Option Investor
Newsletter

Daily Newsletter, Monday, 11/13/2017

Table of Contents

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

Market Wrap

Market Steady, Tax Reform In Focus

by Thomas Hughes

Click here to email Thomas Hughes

Introduction

Tax reform worries linger, weighing on a market in need of good news. Questions on the minds of traders? Will tax reform get done this year, or at all? If it does, will corporate tax cuts get pushed off until 2019, or later? In the end it may not matter, the market and the economy are doing OK without reform, but it sure would be nice. In the meantime, earnings season is drawing to a close leaving little to drive markets other than data and news. In terms of data the week is fairly full, in terms of news there are plenty of issues that could create headlines, it's just a matter of when they cross the wires and the message they contain.

Asia was a bit mixed. China moved higher on the raging success of Alibaba's Single's Day. I myself watched a bit of the festivities and it was like watching a Jack Ma's telethon for himself. Elsewhere in the region equities fell on last week's decline in US markets. The Nikkei shed -1.32% while the Shang Hai Composite rose 0.47%. European markets closed largely lower as US tax reform angst spills over in the European financial sector and growing concern on the future of Brexit leads traders to doubt Theresa May's longevity as PM. The CAC led with a loss near -0.75 followed by -0.40 for the DAX and -0.24 for the FTSE.

Market Statistics

Futures trading indicated a lower open for most of the morning. The SPX was indicated to open with a loss near 8 points at the low of the early session but that moderated to about -6 points by the open. The open was a bit active as sellers were quickly overcome by buyers. The index was moving higher from the open within the first 10 minutes of trading and regained break even shortly after 10AM. After that the index trend sideways for an hour or so before edging higher into the afternoon. By 3PM the index was setting a new high for the day. Late afternoon say the index surge to set an intraday high close to +4 only to meet sellers and fall back to break even by the close.

Economic Calendar

The Economy

Moody's Survey of Business Confidence gained 1.3 points to hit 30.00. This is the highest level in a month but well off the post-election peak. Mr. Zandi says that business sentiment is still strong despite the recent weakness and in line with a global economy expanding at the top end of its potential. Of the 9 questions the ones showing the most weakness are those dealing with hiring and pricing.


Earnings season is quickly drawing to a close. A little more than 90% of the S&P 500 has reported. Of those who have reported 74% have beaten EPS estimates and 66% have beaten revenue estimates, both figures above average. The blended rate of earnings growth for the quarter continues to creep higher and is now 6.1%. Seven sectors are showing earnings growth versus the 6 previously expected while 8 are performing better than expected.


Looking forward we can still expect to see robust growth over the next 5 quarters although those estimates continue to fluctuate and/or trend lower. Fourth quarter 2017 estimate fell to only 10% and has been in downtrend since the first of the year. Looking to 2018 the 1st and 2nd quarters earnings growth is expected to come in between 10.0% and 10.5% before expanding to above 11% by the end of the year. Full year 2017 is looking for 9.4%, 2018 11.1%.


The Dollar Index

The Dollar Index held steady in a day of mild sideways action. The index is still above the $94 level and looking like it wants to continue moving higher. This week will be dominated by CPI, PPI and a lot of Fed speak including Janet Yellen tomorrow morning. Along with this will be a fair amount of similar data from the UK, the EU and Japan along with scheduled remarks/speeches from Carney, Kuroda and Draghi. At present the FOMC is diverging from the other banks, if this persists throughout the week I would expect to see the dollar move higher. In terms of the CME's FedWatch Tool the chances of a rate hike in December have reached 100% and have reached 50% for another hike by March. First target for resistance is near $95, a break above that would be bullish.


The Gold Index

The gold price also held steady in today's trade. Spot price is hanging just below the $1,280 mark supported by geopolitical risk and weighed down by dollar outlook. A move above $1,280 may be bullish but would face resistance at $1,290 and $1,300 in the near term, a fall may be bearish but would face support near $1,265 and $1,250.

