Option Investor

Daily Newsletter, Saturday, 11/4/2017

Table of Contents

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

Market Wrap

Chip Rip

by Jim Brown

Click here to email Jim Brown

News that Broadcom may bid for Qualcomm caused a major rally in semiconductors that added to the Apple generated gains.

Weekly Statistics

Friday Statistics

The market was positive but moving sideways until 1:30 when headlines broke that Broadcom (AVGO) with a market cap of $112 billion could be preparing a bid for Qualcomm (QCOM) with a market cap of $91 billion. The rumored bid was in the $70 range, which would have been a 27% premium to the $55 price in QCOM shares before the headline broke. If by chance this deal actually happened, it would be the largest tech acquisition ever.

There are a lot of hurdles to cross before a deal this big can be completed. Both are international companies, which means approvals by multiple countries. Secondly, Broadcom would have to complete its move to the US as its home country. There is no chance of getting it approved with Broadcom a Singapore company. The CEO announced the move in the Oval Office with President Trump on Thursday.

Broadcom has been a serial acquirer. The company was a $30 stock in early 2013 and it is $275 now. The last major acquisition was the Avago acquisition of Broadcom in 2015 for $37 billion in the largest tech acquisition ever at that time. They took the Broadcom name but retained the Avago symbol.

The key here is that the old Broadcom was a wireless chipmaker. Qualcomm is a wireless chipmaker. Together they would be a near monopoly in some types of wireless chips. Analysts believe this could be a deal too complicated for Broadcom to A) come up with a price that Qualcomm is likely to accept and it would have to be well over $70. B) The breakup fee would have to be huge because of the regulatory complexity. C) There would more than likely be competitive bidders.

I speculated a couple weeks ago that Apple should buy Qualcomm to get their chip technology and eliminate the complicated licensing program that costs Apple billions in licensing fees every year. Qualcomm will earn $7 billion for 2017 on revenue of more than $25 billion. What is having a wireless chipmaker in Apple's portfolio worth? They have $269 billion in cash so money is not the problem.

Don't forget that Qualcomm is in the middle of acquiring NXP Semiconductor (NXPI) for $110 per share or $37 billion. That deal is currently on hold by the EU and the approval process will restart on Dec 6th. Activist shareholder Elliott Management is pressing for a higher price and shares were at $118 before the Broadcom rumors.

The surge in the chip sector powered the Nasdaq to a new record high. The index gained 13 points in the 30 min after the headlines broke. The $SOX closed at a new high after spiking 20 points after the 1:30 news. Since the chip sector leads the Nasdaq there was nowhere to go but up.

Apple (AAPL) was also a contributor to the rally with a spike to record high of $174.26 at the open, Shares faded back to close at $172.48 but they still contributed 30 points to the Dow and 19 points to the Nasdaq 100. Qualcomm contributed 9 to the $NDX, second largest contributor behind Apple with Broadcom adding 5 index points in 4th position. Amazon was the third largest contributor at 7.3 points.

Apple gained on their blowout earnings but analysts said the guidance was the key. They guided for the sale of 85.5 million iPhones in Q4 and that was slightly above the midrange of their prior guidance. That means there are no material production issues. That was a major relief to analysts and investors.

However, the odds are very slim Apple shares will hold those gains without some retracement. Ideally, that would be a pullback to $160-$165 but we rarely get what we want in these situations. The August earnings spiked to $160 and then pulled back to $150 on those manufacturing rumors. The May earnings spike to $156 pulled back to $142.50. There is precedent for Apple shares to drop about $10 in the weeks after an earnings spike.

However, there are no headwinds for Apple today. With the manufacturing rumors dispelled, Apple's business is booming. One company that handles remarketing of Apple phones said 15% of the phones traded in on the iPhone X are model 8s. That means demand for the X truly is off the charts. There were lines at the major Apple stores Friday morning that were hundreds of people long and they remained long most of the day.

  Apple temporarily exceeded $900 billion in market cap on Friday. Apple is well on its way to being the first trillion dollar company. Microsoft is next at $649 billion. Amazon is well behind at $536 billion, Alibaba is $469 billion, Facebook at $424 billion, Google at $313 billion and Wal-Mart at $268 billion.

