Option Investor

Daily Newsletter, Thursday, 11/16/2017

Table of Contents

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

Market Wrap

Market Up On Earnings, Tax Reform

by Thomas Hughes

Click here to email Thomas Hughes


Surprise earnings from big names like Wal Mart and Cisco send markets bouncing from support levels. Today's action was bullish right from the start. Asian indices were up on earnings and data despite the sell off in the US indices. European indices were up on Asia, data and earnings and that all led into a morning of positive surprises for US traders. The news sent our indices up by nearly 1% with broad market participation. The surprises include earnings and data, both of which give a promise of growth in the future. Oh, and the House passed their version of tax reform.

Market Statistics

Futures trading was positive from the earliest on positive sentiment in global markets. While US tax reform is a front burner issue it appears uncertainty is not holding it back. Asian indices gained an average 1% led by the Nikkei's 1.5%. News in the region includes positive labor data from Australia, merger news and a surprise earnings beat from Tencent. European markets were buoyed by Asian news and lifted on a round of positive data. EU CPI shows steady increase but well below the target 2% while UK retail sales rose more than expected in the month to month comparison and fell less than expected on the YOY.

US markets opened with small gaps, in line with the prevailing trends, and extended those gains into the early afternoon. Action was broad based with advancers leading decliners by roughly 4 to 1. Early afternoon saw the indices move up to news highs near 0.85% as word came down the pipe a tax reform vote was imminent. After the vote the indices moved up to set new highs near 1% but those levels did not hold. The markets moderated a bit going into the end of the day but were able to close near the highs.

Economic Calendar

The Economy

There was a lot of data today, starting with the weekly jobless claims. Initial claims rose 10,000 to 249,000 and slightly above expectations. The data is however being affected by back logs in Puerto Rico, the Virgin Islands data is yet to be incorporated. Last week's data was not revised. The four week moving average gained 6,500 to hit 237,500 and remains low relative to trend, consistent with labor market health.

The continuing claims fell -44,000 to hit a new low dating back to December 29,1973. The last week's data was revised higher by 3,000. The four week moving average fell -9,000 and also hit a new long term 44 year low and is consistent with labor market health and improvement.

The total number of claims rose by 25,575 to hit 1.665 in line with expectations, seasonal and long term trends. We can expect to see this number continue to trend upward until hitting a peak in late December. That being said the index is -7.86% lower than this same time last year and consistent with labor market health and improvement.

US import prices came in at 0.2%, down from the previous month's upwardly revised 0.8%. The data shows some cooling in import price pressure although the YOY data is still trending above 2%. YOY import prices rose 2.5% and show some moderation from the previous 2.7%. Export prices remained unchanged.

Headline Philadelphia Fed numbers show decline but the data within the data suggests an uptick in activity is brewing. The Manufacturing Business Outlook Survey fell -5.2 to 22.7 but remains positive for the 16 month in a row. Despite the fall the index also remains above the 20 mark and in territory consistent with strong activity. Shipments fell -3 to 21.7 along with declines in both deliveries and unfilled orders. The silver lining is that new orders rose by 2 while delivery time and unfilled orders remain positive, suggesting back logs remain and could begin to grow again. Along with this is a sharp decline in inventories, -15 to -8.6, that suggests new orders could also begin to grow.

Industrial production rose 0.9% in October on a 1.3% increase in manufacturing and 2.0% increase in utilities offset by a -1.3% decline in mining. The mining sector is still recovering from the storms. Total output increase 0.3%. On a quarterly basis the October data brings the 3rd quarter up to only -0.3% from the previous -1.5%. On a trailing 12 month basis total industrial production has risen 2.9% as has capacity utilization. Capacity utilization rose surprisingly to 77.0% from the previous 73.6% but remains below the long running average.

The NAHB Home Builders Index shows some improvement. The index came in at 77, up 2 from the previous and revised 68 and up 7 from the same month last year. Sales of single family homes rose 2 to 77, future outlook for buyers fell -1 to 77 and current traffic rose 2 to 50.

The Dollar Index

The Dollar Index rose slightly on today's data as it does little to alter current FOMC outlook. There was already a 100% chance of December rate hike and better than 60% chance of another hike by March. Also, international data helped support the basket of world currencies offsetting dollar strength. Today's action created a small doji candle within a support/resistance range consistent the neckline of a possible head and shoulders reversal. Support within the range is near $93.33, resistance is near $94, a break of either could be significant. Even so, longer outlook is for range bound trading as incremental gains in the worlds diverse economies offset strength in ours.

The Gold Index

Gold prices held steady with virtually no movement as traders weigh global relations against economic data and the tax vote. The Republicans got enough votes to pass the bill and prices remain steady. Gold is now trading near $1277 and remains below the $1280 resistance target. The metal could remain range bound into the next round of central bank meetings if nothing emerges to sway sentiment. A fall from current levels may find support near $1270 and $1265, a move higher is still facing resistance at $1280 and then again at $1300.