The Gold Miners ETF GDX also held steady in today's trading but near its 3 month low. The ETF is still trending sideways within its long term range and now sitting on the mid-line of that range. This level will be important over the next week and likely to determine direction for the near to short term. A bounce would be bullish, within the range, with a target near $24.00, a break through support would be bearish with a target near $21.


The Oil Index

Oil prices ticked higher as Middle East tensions continue to simmer. The Saudi purge, fighting in Yemen, Saudi relations with Iran and its neighbors are only the tip of the iceberg. These risks have trumped signs of rising supply from the US and Saudi Arabia, helping to keep prices near their multiyear highs. The possibility OPEC furthering its production cap, along with an increase in demand forecast issued today, may keep prices moving higher but there is risk an easing of tensions could cause the fear premium to evaporate.

The Oil Index fell a little more than -0.60% in today's action. The index created a small red bodied candle within the 6 day range but sitting on support at the bottom of that range. The index remains in uptrend but may have entered a consolidation range that could persist into the near term. Support is near 1,265, a drop below which would break the near term up trend. I remain bullish on the sector for the short to long term but I have grown cautious for the near.


In The News, Story Stocks and Earnings

GE was by far the biggest story in business news today. The company has decided to break itself up in order to focus on core business, it is going to restructure its board, cut the dividend in half and has lowered full year guidance. The new and improved GE will focus on aviation, power and healthcare which currently account for about 58% of total revenues. The other segments will be sold off or wound down in favor of streamlining. The news was initially cheered by investors who had been expecting such a move, the rally didn't last long as other investors used the opportunity to sell. GE closed the day with a loss greater than -7.0%.


Qualcom's board unanimously rejected the Broadcom bid. This news helped to drive the stock higher on hopes of a new, improved bid and the idea QCOM is worth at least $70. Today's move breaks the stock out of a near term consolidation and flag pattern and could easily lead it higher. First target is the original $70 per share offered by Broadcom with a chance of moving higher.


Mattel continued higher today as the analyst community weighed in on the potential for the Hasbro/Mattel takeover. While there are some concerns of anti-trust/regulatory hurdles most analyst agree they should be easy to overcome. The combined company is expected to see synergies across a number of segments. Shares of Mattel jumped more than 20% on comments from Jefferies, BMO Capital and Suntrust while Hasbro gained more modest 6%.


The Indices

The indices tried to sell off and tried to bounce back but neither move was very strong resulting in whole lot of nothing by the end of the day. The day's leader is the Dow Jones Transportation Average which is beginning to show early signs of support along the long term moving average. The index created a small green bodied candle sitting on that support and the support of a previous all time high. The indicators remain bearish which suggest support may be tested further, the indicators are also fairly weak suggesting momentum is iffy and the market is oversold. A bounce from this level, near 9,500, would be bullish and trend following, a drop below it would be bearish and may lead to a deeper correction. The index is currently down about -5% from the recent all time high, a full 10% would put it near the 9,000 level and another potentially important long term up trend line.


The Dow Jones Industrial Average was today's laggard with a gain of 0.07%. The blue chips created a small bodied green candle just above the short term moving average and well within the near term consolidation range. The index is trending sideways at the all time highs with weakening indicators that give reason for caution. Both indicators are diverging from the highs and have turned bearish suggesting that support will be tested or broken. A drop below support, near 23,300, would be bearish and could lead the index down to my long term up trend line near 22,500.


The S&P 500 closed with a gain of 0.09% creating a small bodied green candle. Today's action is directly sideways from Friday's small doji candle and within the near term consolidation range. Near, short and long term uptrends are intact although the indicators are weakening suggesting support within the current consolidation will be tested in the least. Support is at the short term moving average, just below today's close, a break of which could be bearish. Next support target would be the up trend line near 2,500. A bounce from the moving average would be bullish and trend following with targets at 2,600 and 2,660.


The NASDAQ Composite also closed with a gain of 0.09%. The tech heavy index created a small bodied green candle directly to the side of the last 2 candles and within the near term consolidation range. The indicators have rolled over into bearish crossovers that suggest consolidation will continue with the possibility of correction. Near term support targets exist at 6750, 6650 and the short term moving average, and then 6,600 and a long term up trend line. A break below there would be bullish. A bounce from support would be bullish and trend following with upside targets at 6,800 and then new all time highs.