In earnings news, Bloomin Brands (BLMN) reported earnings of 12 cents that missed estimates for 15 cents. Revenue of $948.9 million narrowly beat estimates for $948.0 million. Same store sales fell -1% but that was better than the -2% consensus. The company said the hurricanes reduced revenue by 1% and earnings by 4 cents. They guided for the full year for earnings of $1.31-$1.36 compared to prior guidance of $1.40 to $1.47. Somebody needs to check my math but that guidance drop was a lot more than 4 cents so there are problems they cannot blame on the hurricanes. Analysts were expecting $1.40. It appears investors bought the hurricane excuse because shares closed flat rather than suffering a big loss.

Dentsply International (XRAY) reported earnings of 70 cents that beat estimates for 66 cents. Revenue of $1.01 billion beat estimates for $978.4 million. The company guided for the full year for earnings of $2.65-$2.70 per share, slightly tighter than the prior guidance of $2.65-$2.75. Shares rallied 6% on the news.

ImmunoGen (IMGN) reported a loss of 37 cents, which missed estimates for a loss of 28 cents. Revenue of $8.5 million missed estimates for $29.2 million. They guided for full year revenue of $115-$120 million. They posted a big miss on earnings and revenue so you would expect a big drop in the shares. Instead, they rallied 6%. On the call, they said they raised $235 million in capital through transactions with Sanofi and Jazz and that gives them a two-year run rate on cash burn. That will allow them to complete some existing trials and move forward on marketing collaborations.

Starbucks (SBUX) reported earnings after the bell on Thursday, missed on revenue, and lowered guidance. They cut EPS growth estimates to 12% in 2018 compared to prior guidance of 15-20%. They guided for same store sales growth of 3% to 5% and revenue growth of 6% to 9%. They warned they would take a revenue hit as they closed all 379 Teavana locations by spring of 2018 and close its ecommerce platform. The company is also selling its Tazo tea brand to Unilever for $384 million. Starbucks bought the brand in 1999 for $8.1 billion. Shares fell as much as 6% in afterhours on Thursday. They rebounded to actually gain 2% after the CEO said on Friday the company could exceed those new growth targets. I may be wrong but I think Starbucks shares are dead money until they can prove the growth is back on track. With a Starbuck on nearly every major street corner in the US the revenue average per store is going to continue dropping. Overall sales may rise but only because they are putting 2-3 per corner in China.

Another Thursday night reporter was Activision (ATVI). They reported earnings of 47 cents that missed estimates for 50 cents. Record revenue of $1.62 billion missed estimates for $1.74 billion. They guided for the full year for $2.08 on revenue of $6.68 billion. Analysts were expecting $2.14 and $6.79 billion.

However, Activision had guided in August for earnings of 34 cents and revenue of $1.385 billion. Based on their guidance they had a blowout quarter. Activision Blizzard had 384 monthly active users (MAU) with a record 49 million online players. Subsidiary King Digital had 293 million MAU. Numerous engagement metrics were at record highs. For Q4 they guided for 36 cents and $1.7 billion in revenues.

The annual BlizCon event at the Anaheim Convention Center this weekend saw 30,000 tickets sold out in a matter of seconds. Millions more will watch it through online live streaming.

Shares plunged $2 after setting a new intraday high.

Pandora (P) reported a loss of 6 cents that beat estimates for 7 cents. Revenue of $378.6 million missed estimates for $381 million. The company guided for Q4 revenue of $365-$380 million and analysts were expecting $413 million. The CEO said advertisers were complaining Pandora's advertising interface was lacking critical features and it is starting to have an impact on our revenue. Advertising accounts for 73% of Pandora's revenue. Investors were not pleased with the earnings, guidance and CEO comments and the stock fell 25%.

The outlook for Q3 earnings has improved considerably with current expectations at 7.9% growth, up from 4.3% several weeks ago. Of the 407 S&P companies that have already reported 72.2% have beaten earnings estimates and 66.7% have beaten on revenue. There have been 41 guidance warnings for Q4 and 23 companies have raised guidance. The current forward PE is 18.1. In the coming week 49 S&P companies will report along with 1 Dow component.