The Gold Miners ETF GDX fell -0.25% on today's news but is still sitting on the $22.50 support line. This support is the mid line of the long term trading and likely to remain significant into the next month. The ETF is winding up ahead of the central bank meetings which will begin early in December with the ECB, BOJ and BOE. A bounce from this level may go up to test the long term moving average near $23, a break through may fall to test the recent lows near $22.25. A move past either of these targets may indicate a further move but would likely remain with the longer term range.

The Oil Index

Oil prices fell marginally in today's trade but held steady in a day of light volatility and above near term support. Support is near $55.25 and the bottom of yesterday's candle. Prices have weakened on mixed signals given by inventories and estimates. While there are some signs of tightening there are persistent signs of ample supply to meet whatever demand there is. This week's move could signal the top of a new range which could cap the market until something changes. The OPEC meeting is happening later this month and they are expected to extend the production cap and if so could further support the market.

The Oil Index fell marginally but held steady above support. The index has fallen sharply from its recent peak, in tandem with correction in the oil market, and now sitting on a potentially strong support level. This level is consistent with the top of the congestion band broken just a few weeks ago and a likely point to begin looking at new bullish positions. Regardless of oil's fall to $55.25 it is still well above levels seen earlier in the year and consistent with continued robust earnings growth in the oil sector. I'm still cautious, there could be some volatility, but I am still bullish on the sector.

In The News, Story Stocks and Earnings

Wal-Mart reported before the bell and the news is good. The company reported a 4% growth in YOY revenue and beat expectations for both revenue and earnings. The company also reported strong comps in the US, a 50% jump in online sales and an increase in full year guidance. The news was well received and drove shares to gap up by 5% and extend the gains to 10% and close at a new all time high.

Cisco reported after the bell yesterday and helped to drive market action today. The company reported surprisingly positive news that included increased guidance and favorable product mix. Today the stock jumped more than 6% to gap up and hit a high not seen since the DotCom bubble burst.

Gap reported after the bell and the news is good. The company reported 1.1% YOY sales growth and beat on the top and bottom lines. The beat was driven by the fourth quarter of favorable comp store sales gains that are projected to continue over the next few quarters at least. The company was also able to raise full year guidance which drove shares higher by 5% in the after hours session.

The Indices

The moved up today on earnings and data. They moved higher on hopes for a tax vote and even higher still on the result of that vote. The day's leader is the Dow Jones Transportation Average with a gain of 1.61%. The transports created a long green bodied candle moving up from support and confirming the long term up trend line. Support is coincident with the long term up trend line, the long term moving average and a previous all time high so strong in the technical sense. The indicators remain weak but are now showing oversold conditions and the first indications of support at this level. The stochastic for one is looking bullish and firing a trend following bullish crossover. Support is 9,500, a continuation of this move is likely to meet some resistance in the near term but has a target at the current all time high.

The day's runner up is the NASDAQ Composite with a gain of 1.29%. The tech heavy index created a medium sized green bodied candle which set a new intraday all time high and closed just short of setting a new all time closing high. The indicators remain weak but are consistent with a test of support within up trend and showing early sign of trend following signal. A move up is likely to set new all time highs with target near 7,000.

The S&P 500 came in third today with a gain of 0.81%. The broad market created a medium sized green candle moving up from the short term moving average in a bullish trend following bounce. The index is accompanied by mixed indications but indications that are consistent with a test of support with up trend and the onset of a trend following bounce. A move up from here may find resistance at the current all time high, a break above that would be bullish with target of 2,660 in the near term.

The Dow Jones Industrial Average comes in last with a gain of 0.80%. The blue chips created a small green candle gapping up from yesterday's close in a bullish trend following bounce. The move is not yet confirmed by the indicators but they are consistent with such a move. A continuation of this move may find resistance at the current all time high, a break above that will be bullish with targets near 24,000.

I was cautious earlier in the week and rightly so. With earnings season at an end there is a chance of consolidation, rotation and correction ahead of the next earnings cycle. What I did not expect was to see such a quick bounce but I should not be surprised. The market has been moving higher for quite some time, many traders have tried to wait for deeper corrections in order to get and they have often found themselves late to the rally. Not this time I think. There is still reason to be cautious with new short term trades, there is still a chance for consolidation and resistance is just above today's levels, but I am bullish. Economics are improving around the world, US businesses are performing well and the outlook is good. . . how could you not be?

Until then, remember the trend!

Thomas Hughes

New Option Plays

Do Over

by Jim Brown

Click here to email Jim Brown

Editors Note:

Our DIA puts expired because we ran out of time. I am convinced there is a significant dip in our future.


DIA - Dow SPDR ETF - ETF Profile

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 still extremely overbought. It is due for a rest. The earnings cycle is over. Post earnings depression is here. The short squeeze is likely to fail. The tax plan faces an uphill battle and January could see a major market decline. It has been over 500 days since the market had a 5% decline and we average twice a year. We are due.

This is highly speculative. I am using March options because I want to have as much time as possible for this scenario to play out.

Buy March $230 put, currently $5.15, no initial stop loss.
Sell short March $210 put, currently $1.54, no initial stop loss.
Net debit $3.61.