Earnings season is coming to a close and with it the latest leg of the bull market. The indices have entered a period of consolidation and rotation coincident with the end of the season and we should expect to see this continue over the next few week's or longer, up to and until the approach of the next earnings cycle grabs a hold of the markets attention. There may not be correction between then and now but there could be, and the indicators suggest it, so I have turned cautious for the near term. I am still firmly bullish for the short and long terms and looking for the next great entry for new bullish positions.

Until then, remember the trend!

Thomas Hughes


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New Option Plays

Social Media

by Jim Brown

Click here to email Jim Brown

Editors Note:

Social media stocks are either bullish or bearish depending on the stock. Facebook is currently neutral.



NEW DIRECTIONAL CALL PLAYS

FB - Facebook - Company Profile

Facebook, Inc. provides various products to connect and share through mobile devices, personal computers, and other surfaces worldwide. Its solutions include Facebook Website and mobile application that enables people to connect, share, discover, and communicate each other on mobile devices and personal computers; Instagram, a mobile application that enables people to take photos or videos, customize them with filter effects, and share them with friends and followers in a photo feed or send them directly to friends; Messenger, a messaging application to communicate with people and businesses across platforms and devices; and WhatsApp Messenger, a mobile messaging application. The company also offers Oculus virtual reality technology and content platform, which allow people to enter an immersive and interactive environment to play games, consume content, and connect with others. As of December 31, 2016, it had approximately 1.23 billion daily active users. Facebook, Inc. was founded in 2004 and is headquartered in Menlo Park, California. Company description from FinViz.com.

Everyone should know this story. There is no need to go into lengthy detail on this tech giant. They posted blow out earnings and spiked from $170 to $183. Shares have traded sideways to down for the last two weeks but they have quit declining with three consecutive days at $178.

Analysts are targeting well over $200 because Facebook is printing money. Their growth is outstanding and they still have numerous web properties they have not yet monetized. They are launching Facebook TV, original content, the list of new opportunities is endless.

RBC Capital raised their price target from $190 to $230 to match Mizuho. Monnes Crespi Hardt is $210, Aegis Capital $215, Needham $215, etc. There is plenty of upside from here. Facebook is the largest earnings grower in the space.

They have eradicated Snapchat. Apple reported that Snapchat is no longer in the top 10 downloads from the Apple store.

I believe FB is about to break out of its post earnings depression phase and begin a new move higher. The option premiums are very high so I am recommending a February spread to capture inflated option premiums ahead of earnings.

Buy Feb $185 call, currently $6.80, initial stop loss $169.25.
Sell short Feb $200 call, currently $2.47, initial stop loss $169.25.
Net debit $4.33.


NEW DIRECTIONAL PUT PLAYS

No New Bearish Plays



In Play Updates and Reviews

No Resistance Test

by Jim Brown

Click here to email Jim Brown

Editors Note:

The indexes recovered from a sharp dip at the open but barely posted gains. The markets continue to post minimal gains with the Dow up 17, S&P +2, Nasdaq +6 and the Russell fractionally negative. Momentum has left the building and post earnings depression has taken its place. The gains were not even strong enough to test overhead resistance. This is a market waiting for a catalyst.



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


MU - Micron Technology
The long call position was entered at the open.

AXP - American Express
The long call position was stopped at the open.



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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

Comments:

Alibaba shares rose slightly after the new record of $25.3 billion in Singles Day sales. Then investors sold the news. A key point that is not getting any press is that Alibaba is extending many of the promotions for the 24 days starting with Singles Day. That means Q4 earnings are going to have 23 extra days of sales hype.

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 11/10/17:

Long Jan $72.50 call @ $3.48, see portfolio graphic for stop loss.

Position 10/19/17:
Previously Closed 11/9: Long Jan $70 call @ $3.10, exit $3.72, +.62 gain.