The notable companies reporting next week include Priceline, Monster Beverage, AstraZenaca, Nvidia and Dow component Disney.

The economic reports on Friday were mostly positive. The Nonfarm Payrolls for October were 261,000 and slightly under estimates for 315,000. This was another Goldilocks number that was not too hot to cause the Fed to accelerate their rate hike schedule. The September payrolls that came in with a decline of -33,000 because of the hurricanes were revised higher to a gain of 18,000 to stretch the continuous string of monthly gains to 85 months. August was revised upward from 169,000 to 208,000.

The unemployment rate fell from 4.2% to 4.1%, a decade low, and the labor force participation rate declined from 63.1 to 62.7. There was a whopping decline of -765,000 from the labor force. The broader U6 unemployment rate fell to 7.9%.

The leisure/hospitality sector rebounded with a gain of 106,000 jobs after a loss of -102,000 jobs in September due to the hurricanes. Many service businesses were closed for several weeks after the Houston and Florida storms.

The trade deficit for September was $43.5 billion, just over $1 billion more than in August. Exports and imports both increased. The deficit has been just over $43 billion a month for the last four months.

Factory Orders for September rose 1.4% and the largest gain since October. Durable goods orders to 2.0% and non-durables +0.8%. Nondefense capital gods rose 1.7%. There was no material impact from the hurricanes.

The ISM Nonmanufacturing Index rose slightly from 59.8 to 60.1 for October. That is the highest level since July 2015 at 60.3 and almost back to the levels seen before the financial crisis. The services sector accounts for 88% of GDP. New orders were flat at 62.8 and backlogs declined slightly from 56.0 to 53.5. The employment component ticked up slightly from 56.8 to 57.5. There was no material impact from the hurricanes.

The economic calendar for next week is very light without any important events. There is only one Fed speaker when there are normally around 10. This looks like a holiday week only there is no holiday.

Crude prices shocked traders with another $2 gain to $55.70 and a two-year high. Other than the constant propaganda from Saudi Arabia and OPEC about doing whatever it takes to stabilize prices and potentially extending the voluntary cuts through the end of 2018, there was only one relevant piece of news.

Nigeria returned to the headlines after the Niger Delta Avengers said the cease-fire declared in August 2016 was officially over. The rebels warned of a "brutish, brutal and bloody campaign against oil companies." The group has been responsible for cutting Nigerian production from 1.65 mmbpd to 1.0 mmbpd earlier this year. That production had been recovered according to the IEA as pipelines and facilities were repaired. The rebels want the oil wealth redistributed to the Niger Delta region where the oil is produced. They promised to cut every pipeline that moves crude away from the region until their demands are met. They are also targeting an offshore production facility in 1,700 meters of water and 130 km offshore. The facility is operated by Total SA.

The active rig count fell another 11 rigs. We have lost 60 rigs in the last 14 weeks to 898 and the lowest level since May 12th. Oil rigs declined -8 and gas rigs -3.


The Volatility Index ($VIX) closed at a historic low of 9.14 on Friday. The prior historic low was 9.19 on Oct 5th. I know this is going to sound like a broken record but this is a long-term warning. The VIX cannot remain this low forever. When volatility does return a lot of investors are going to be hurt badly because they have forgotten that bad things can happen in the market with no warning.

Despite the weekly headlines by some barely known analyst predicting the end of the current bull market, there is nothing on the horizon that would suggest an end. Earnings are actually improving and tax reform although only in the discussion stages is in the headlines every day. Larger and larger stock buybacks are being announced, dividends are rising, the global economy/markets are improving, US economics are improving and the Fed is on a very slow path towards normalization. There are no obvious roadblocks in the near future.

Just be aware that record lows in volatility and record highs in the market will eventually reverse. I have always found that the greater the percentage of my assets I have in the market the more likely it is to crash.

