale back to 2 per month by 2025. This would seem to indicate a 40-60 plane order from a single customer for delivery in 2021. Shares closed at a new high.

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

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

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

Boeing recently upgraded their forecast for plane demand from China. The company now predicts China will buy 7,240 planes, up from 6,810 in the prior forecast. The value of these planes will be more than $1.1 trillion. The period covered is 2016 to 2036. China is expected to be 20% of the global demand for aircraft over the next 20 years. Boeing said the rapidly growing middle class and the continued economic growth in China would fuel the growth of airline travel.

Boeing raised its 20 year target on deliveries to Southeast Asia by 460 planes saying demand should exceed 4,210 new planes worth $650 billion. Boeing said Southeast Asia was the fastest growing market in the world and 10% of the global market.

Boeing reported a 7.4% rise in Q3 deliveries due to the high demand for the 737 jetliners. Boeing delivered 202 planes in Q3 compared to 188 in the year ago quarter. Of that total 145 were 737s, up from 120 last year. The 787 Dreamliners slipped 1 to 35 and 777s fell from 22 to 16. Boeing has delivered 554 planes in 2017 and expects to deliver 760-765 for the year. They received 127 new orders in Q3.

For Q3 they reported earnings of $2.72 per share that beat estimates by 7 cents. Revenue was $24.31 billion, which also beat estimates. They guided for the full year for earnings of $9.90-$10.10, ten cents higher than prior guidance. They repurchased $2.5 billion in shares in Q3. Their order backlog is $474 billion for nearly 5,700 commercial planes.

The Commerce Department said orders for commercial aircraft surged 30% in September.

Shares declined with the Dow after earnings. Since they are up roughly 80% for the year, it is understandable they needed to rest. There is support at $253 and again at $234. If the Dow declines next week I would like to enter this position on a touch of initial support.

With a BA trade at $253.00

Buy Dec $260 call, estimated premium $3.50, initial stop loss $248.50.

CCL - Carnival Corporation - Company Profile


No specific news. Down -2% after a 2% rebound on Friday.

Original Trade Description: October 16th.

Carnival Corporation operates as a leisure travel and cruise company. It offers cruises under the Carnival Cruise Line, Princess Cruises, Holland America Line, and Seabourn brands in North America; and Costa, AIDA, P&O Cruises (UK), Cunard, and P&O Cruises (Australia) brands in Europe, Australia, and Asia. The company operates approximately 100 cruise ships. It also owns Holland America Princess Alaska Tours, a tour company in Alaska and the Canadian Yukon, which owns and operates hotels, lodges, glass-domed railcars, and motor coaches. In addition, the company is involved in the leasing of cruise ships. It sells its cruises primarily through travel agents and tour operators. Company description from FinViz.com.

Earnings December 26th.

Carnival shares had been on a steady path higher since last October but were derailed by the hurricanes. Many of the cruise destinations, including Puerto Rico, saw significant damage. Carnival had to cancel a couple cruises but continued running a full schedule almost without interruption. Shares have recovered from their decline and are moving towards pre hurricane levels.

More than 40 islands visited by cruise ships are open, fully operational and welcoming cruise ships on a daily basis. The majority of the 48 cruise ports in the Caribbean were not impacted at all by the storms. In places such as Jamaica, Belize and Cozumel in the Western Caribbean, and Aruba, Bonaire and Curacao in the Southern Caribbean, and Antigua and St. Kitts in the Eastern Caribbean, it's business as usual. Ports in the Bahamas, including Nassau and the popular private islands of Half Moon Cay and Princess Cays, are also open for business.

The only ports out of the normal 48 that are not yet operational are St. Thomas, St. Maarten, Grand Turk, Dominica, Puerto Rico and St. Croix.

The beauty of the cruise ship industry is that they can change itineraries very quickly if a normal destination is out of service.

Carnival reported Q3 earnings of $2.29 beating estimates for $2.20. Revenue of $5.52 billion beat estimates of $5.39 billion. The temporary port closures are expected to cause a 10-12 cent reduction in Q4 earnings. They guided for a range of 44-50 cents and analysts had been expecting 63 cents before the storms hit.

Based on the rebound it appears investors are not worried about the storm impact.

Update 10/20/17: Carnival posted only a minor gain but we may have found out why the cruise sector was down last week. It appears a lot of ships going to China have been takes off that route. China was once touted as the new Caribbean with companies adding ships for Chinese customers. There is no confirmation but maybe taking a cruise was not on the bucket list for most Chinese. Analysts claim it would not be a material impact to cruise earnings but it would reduce suspected growth targets for the coming years. I tightened the stop loss in case the decline continues.