AXP - American Express - Company Profile

Comments:

No specific news. AXP dipped with the market at the open to stop us out. Then rebounded to post a modest gain.

Original Trade Description: November 4th

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.

Position 11/6/17:

Closed 11/13: Long Jan $100 call @ $1.67, exit .81, -.86 loss.


COST - Costco - Company Profile

Comments:

No specific news. New 5-month high in a weak market.

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.


GILD - Gilead Sciences - Company Profile

Comments:

Argus downgraded from buy to hold. Shares declined slightly back to support.

Original Trade Description: November 7th

Gilead Sciences, Inc. discovers, develops, and commercializes medicines in the areas of unmet medical needs in Europe, North America, Asia, South America, Africa, Australia, India, and the Middle East. The company's products include Descovy, Odefsey, Genvoya, Stribild, Complera/Eviplera, Atripla, Truvada, Viread, Emtriva, Tybost, and Vitekta for the treatment of human immunodeficiency virus (HIV) infection in adults; and Vemlidy, Epclusa, Harvoni, Sovaldi, Viread, and Hepsera products for treating liver diseases. It also offers Zydelig, a PI3K delta inhibitor, in combination with rituximab, for the treatment of certain blood cancers; Letairis, an endothelin receptor antagonist for the treatment of pulmonary arterial hypertension; Ranexa, a tablet used for the treatment of chronic angina; Lexiscan/Rapiscan injection for use as a pharmacologic stress agent in radionuclide myocardial perfusion imaging; Cayston, an inhaled antibiotic for the treatment of respiratory systems in cystic fibrosis patients; and Tamiflu, an oral antiviral capsule for the treatment and prevention of influenza A and B. In addition, the company provides other products, such as AmBisome, an antifungal agent to treat serious invasive fungal infections; and Macugen, an anti-angiogenic oligonucleotide to treat neovascular age-related macular degeneration. Further, it has product candidates in various stages of development for the treatment of HIV/AIDS and liver diseases, such as hepatitis C virus and hepatitis B virus; hematology/oncology; cardiovascular; and inflammation/respiratory diseases. The company markets its products through its commercial teams and/or in conjunction with third-party distributors and corporate partners. Gilead Sciences, Inc. has collaboration agreements with Bristol-Myers Squibb Company, Janssen R&D Ireland, Japan Tobacco Inc., Galapagos NV., and Spring Bank Pharmaceuticals, Inc. Company description from FinViz.com.

Earnings January 25th.

Shares of Gilead surged in late August after the company raised guidance on drug sales. Those gains faded as they approached the Q3 earnings date. The declined even further after the company lowered guidance on sales because of increased competition. However, producing $25 billion a year in revenue and having multiple drugs in the pipeline with one of them expected to produce $3.5 billion in 2018, is a reason to buy this stock on a dip to support.

The company reported earnings of $2.27 compared to estimates for $2.13. Revenue of $6.5 billion also beat estimates for $6.4 billion. Net income was $2.7 billion.

Gilead bought Kite Pharma for $12 billion earlier this year to gain access to their cancer immunotherapy drugs. The company is working on logistics for for launching sales of the newly approves non-Hodgkin lymphoma drug Yescarta developed by Kite. The drug costs $373,000 for a one-time treatment.

Gilead warned that Hep-C revenue was declining as fewer patients were deemed eligible for treatment and there was higher competition from companies like AbbVie. Sales of their Hep-C drugs declined from $3.3 billion to $2.2 billion in Q3. They lowered full year guidance for Hep-C from $9.5 billion to $9.0 billion.

At the same time they raised full year guidance on all sales from $24.0 billion on the low side to $24.5 billion with the upper rage at $25.5 billion.

While Hep-C sales may be slowing thanks to a 95% cure rate there are plenty of other drugs in the pipeline. Gilead has plenty of cash to develop and market new drugs. This is a good company and the drop to support is a buying opportunity.

Update 11/8/17: Mizuho raised the price target to $83. The analyst said Gilead did not overpay for Kite given the strength of the drug pipeline. Recent trial results have been positive on multiple drugs. The analyst reminded that Gilead paid $11 billion for Pharmasset in 2011 that enabled them to corner the Hep-C market for 5 years.