As the semiconductors lead the Nasdaq, the small caps "normally" lead the market. They were early to rebound in September and the S&P followed. Now the small caps are fading while the S&P is making new highs. Is this time different? Will the Russell 2000 turn higher or will the S&P follow the Russell lower?

The S&P is moving ever closer to 2,600 despite the moves over the last week being muted. The index is moving farther away from the uptrend support and farther away from the averages. Currently, the S&P is 65 points above the 50-day average. Back in March, the index closed 101 points above the 50-day average. In December, it reached 104 points over the average. Those are the two widest ranges since before the financial crisis. That would suggest we still have room to run but the average high spread seems to be about 75 points.

The 2,600 level is going to be strong psychological resistance because only 7 Wall Street analysts have targets over that level. Either we are going to see a major flurry of updated targets or there could be a lot of analysts taking heat for their predictions. Investors do listen to forecasts. Some even act on them.

The Dow gained 22 points despite Apple, UNH and HD adding more than 50 points. The Dow A/D line was almost flat with only 3 more advancers than decliners. The index has had a flat A/D line despite the recent gains.

Disney is the only Dow component reporting earnings this week and that is after the bell on Thursday so it will not provide any lift during the week. Apple is likely to fade from the record high because of the $15 gain over the last week. While Apple may deserve the gains, that is a lot in one week and earnings are now behind us.

The Dow remains the most overbought index and the one most likely to pause for a rest. You could say the flat consolidation pattern over the prior 7 days was that rest. Markets do not have to decline in order to recharge and that could be what has happened to the Dow. We just will not know until next weekend.

The Nasdaq big caps have launched to another level. The Nasdaq 100 closed at a new high on 5 of the last 6 days. Four of the last five months saw a very choppy trend for the big caps until the late September rally. The NDX took profits in mid October and that reenergized the index for a higher run.

Only two of these big cap stocks are NOT at a new high. Those are Priceline and Tesla.

The Nasdaq Composite closed at a new high on Friday thanks to Apple's 19-point contribution. Broadcom and Qualcomm added another 14 points. That means 33 of the 49 points gained were added by only 3 companies. The index has had six decent declines since May that averaged 186 points each. The last two have barely broken 100 points or roughly a 1.5% decline each. As long as the tech stocks remain hot, this performance can continue but the post earnings depression phase will eventually appear. I would not be surprised to see a dip back to 6,550 or roughly 3%.

The Russell 2000 is struggling to hold its gains but so far, it has been mostly successful. Friday's close was only 17 points below the record high close at 1,512. This pattern has actually morphed into a continuation pattern that normally breaks to the upside.

There was a major shift in investor sentiment last week. The bullish camp gained 5.4% to 45.1% and the highest level since January 4th at 46.2%. Bearish sentiment collapsed to 28.6% after a 5% spike the prior week. The new Nasdaq highs have a powerful impact on sentiment.

The fundamental factors suggest the market will continue moving higher. Maybe not in a straight line but the trend should remain bullish. Dips should be bought but probably not on the first day. It has been 489 days since we have seen a 5% decline and we normally average twice a year. Retain some cash in your account and consider any dip a buying opportunity.

SAVE $50 on your EOY Subscription - ONE WEEK ONLY!

Long time readers of Option Investor know we launch our End of Year subscription special on Thanksgiving weekend. It will be 20 years this Thanksgiving.

Several years ago, we offered a free silver dollar with an EOY subscription. It was our most successful promotion since the Financial Crisis. We are going to repeat that again in 2017 with a specific coin this time. Each EOY subscriber will receive a genuine Morgan Dollar, which is thought to be one of the best looking silver coins ever minted. These make great Christmas presents!

Morgan Dollar

If you already know you want to renew your subscription at the cheapest price of the year then click the link below. As in past years, we are offering an Early Bird Special with an additional $50 off for anyone that subscribes this week only. The Early Bird Discount Offer expires on November 15th and the price will revert to normal.


Enter passively and exit aggressively!

Jim Brown

Send Jim an email


"Try to learn something about everything and everything about something."