Position 10/17/17:

Long Jan $70 call @ $1.90, see portfolio graphic for stop loss.

COST - Costco - Company Profile


No specific news. Retailers of all types were crushed after Citi cut Macy's to a sell and Bank of America cut Under Armour from neutral to underperform (sell). Those retailer downgrades along with the general market weakness knocked $2 off COST.

They will report comp sales for October this week and expectations are for +7% same store sales and +9% total sales. That should give the stock a boost.

Original Trade Description: October 14th.

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.

We all know the story. Amazon bought Whole Foods and Costco shares lost over $30. Fast forward three months and Costco reported strong earnings but analysts still believed Whole Foods was going to kill them. Shares fell $13.

Let me put this in caps. IGNORE WHOLE FOODS. They are an entirely different business model and even with Amazon behind them, they are no threat to Costco. Costco operates 741 retail warehouses, each 4 times bigger than a Whole Foods store. Whole Foods only has 346 stores. At Costco you can buy food, diamond rings, cameras, large screen TVs, clothing, drugs, discount eye glasses, GE appliances, cruises to anywhere in the world and caskets among thousands of other items. Whole Foods has food.

Costco reported earnings of $2.08 that beat estimates for $2.02. Revenue of $42.3 billion beat estimates for $41.55 billion. Those numbers were up from $1.77 and $36.56 billion in the year ago quarter. US same store sales were up 6.5% and online sales were up 30%. There was NO weakness from the Whole Foods acquisition.

Paid memberships rose 274,000 to 18.5 million. That equates to an addition of 16,000 per week. Business members had a 94% renewal rate and Gold Star members an 89.3% renewal rate. They ended the quarter with $5.78 billion in cash, up more than $1 billion from the year ago quarter.

Costco rolled out a free two-day delivery service for orders over $75 with same day delivery at 376 stores through Instacart.

Shares were knocked for a loss despite the strong results because analysts are still only looking at the surface comparisons between Whole Foods and Costco. The decline stopped at $155 and did not even come close to strong support at $155. The weakness lasted five days.

On Friday, JP Morgan released the results of a recent survey showing Costco grocery prices were a whopping 58% cheaper than Whole Foods. JP Morgan said Whole Foods and Costco actually have very little in common other than a few grocery items and Costco wins hands down.

That report lifted Costco shares by $2.63 on Friday but the stock has a long way to go to recover lost ground.

I looked at the December option with only 48 days left because it was cheaper but I chose the January option with 97 days left because it expires after their January 4th earnings and will retain its premium better. We can always buy time but we do not have to use it.

Update 10/18: Reuters released a survey of 8,600 online shoppers and 75% said they never or rarely by groceries online. While that should have been negative to Amazon and the Whole Foods purchase, it weighed on COST as well because of their efforts to accelerate their online business. Amazon fell $12 on the news.

Update 10/20: Oppenheimer reiterated an outperform rating and $185 price target. They listed 5 reasons why Costco is still a buy. Management optimism, credit card change is over, the new delivery options are just starting, IT investments over the last several years are paying off and costs are declining, improved advertising showing the extended benefits of being a member.

Position 10/16/17:

Long Jan $165 call @ $3.85, see portfolio graphic for stop loss.

DLTR - Dollar Tree - Company Profile


No specific news. Multiple downgrades to sell on other retailers caused a $3 drop in DLTR and stopped us out at $90.75. In retrospect, I had this stop too tight but the stock made a new high close on Friday and that prompted me to raise it with expectations it would move higher. The idea is always to keep stops relatively tight to prevent small losses from turning into big losses.

Original Trade Description: October 21st.