Position 11/8/17:

Long Feb $75 Call @ $3.45, see portfolio graphic for stop loss.


MDCO - Medicines Co - Company Profile

Comments:

No specific news.

Original Trade Description: November 8th

The Medicines Company, a biopharmaceutical company, provides medicines for patients in acute and intensive care hospitals worldwide. The company markets Angiomax, an intravenous direct thrombin inhibitor used as an anticoagulant in combination with aspirin in patients with unstable angina undergoing percutaneous transluminal coronary angioplasty, and for patients undergoing percutaneous coronary intervention; Ionsys, a fentanyl iontophoretic transdermal system for the short term management of acute postoperative pain for adults requiring opioid analgesia in the hospital. It also markets Minocin IV, an intravenous formulation of a tetracycline-class antibiotic used for the treatment of infections due to susceptible strains of designated gram-negative bacteria; and Orbactiv, an intravenous antibiotic used for the treatment of adult patients with acute bacterial skin and skin structure infections, or caused or suspected to be caused by susceptible isolates of designated gram-positive microorganisms. The company's approved products include Adenosine, Amiodarone, Esmolol, and Milrinone for acute cardiovascular; Azithromycin and Clindamycin for serious infectious disease; and Haloperidol, Midazolam, Ondansetron, and Rocuronium for surgery and perioperative treatment. Its research and development stage products comprise Carbavance, an antibiotic agent that has completed Phase III development stage for the treatment of hospitalized patients with serious gram-negative bacterial infections; Inclisiran, a synthesis inhibitor for the potential treatment of hypercholesterolemia; and MDCO-700, an intravenous anesthetic agent developed for moderate or deep sedation and general anesthesia in patients undergoing diagnostic or therapeutic procedures. The Medicines Company has a collaboration agreement with Alnylam Pharmaceuticals, Inc.; SciClone Pharmaceuticals; and Symbio Pharmaceuticals Limited. Company description from FinViz.com.

Earnings January 25th.

MDCO reported a loss of $1.19 that beat estimates for a loss of $1.23. However, revenue of $16.9 million missed estimates for $22.9 million.

The company announced the layoff of 85% of its workforce from 410 workers to only 60. As part of the restructuring the company is divesting its infectious disease business by the end of 2017. The revenue from the divestiture should allow the company to "aggressively" move its drug candidate through late stage clinical development. The drug, inclisiran is part of a new class of cholesterol lowering therapies called PCSK9 inhibitors. The phase three trial started the first week of November. MDCO is partnering with Alnylam (ALNY) on the trial. There are 1,500 in the trial at 100 clinical sites in eight countries. This is only one of four concurrent trials covering nearly 3,500 patients. The initial trials were very positive.

The stock declined to $28 on the dramatic layoffs and traded sideways for two weeks. A rebound has begun and options are cheap.

Update 11/9: Cardiologist Milton Packer is already pounding the table on MDCO's PCSK9 drug and it is still a couple years away from sales. He said it has the potential to be better than Amgen's Repatha and only needs to be dosed twice a year rather than twice monthly. He said it will also be significantly cheaper than the $14,000 a year for Repatha.

Position 11/9/17:

Long Jan $32 call @ $2.00, see portfolio graphic for stop loss.


MU - Micron Technology - Company Profile

Comments:

Micron announced a new 32gb NVDIMM memory that is twice as large as current chips on the market. This is non volatile DIMM that retains data in memory next to the processor to speed up processing of large datasets. Shares closed at a new high.

Original Trade Description: November 11th

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. Some 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 Q3, 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, they guided for earnings of $2.09-$2.23 on revenue of $6.10-$6.50 billion. Analysts were expecting $2.14 in earnings.

Despite the strong earnings and forecasts, the company trades at a PE of 9.5 when the S&P is trading at 18.2. 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. On Oct 31st, they spiked again to $45 after Toshiba said DRAM and NAND memory would remain in high demand and tight supply through 2018.