Thomas Henry Huxley


Index Wrap

Big Cap Techs Leading

by Jim Brown

Click here to email Jim Brown
Of the top 15 largest tech companies, only 2 are not at new highs.

For several weeks, I wrote that the big cap tech stocks were choppy and trendless. Amazon dipped to $962, Apple $155, Netflix $191, etc. In late October, the big cap tech stocks paused. They did not correct or post any major declines, but they moved sideways with a negative bias for several weeks. The market in general was moving higher but it was a constant battle led by individual stock performance in the Dow.

That has changed with the tech earnings and post earnings moves. The pause in the big caps gave them a chance to recharge and now we are experiencing the fruits of their resurgence.

The Dow is still making new highs but it is struggling. This index also rested over the last two weeks with more sideways movement than vertical gains. There was just enough help from earnings on a couple days each week to power the index to a 100-point gain for each of the last two weeks. The Dow was not setting the world on fire but it was holding its gains and slowly adding to them.

The market challenges have come from the small caps and the transportation sector. Like the Russell 2000, the S&P-600 small cap index is struggling. However, the $SP600 closed at a 5-week low on Friday. The index appears to be on the verge of a breakdown where the Russell chart looks more like a consolidation/continuation pattern. The SP600 is a managed index where the stocks are picked out of the small cap universe. The Russell 2000 is simply the bottom 2,000 stocks by market cap in the Russell 3000 index. The SP600 is actually reflective of the small cap sector. The SP600 lost 15 points for the week.

The Dow Transports ($TRAN) lost -176 points for the week and the second worst performance behind the SP600. The Transports should be in rally mode because of the expanding economy. However, airlines are struggling with competition and shrinking margins and railroads are feeling the pinch from declining rig counts in the energy sector and the potential impact from a change in NAFTA. Any further declines in the transports should be negative for the Dow.

The biotech sector was hit the prior week on drug pricing headlines out of Washington. The sector began a recovery on Thursday, probably on the news that President Trump would be out of the country for a couple weeks and the pricing headlines would evaporate. I think we all agree that something needs to be done when new drugs cost $75,000 to as much as $750,000 a year. I am a free market guy but this is getting ridiculous when other countries pay only 10% to 20% for the same drug. Sorry, did not mean to go off on a rant.

In the past buying the biotech ETFs on a bounce from uptrend support would have been a profitable play. This time, I would not be surprised to see resistance at 4,300 hold.

The energy sector is seeing a rebound but it has a long way to go. If oil prices were to suddenly break free of $55 and move higher, it would be very market positive. The energy stocks have been hammered for the last three years and $65 oil would cause a monster rally. I am not yet a believer in this rebound but we are at least headed in the right direction.

The MACD on the Dow has triggered a sell signal but there is no confirmation. The crossover is still too close to make a sell call. The index has been struggling and the uptick on Friday was all due to Apple. The Dow remains the most overbought chart.

The MACD on the S&P remains negative but the index continues to make new highs on the strength of the big cap tech stocks. The A/D line ticked up slightly late in the week but the momentum from Sep/Oct has faded. The MACD on the A/D is in full decline.

The Nasdaq gains on Friday came from a dozen big cap stocks but mostly AAPL, AVGO and QCOM, which added 33 of the 49 points. The Nasdaq has spiked above uptrend resistance and well above the October decline lows. The key for the Nasdaq next week will depend on how many of those earnings gains are sold.

The broadest market index closed at a new high despite the weakness in the MACD. As long as the Russell 3000 is moving higher, the overall market trend will remain intact. This is the key index to watch along with the S&P-600.

The markets appear to be headed higher but we are moving into the post earnings depression period. I have been writing for several weeks to beware of weakness in the week of November 6th. Given all the positive fundamentals, any weakness could be brief but this is the week that the earnings fuel begins to evaporate.

Any dip should be bought but not on the first day. I like to say buy the rebound since picking a bottom can be tricky.

The trend is our friend until it ends but there is rarely any warning.

Enter passively and exit aggressively!

Jim Brown

Send Jim an email

New Option Plays

Full Recovery

by Jim Brown

Click here to email Jim Brown

Editors Note:

Shares of American Express have made a full recovery after they lost the customer card franchise at Costco in 2016.