Dollar Tree, Inc. operates variety retail stores in the United States and Canada. It operates in two segments, Dollar Tree and Family Dollar. The Dollar Tree segment offers merchandise at the fixed price of $1.00. It provides consumable merchandise, including candy and food, and health and beauty care products, as well as everyday consumables, such as household paper and chemicals, and frozen and refrigerated food; various merchandise comprising toys, durable housewares, gifts, stationery, party goods, greeting cards, softlines, and other items; and seasonal goods, which include Valentine's Day, Easter, Halloween, and Christmas merchandise. This segment operates under the under the Dollar Tree and Dollar Tree Canada brands, as well as 11 distribution centers in the United States and 2 in Canada, and a store support center in Chesapeake, Virginia. The Family Dollar segment operates general merchandise discount retail stores that offer consumable merchandise, which comprise food, tobacco, health and beauty aids, household chemicals, paper products, hardware and automotive supplies, diapers, batteries, and pet food and supplies; and home products, including housewares, home decor, and giftware, as well as domestics, such as blankets, sheets, and towels. It also provides apparel and accessories merchandise comprising clothing, fashion accessories, and shoes; and seasonal and electronics merchandise, which include Valentine's Day, Easter, Halloween, and Christmas merchandise, as well as personal electronics that comprise pre-paid cellular phones and services, stationery and school supplies, and toys. This segment operates under the Family Dollar brand, 11 distribution centers, and a store support center in Matthews, North Carolina. As of January 28, 2017, the company operated 14,334 stores in 48 states and the District of Columbia, and 5 Canadian provinces. Company description from FinViz.com

Dollar Tree reported earnings in late August that rose 36.1% to 99 cents and beat estimates for 87 cents. Revenue of $5.28 billion rose 5.7% and beat estimates for 5.24 billion. Same store sales rose 2.4%. They guided for the full year for revenue of $22.07-$22.28 billion, up from $21.95-$22.25 billion. Earnings guidance of $4.44-$4.60 rose from $4.17-$4.43.

Shares spiked $6 on the earnings and then went through a week of post earnings depression then began a steady hike higher.

Next earnings Nov 23rd.

After earnings Raymond James upgraded them from market perform to strong buy. Bernstein upgraded from underperform to market perform. Telset Advisory reiterated an outperform.

Dollar Tree is Amazon proof. With everything in the store $1 or less even Amazon cannot sell and ship items that cheap. Since their acquisition of Family Dollar, they now operate 14,334 stores. This is a retail powerhouse and even if the economy weakens, their business will thrive because of the low price point.

Shares have traded sideways for the last 7 days but they moved up on Friday to close at a new 52-week high. Their historic high in August 2016 was $99 and that is the next resistance level.

In September they promoted the past VP of stores since 2001 who became COO in 2007, president in 2013 and now to CEO. He has a ton of experience in every phase of the business. He oversaw the acquisition of Family Dollar in 2015 as president and COO of Family Dollar during the transition. This is very positive for DLTR and the rise in the stock suggests investors like the choice.

The November options expire several days before earnings so I am going with the December strikes so there are some earnings expectations in the premium when we exit before the event.

Position 10/23/17:

Closed 10/30/17: Long Dec $95 call @ $2.70, exit $2.14, -.56 loss.

MU - Micron Technology - Company Profile


No specific news. Shares still consolidating their two months of gains.

Original Trade Description: October 9th.

Micron Technology, Inc. provides semiconductor systems worldwide. The company operates through four segments: Compute and Networking Business Unit, Storage Business Unit, Mobile Business Unit, and Embedded Business Unit. It offers DDR3 and DDR4 DRAM products for computers, servers, networking devices, communications equipment, consumer electronics, automotive, and industrial applications; mobile low-power DRAM products for smartphones, tablets, automotive, laptop computers, and other mobile consumer device applications; DDR2 and DDR DRAM, GDDR5 and GDDR5X DRAM, SDRAM, and RLDRAM products for networking devices, servers, consumer electronics, communications equipment, computer peripherals, automotive and industrial applications, and computer memory upgrades; and hybrid memory cube semiconductor memory devices for use in networking and computing applications. The company also provides NAND Flash products, which are electrically re-writeable, non-volatile semiconductor memory devices; client solid-state drives (SSDs) for notebooks, desktops, workstations, and other consumer applications; enterprise SSDs for server and storage applications; managed multi-chip package products; digital media products, including flash memory cards and JumpDrive products under the Lexar brand name. In addition, it manufactures products that are sold under other brand names; and resells flash memory products that are purchased from other NAND Flash suppliers. Further, the company provides 3D XPoint memory products; and NOR Flash, which are electrically re-writeable and semiconductor memory devices for automotive, industrial, connected home, and consumer applications. Company description from FinViz.com.

Micron is on a roll. Analysts are targeting $50 by the end of December despite the monster gain so far in 2017. Memory is in short supply and prices are rising monthly. The rapid escalation of cloud technology is demanding hundreds of thousands of servers per quarter, millions of disk drives and untold numbers of PCs, phones, tablets and IoT devices.