No New Bearish Plays

In Play Updates and Reviews

Short Squeeze!

by Jim Brown

Click here to email Jim Brown

Editors Note:

Five days down allowed the shorts to back up the truck and today's squeeze blew out all 4 tires. The market was negative for a week and closed near the lows on Wednesday. The stage was set for a collapse. The Asian markets recovered with the Nikkei up strongly. Cisco and Wal-Mart beat on earnings and the short covering began. The Dow rallied right to resistance and stalled.

I am leaving most of the stop losses wider than normal in hopes we will not be stopped if the market really does take a dive.

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

MCK - McKesson
The long call position was entered at the open.

DIA - Dow Diamonds ETF
The long put position was closed at the open.

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

Credit spreads and naked puts = OptionWriter

Long term option investments = LEAPS Investor

3-6 month Option Trades = Ultimate Investor

Iron Condors = Couch Potato Trader

Long and short equity trades = Premier Investor

BULLISH Play Updates

COST - Costco - Company Profile


No specific news. Nice rebound to return to the 5-month highs.

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.

FB - Facebook - Company Profile


Facebook said it would live stream 47 college basketball games for free this season.

Original Trade Description: November 13th

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.

Position 11/14/17:

Long Feb $185 call @ $6.33, see portfolio graphic for stop loss.
Short Feb $200 call @ $2.30, see portfolio graphic for stop loss.
Net debit $4.03.

GILD - Gilead Sciences - Company Profile


No specific news. Shares rebounded back over prior support. Now we just need them to stay there.

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.

MCK - McKesson - Company Profile


No specific news. This position started out well with a $3.84 gain the first day on no news.

Original Trade Description: November 15th

McKesson Corporation provides pharmaceuticals and medical supplies in the United States and internationally. The company operates in two segments, McKesson Distribution Solutions and McKesson Technology Solutions. The McKesson Distribution Solutions segment distributes branded and generic pharmaceutical drugs, and other healthcare-related products; and provides practice management, technology, clinical support, and business solutions to community-based oncology and other specialty practices. This segment also provides specialty pharmaceutical solutions for pharmaceutical manufacturers; and medical-surgical supply distribution, logistics, and other services to healthcare providers. In addition, this segment operates retail pharmacy chains in Europe and Canada, as well as supports independent pharmacy networks in North America and Europe; and supplies integrated pharmacy management systems, automated dispensing systems, and related services to retail, outpatient, central fill, specialty, and mail order pharmacies. This segment serves retail national accounts, including national and regional chains, food/drug combinations, mail order pharmacies, and mass merchandisers; and institutional healthcare providers, such as hospitals, health systems, integrated delivery networks, and long-term care providers, as well as offers its services to pharmaceutical manufacturers. The McKesson Technology Solutions segment provides clinical, financial, and supply chain management solutions to healthcare organizations. McKesson Corporation was founded in 1833 and is headquartered in San Francisco, California. Company description from FinViz.com.

Earnings Jan 25th.

McKesson reported earnings of $3.28 that beat estimates for $2.80. Revenue of $52.06 billion beat estimates for $51.73 billion. So far, so good. However, they lowered 2018 guidance from $7.10-$9.00 to $4.80-$6.90. There were multiple reasons for the lowered guidance and none of them were sales related.

Amortization of acquisition related intangibles of $2.40-$2.70. Acquisition related expenses and adjustments of $.90-$1.10. Inventory related charges for LIFO adjustments of up to 20 cents. Restructuring charges of $1.10 to $1.40. "Other" adjustments of $1.40-$1.60. Given all those charges it is amazing they had any earnings left.

However, the line everyone overlooked was the guidance for "adjusted" earnings without those charges and that was $11.80-$12.50 for 2018. If you put a market PE of 18 on earnings of $12, you get a $216 share price. MCK shares were $138 today.

Shares have been holding over support at $135 for three weeks and suddenly rebounded $2.69 today in a very weak market. This relative strength should protect us against a further market decline.

Options are expensive so you can use the optional short call to make it a spread.

Position 11/16:

Long Feb $145 call @ $4.90, see portfolio graphic for stop loss.
OPTIONAL: Short Feb $160 call @ $1.59, see portfolio graphic for stop loss.

MDCO - Medicines Co - Company Profile


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


No specific news. Investor Place is targeting $50. Shares closed at a new high at $46.18.

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.

Update 11/13: 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.

Position 11/13:

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

PYPL - PayPal - Company Profile


Paypal signed a deal to sell $5.8 billion in its credit card portfolio to Synchrony Financial. The company said that would free up cash for acquisitions and expansion. The company raised its revenue forecast to $3.64-$3.70 billion for the current quarter. They raised earnings guidance from 37-39 cents to 52-59 cents.

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


No specific news. Excellent rebound with a $1.31 gain.

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.

BEARISH Play Updates (Alpha by Symbol)

DIA - Dow SPDR ETF - ETF Profile


Today was the first time in six sessions the market did not gap lower. The gap higher killed the rebound in the put premium on the DIA but it was better than what we would have gotten on Friday. We closed the position at the open.

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.

Position 10/23:

Closed 11/16/17: Long Nov $232 put @ $1.75, exit .17, -1.58 loss.

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