AXP - American Express - Company Profile

American Express Company, together with its subsidiaries, provides charge and credit payment card products and travel-related services to consumers and businesses worldwide. It operates through four segments: U.S. Consumer Services, International Consumer and Network Services, Global Commercial Services, and Global Merchant Services. The company's products and services include charge and credit card products, as well as other payment and financing products; network services; expense management products and services; travel-related services; and stored value/prepaid products. Its products and services also comprise merchant acquisition and processing, servicing and settlement, merchant financing, point-of-sale marketing, and information products and services for merchants; and fraud prevention services, as well as the design and operation of customer loyalty programs. The company sells its products and services to consumers, small businesses, mid-sized companies, and large corporations through online applications, direct mail, in-house teams, third-party vendors, and direct response advertising. American Express Company was founded in 1850 and is headquartered in New York, New York. Company description from FinViz.com.

The company was founded in 1850. Did you really think a temporary blip from the change at Costco was going to impact them long term? Of course not although analysts were pretty negative for several months. Since that fiasco shares have recovered nicely and closed at a record high on Friday.

They posted Q3 earnings of $1.50 that beat estimates for $1.47. Revenue of $8.44 billion beat estimates for $8.32 billion. Revenues rose 9% and earnings rose 19%. They guided for full year earnings of $5.80-$5.90, up from prior guidance of $5.60-$5.80.

Earnings January 17th.

The CEO said "we are completing a two year turnaround ahead of plan with strong revenue and earnings growth across all our business segments. We added products and benefits, shown continued strength in acquiring new customers and expanded our merchant network. Loan growth continued to be strong and credit metrics were again in line with our expectations. We contained operating costs and reallocated a significant part of those savings to fund many of the initiatives that are driving growth across the business."

Shares have been moving mostly sideways with a slight upward bias the last 7 days but I believe they are about to break out for a new leg higher.

Buy Jan $100 call, currently $1.70, initial stop loss $92.85.


No New Bearish Plays

In Play Updates and Reviews

New Highs on Tech

by Jim Brown

Click here to email Jim Brown

Editors Note:

The big cap tech stocks were on fire again on Friday and responsible for the new Nasdaq high. It was tech Friday and news of the possible Broadcom/Qualcomm merger kicked it into high gear. The Nasdaq Composite gained about 13 points in the 30 minutes surrounding the headlines and that caused the ETFs to pop and another round of short covering.

The Dow only gained 22 points and Apple contributed 30. Dow components are falling into post earnings depression.

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

No Changes

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 is experiencing post earnings depression until the Singles Day headlines start next week.

Alibaba's new Global Shopping Festival is coming on November 11th and that will produce a lot of headlines in the days ahead of the event. In 2016, they sold $17.7 billion on that day, up 32% from the prior year. With 549 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.

Update 11/2: Alibaba reported an outstanding quarter with a 61% rise in revenue. They raised guidance for 2018 for a 49-53% rise in revenue, up from prior guidance of 45-49%. Their cloud computing business revenue rose 99%. Earnings of $1.29 bear estimates for $1.04. Revenue of $8.29 billion beat estimates for $7.86 billion. Monthly actuve users rose 3.8% to 549 million. The current quarter is going to show explosive growth given the expanded Single Day promotion.

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


No specific news. New record high close.

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.

COST - Costco - Company Profile


Oppenheimer reported the results of a study on price comparisons between Whole Foods and Costco after the Amazon dictated price reductions. They found Costco's prices averaged 23% lower.

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.

Update 11/2: Costco reported a 10.1% increase in sales for October to $10.02 billion. For the first 8 weeks of their fiscal 2018 sales have risen 11.3% to $19.87 billion. Same store sales for that 8-week period was +8.1% in the USA, +9.0% in Canada, +9.3% international. Companywide comps sales were +8.3% with a 32.2% in ecommerce sales. I can't wait to see the Whole Foods comp sales numbers but I doubt Amazon will break them out. There is ZERO impact on Costco from the Whole Foods/Amazon acquisition.