For Q2, they reported earnings of $2.02 compared to estimates for $1.84. Revenue rose 90% to $6.14 billion and analysts were expecting $5.97 billion.

For the current quarter, analysts are expecting $2.14 in earnings on a 60% increase in revenue. They are likely to beat those estimates.

Despite the strong earnings and forecasts, the company trades at a PE of 8.7 when the S&P is trading at 18.0. This is a monumental mismatch and suggests investors will be racing to buy this undervalued stock.

Shares spiked on earnings and ran up to $40.50. There was a three-day decline of about $1 to consolidate those gains and the stock surged again to close at a new high on Monday. I was hoping for a deeper pullback to buy but it never happened. If we do not buy this breakout, we could still be waiting after it runs up another $5.

I am using January options to capture the earnings expectations in December.

Update 10/10/17: Shares of Micron rallied more than $1 in the regular session but fell $2 in afterhours. The company announced a $1 billion secondary offering after the close. The proceeds will be used to pay off debt including $476 million of 7.5% secured notes and various other notes and credit lines. This should be positive for Micron because interest costs will decline but it will add approximately 25 million shares to the float.

Update 10/11/17: Shares rebounded from the $2 selloff in afterhours to close down only 37 cents. Summit Redstone said buy the dip because the secondary offering to pay off debt was an exercise in value creation. The analyst has a $51 price target. Instinet reiterated a buy rating and $45 target. Wells Fargo reiterated a buy rating and $45 target. Credit Suisse reiterated an outperform rating and $50 target.

Update 10/12/17: Micron priced its $1.2 billion, upsized secondary, at $41 after the close on Wednesday. Shares had closed at $41.61 and dipped today to close at $40.50. Barclay's boosted their target price from $40 to $60 saying DRAM demand looks good through 2018. Demand should remain high and supply should remain tight. Needham, Rajvinda Gill has a price target of $76. Let's hope he is right.

Update 10/18/17: Micron said it was retiring $2.25 billion in debt that carried interest rates of 7.5% and 5.25%. The secondary offering last week will provide most of the funds with the rest paid out of cash on hand. Shares posted a nice gain on the news and have almost recovered the $42 highs before the secondary was announced.

Update 10/20/17: Deutsche Bank reiterated a buy rating. UBS reiterated a buy rating and raised his price target from $39 to $53. UBS said Micron would be cash positive in 2018. The analyst no longer sees DRAM prices declining in 2018 as previously forecast.

Update 10/24/17: David Einhorn's Greenlight Capital took a new position in Micron saying investors are under appreciating the dynamics of the current memory cycle.

Position 10/10/17:

Long Jan $43 call @ $3.05, see portfolio graphic for stop loss.

PYPL - PayPal - Company Profile


No specific news. Still holding at the record highs.

Original Trade Description: October 25th.

PayPal Holdings, Inc. operates as a technology platform company that enables digital and mobile payments on behalf of consumers and merchants worldwide. It enables businesses of various sizes to accept payments from merchant Websites, mobile devices, and applications, as well as at offline retail locations through a range of payment solutions, including PayPal, PayPal Credit, Braintree, Venmo, Xoom, and Paydiant products. The company's platform allows consumers to shop by sending payments, withdraw funds to their bank accounts, and hold balances in their PayPal accounts in various currencies. Company description from FinViz.com.

They reported Q3 earnings of 46 cents, up 32%, that beat estimates for 44 cents. Revenue of $3.24 billion, up 21% and beat estimates for $3.17 billion. They guided for the current quarter for earnings of 50-52 cents and full year earnings of $1.86-$1.88. Mobile payment volume rose 54% to about $40 billion. Total payments rose 31% to $114 billion. Free cash flow rose 36% to $841 million and they have $7.1 billion in cash. They added 8.2 million active accounts with net new actives up 88%. They now have 218 million active customer accounts with 17 million merchants. They processed 1.9 billion payments, up 26%.

Q4 revenue is expected to rise 20-22% to $3.570-$3.630 billion. Paypal said payment platform Venmo was on track with expectations. The platform processed $9.1 billion in payment volume, a 93% YoY increase.

Expected earnings January 18th.

The company recently announced partnership deals with Baidu, Bank of America, Visa, JP Morgan, Facebook and Apple. They have changed their focus from disruptor to partner where they can process more transactions through the partners. The Baidu partnership will connect them to 700 million Chinese shoppers and 17 million Paypal merchants. The deal with Apple to allow Paypal in the iTunes store, AppStore and Apple Music will connect them to more than 1 billion IOS devices worldwide. The Facebook partnership gives them access to 2.01 billion users.