On October 10th, they announced a $1 billion secondary offering and shares dipped for several days while the offering was priced and completed. This added 25 million shares to the float with 1.14 billion shares outstanding.

This was a great deal. They are using the proceeds to help fund the retirement of $2.25 billion in debt priced at 7.5% and 5.5% interest. This will reduce their costs and eliminate those debt service payments. They raised about $1.2 billion after the offering was upsized and the rest of the funds for debt retirement will come out of cash on hand.

Summit Redstone said buy because the secondary offering to pay off debt was an exercise in value creation. The analyst has a $51 price target. Credit Suisse reiterated an outperform rating and $50 target. Susquehanna has a $50 target and Evercore ISI has a $50 target. 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. Stifel has a $60 target. Needham's, Rajvinda Gill has a price target of $76.

UBS analyst Stephen Chin says he expects Micron's profits to rise 50% in 2018 to $7.50 per share. If you put any kind of market multiple on those earnings, the stock should double.

Shares drifted lower from the Halloween spike but rebounded on Friday back to the highs. There are no sellers in Micron.

Position 11/13:

Long Jan $46 call @ $2.95, see portfolio graphic for stop loss.


PYPL - PayPal - Company Profile

Comments:

No specific news.

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.

PayPal just launched domestic payment services in India with 1.324 billion people.

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


STX - Seagate Technology - Company Profile

Comments:

No specific news.

Original Trade Description: November 6th

Seagate Technology plc provides data storage technology and solutions in Singapore, the United States, the Netherlands, and internationally. The company manufactures and distributes hard disk drives, solid state drives and their related controllers, solid state hybrid drives, and storage subsystems. Its products are used in enterprise servers and storage systems applications; client compute applications, primarily for desktop and mobile computing; and client non-compute applications, including various end user devices, such as portable external storage systems, surveillance systems, network-attached storage, digital video recorders, and gaming consoles. The company offers external backup storage solutions under the Backup Plus and Expansion product lines, as well as under the Maxtor and LaCie brand names available in capacities up to 120 terabytes. It sells its products primarily to original equipment manufacturers, distributors, and retailers. Company description from FinViz.com.

Earnings January 22nd.

Seagate posted earnings of 96 cents that beat estimates for 86 cents. Revenue of $2.63 billion beat estimates for $2.53 billion despite a 6% decline. The declared a quarterly dividend of 63 cents payable January 3rd to holders on Dec 20th. During the quarter they returned $350 million to shareholders through dividends and stock repurchases. Cash on hand was $2.3 billion.

The company said demand was increasing as the move to cloud storage was creating the need for massive amounts of data bandwidth, storage, manipulation and retrieval. The average storage per drive shipped was 1.7 terabytes with the average selling price $64 per drive. Hard drive storage is a commodity business where existing technology is competing on a byte per dollar basis and new technology is the only way to expand ASPs. Seagate is progressing in that battle with larger and larger drives that operate at faster speeds and last longer between failures. With many businesses moving to SSD storage, Western Digital has the lead there because of its partnership with Toshiba. However, Seagate just signed on to the consortium that is buying the other half of the Toshiba memory business that WDC does not own. This will enable Seagate to acquire memory for the lowest prices possible and compete with WDC in the SSD arena.

Seagate just announced AI powered hard drives for video monitoring.

Seagate shares spiked from $35 to $40 on the earnings. They declined back to $36 where they found support and it appears a rebound has begun. Shares were already trending higher before the earnings and this could be an extension of that trend.

Position 11/7/17:

Long Jan $39 call @ $1.14, see portfolio graphic for stop loss.


VIX - Volatility Index - Index Profile

Comments:

The VIX spiked up to 12.18 intraday but faded with the market rebound began. This position will expire on Wednesday.

This was insurance against a 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 496 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

Comments:

Some additional weakness at the open but it was only intraday. The option is only worth 31 cents today. With the Dow possibly cracking, I think we should hold it until it expires on Friday.

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

Comments:

No specific news. Shares remain under resistance at $68.

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.




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