Position 10/16/17:

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

MU - Micron Technology - Company Profile


No specific news. Micron will give 4 presentations at the Supercomputing conference in Denver from Nov 12-17th.

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.

Update 10/31/17: Shares soared after Samsung reported earnings and said supply og DRAM and NAND memory would continue to be tight through 2018. That means higher prices for all memory makers. Samsung posted a 200% increase in profits on a 30% increase in revenue.

Position 10/10/17:

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

PYPL - PayPal - Company Profile


No specific news. New record high close.

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


New record low close on the VIX at 9.14. The prior low was 9.19 on Oct 5th. Unbelievable. The record intraday low was 8.60 in 2006.

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 489 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


Apple added 30 Dow points and the index only gained 23. Next week will be pivotal.

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.

OMC - Omnicom Group - Company Profile


No specific news. Only a 2 cent rebound from the 2-yr low close on Thursday.

Original Trade Description: Nov 1st.

Omnicom Group Inc., together with its subsidiaries, provides advertising, marketing, and corporate communications services. The company offers a range of services in the areas of advertising, customer relationship management, or CRM, public relations, and specialty communications. Its services comprise advertising, brand consultancy, content marketing, corporate social responsibility consulting, crisis communication, custom publishing, data analytics, database management, environmental design, financial/corporate business-to-business advertising, graphic arts/digital imaging, healthcare communications, and instore design services. The company's services also include direct, entertainment, experiential, and field, interactive, mobile, multi-cultural, non-profit, promotional, retail, search engine, social media, and sports and event marketing services; and investor relations, marketing research, media planning and buying, organizational communications, package design, product placement, public affairs, public relations, and reputation consulting services. It operates in North America, Latin America, Europe, the Middle East, Africa, Australia, China, India, Japan, Korea, New Zealand, Singapore, and other Asian countries. Omnicom Group Inc. was founded in 1944 and is based in New York, New York. Company description from FinViz.com.

Omnicom reported Q3 earnings of $1.13 that beat estimates for $1.10. Revenue of $3.72 billion declined -1.9% and narrowly beat estimates for $3.71 billion.

Expected earnings Jan 16th.

Omnicom was the only advertising agency that posted decent earnings. Interpublic Group (IPG) and WPP Group (WPPGY) both lowered guidance as their biggest clients like McDonalds, Procter & Gamble, J&J, etc, all began to shrink advertising budgets. Amazon has turned into a seller of everything and companies like PG and JNJ are suffering from product price declines and less buying from normal wholesale customers.

McDonalds said this week they were going to review their $2 billion advertising budget and see how much they needed to divert to social sites like Instagram and Facebook. The advertising being served on Facebook does not need a multibillion dollar ad agency to place it. Everything is online and companies have instant access to more than 3 billion consumers between Facebook, YouTube and the Google Chrome browser. The historical advertising business is undergoing a revolution.

Shares of OMC have declined to a two year low and with the other companies lowering guidance and Facebook posting blowout advertising numbers tonight, we could see lower lows on OMC.

Position 11//2/17:

Long $65 put @ $1.70, see portfolio graphic for stop loss.

PG - Procter & Gamble - Company Profile


No specific news. Only a minor rebound from the lows.

Original Trade Description: October 28th.

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.

Position 10/31/17:

Long Jan $85 Put @ $1.88, see portfolio graphic for stop loss.

SLB - Schlumberger - Company Profile


No specific news. Crude oil prices soared to nearly $56 and that overcame the weakness in SLB on Friday.

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.

Schlumberger reported earnings of 42 cents that matched analyst estimates. Revenue of $7.91 billion also matched estimates. The company warned that North American producers were reducing their capital expenditures because of the outlook for oil prices. We saw that confirmed last Friday when the active rig count declined 15 rigs for the week. The total has dropped -23 rigs in the last 3 weeks to the lowest leven since May 26th.

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.

If you like the trade setups you have been receiving and you are on a free trial then now is the time to subscribe. Don't wait until you miss a newsletter to decide you want to take the plunge.

subscribe now