Pacific Crest Securities said their market cap of $85 billion does not make them too big to be acquired by a larger bank. Even Amazon has been mentioned as a possible acquirer.

In mid August Paypal said it was acquiring Swift Financial, a small business lender and the transaction would close by the end of 2017. No terms were given. This will extend Paypal's reach for financing services. Paypal already has a working capital unit since 2013 and they have loaned more than $3 billion to small businesses.

Thanks to recent agreements with MC/V, users will be able to transfer money directly from their accounts to credit/debit cards, which will become a big selling point. The new "Pay with Venmo" platform that will allow users to make purchases at retail locations is in test mode with Lululemon, Athletica and Forever 21 already accepting those payments. This is turning into another big revenue stream for Paypal.

Shares posted an 81% gain on Wednesday when the market was down on much needed profit taking. Investors looking for a buying opportunity are going to be left behind.

Position 10/26/17:

Long Jan $72.50 call @ $2.95, see portfolio graphic for stop loss

VIX - Volatility Index - Index Profile


Only a minor gain because the Nasdaq was holding its gains.

If we ever hit that exit target at 16 it means we are probably going to lose other long positions. This is insurance against that potential decline.

This is the fourth longest period in history of the markets without a 5% decline. While it does not look likely today, it could happen at any time. It has been 482 days since a 5% decline.

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 SPDR ETF - ETF Profile


The Dow was down triple digits intraday and could continue to decline if the tax reform phasing plan makes it into the details released on Wednesday.

Original Trade Description: October 21st.

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 DJIA is the oldest continuous barometer of the U.S. stock market, and the most widely quoted indicator of U.S. stock market activity.

I am going to make this as simple as possible. The Dow is extremely overbought. It is due for a rest. There are 12 Dow components reporting earnings this week. Volatility will occur but we do not know in which direction. Since all the Dow gainers are already up strongly over the last several weeks, there is a good chance we could see some declines.

This is highly speculative. I am using November options because they are cheap but they will require a substantial move in the next ten days or they will decay quickly. This will be a quick trade.

Buy Nov $232 put, currently $1.86, no initial stop loss.

SLB - Schlumberger - Company Profile


No specific news. Crude oil prices are holding over $54 and that is supporting the energy sector.

Original Trade Description: October 23rd.

Schlumberger Limited supplies technology products and services to the oil and gas exploration and production industry worldwide. Its Reservoir Characterization Group segment provides reservoir imaging, monitoring, and development services; wireline technologies for open and cased-hole services; slickline services; exploration and production pressure and flow-rate measurement services comprising surface and downhole services; software integrated solutions, such as software, consulting, information management, and IT infrastructure services; consulting services for reservoir characterization, field development planning, and production enhancement; and petrotechnical data services and training solutions, as well as integrated management services. Its Drilling Group segment designs, manufactures, and markets roller cone and fixed cutter drill bits; supplies drilling fluid systems; provides pressure drilling and underbalanced drilling solutions, and environmental services and products; mud logging services; land drilling rigs and support services; and well planning and drilling, engineering, supervision, logistics, procurement, contracting, and drilling rig management services, as well as bottom-hole-assembly, borehole-enlargement technologies, impact tools, tubulars, and tubular services. Its Production Group segment provides well services comprising pressure pumping, well cementing, and stimulation services; coiled tubing equipment; well completion services and equipment that include packers, safety valves, and sand control technology, as well as completions technology and equipment; artificial lifts; and integrated production and production management services. Its Cameron Group segment offers integrated subsea production systems; surface systems; drilling equipment and services; and valve products and measurement systems. Company description from FinViz.com.

The company said the already week offshore sector was also declining because offshore drilling/production is not profitable at $50 oil. This sector will continue to decline until oil prices rebound over $75 sometime in 2019 according to best estimates.

Schlumberger said production growth was slowing faster than expected. That means less cash flow for producers and another decline in rig counts. The company said customers were reducing their forecasts for prices and activity for 2018 and future revenue and profitability was likely to decline.

Shares fell $2 post earnings to $62 but the odds are very good we are going to see lower lows as the energy companies report disappointing earnings and guidance in the weeks ahead.

Earnings January 19th.

Position 10/24/17:

Long Jan $60 put @ $1.42, see portfolio graphic for stop loss.

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