Option Investor

Daily Newsletter, Tuesday, 11/28/2017

Table of Contents

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

Market Wrap

Never Short a Dull Market

by Jim Brown

Click here to email Jim Brown

Traders expecting the worst ahead of the tax vote were painfully surprised.

Market Statistics

The markets opened positive on the text of Jerome Powell's speech for the confirmation hearing even though there was a critical tax vote expected later in the day. After the confirmation hearing the market rallied again on the softball questions, good answers and no apparent roadblock to his confirmation. The market declined after news of a North Korean missile launch into the Sea of Japan and ahead of the committee vote on the tax reform bill in the senate.

After the bill was voted out of committee, a major step for the bill, the market exploded even higher to post a 255 point gain on the Dow. It was not a good day to be short.

Voting the tax bill out of the finance committee was a crucial step ahead of the full vote in the senate. This morning Goldman Sachs had said there was only slightly better than a 50:50 chance of getting a tax bill passed in 2017 and that rose to 80% in 2018. Cowen & Company said the passage of a tax bill was very unlikely in 2017 because of the various divisions in the republican senate. Morgan Stanley was also negative on the outlook. Two of the major holdouts Corker and Johnson voted to pass the bill out of committee after changes were promised before the vote by the entire senate. The six senators on the fence have now declined to 4 and with Corker and Johnson capitulating, we are likely to see some similar capitulation by others. While this was a crucial step, there are numerous future steps to be completed before it becomes law. We are not out of the woods yet despite the market reaction.

The North Korean missile problem rose in intensity because this launch went significantly higher suggesting they have the capability to hit the USA. The missile traveled 2,800 miles into space compared to the International Space Station, which orbits 250 miles into space. The missile returned to earth to land in the Sea of Japan only 625 miles from where it was launched. The UN called an emergency meeting of the Security Council but that will not accomplish anything.

President Trump was adamant when questioned during a briefing and said emphatically, "We will take care of this." His tone and manner was that of somebody that had been pushed past the breaking point and action could be imminent. What that could be is anybody's guess.

Something needs to be done soon because Kim Jong Un said this in his last public statement. "North Korea has harnessed a multi-functional thermonuclear nuke with great destructive power which can be detonated at high altitudes for super-powerful EMP (electromagnetic pulse) attack according to strategic goals." An EMP over the USA has the power to knock out all electronic power for months to years. It is estimated 80% of Americans would die if this were to occur. For him to brag he has "super EMP capability" should be the last straw for the USA. Of course, the American press has conveniently overlooked or ignored this critical piece of information as being too wild to even consider. Unfortunately, the United States is not preparing. On Sept. 30, the Congressional Commission to Assess the Threat of Electromagnetic Pulse to the United States of America shut down after a failure to secure funding from Congress.

The economic reports helped to power the market's gains. The Richmond Fed Manufacturing Survey for November rose from 12 to 30 and a record high. The major internal components posted strong gains. Shipments rose from 9 to 33 and the largest gain since 2001. Capacity utilization rose from 7 to 19. This was a very positive report.

Consumer confidence for November soared to 129.5 and the highest level since December 2000. That is up from 126.2 in October. The present conditions component rose from 152.0 to 153.9 and the highest level since 2001 and the expectations component rose from 109.0 to 113.3. The percentage of respondents planning on buying a vehicle declined from 14.0% to 12.6%. Prospective homebuyers rose slightly from 6.4% to 6.9% and appliance/TV buyers rose from 48.8 to 52.0. The booming economy and the potential for a tax cut seem to have lit a fire under consumers as well as the market.

Case Shiller existing home prices rose from 5.9% to 6.2% in September. Despite the constant rise in prices there seems to be no letup in demand.

The trade deficit for October increased from -$64.1 billion to -$68.3 billion. Exports of autos fell -2.1% and consumer goods declined -1.7%.

The API crude inventories after the bell showed a decline of -1.821 million barrels compared to estimates for a -3.15 million barrel drop. Gasoline declined -1.529 million barrels and just over estimates. Distillates rose 2.696 million barrels and well over the forecast for a 230,000 build. Crude prices only declined about 30 cents after the report.

Expectations for the OPEC meeting on Thursday are keeping prices high. Everyone expects them to announce an extension of the production cuts until the end of 2018.

The Q3-GDP revision is tomorrow and expectations are for 3.3% growth. Expectations for Q4 GDP are currently +3.4% growth. If the economy can maintain this pace before the tax cuts become effective, we could actually hit 4% at some point in the next year. Q1 is normally the spoiler so it remains to be seen if it will continue to be a laggard with another 1.2% gain like the one we saw this year.

Janet Yellen will speak at 10:00 and after today's confirmation hearing on Powell, her speech is likely to be ignored unless she goes off the beaten track and says something analysts are not expecting.

Emerson Electric (EMR) said it was dropping its $29 billion acquisition offer for Rockwell Automation (ROK). The company said it would focus on rebuilding the company in smaller steps using internal investment, partnerships and acquisitions to broaden the companies experience in automation. Currently Emerson focuses on the process side of business with software and equipment. Rockwell is the leading supplier of controls for assembly lines. Emerson shares rallied 3.7% on the news with investors breathing a sigh of relief. Emerson's market cap at $40 billion is only slightly larger than Rockwell's at $29 billion. Rockwell shares also surged over 3% on the cancelled bid.

Arby's just bought a massive amount of chicken wings. The roast beef sandwich company signed a deal to acquire Buffalo Wild Wings (BWLD) for $157 per share. Arby's is privately owned by Roark Capital Group, which owns a dozen or more fast food companies including Jimmy Johns, Auntie Annes, Cinnabon, McAlisters, Carl's Junior, Corner Bakery, Seattle's Best, Schlotzsky's and Hardees. They had originally bid $150 but Marcato Capital, an activist investor, had built up a stake in the mid $140s and had three seats on the board. Arby's had to sweeten the deal in order to induce Marcato to take the cash and go home. There were rumors last week that the price could go as high as $170 if Marcato decided to hold out on negotiating. Buffalo Wild Wings will continue to operate as an independent brand.

Thor Industries (THO) reported earnings of $2.43 compared to estimates for $1.80. Revenue of $2.23 billion beat estimates for $1.95 billion. This is an example of real blowout earnings. The CEO attributed his monster earnings to millennials buying RVs. Who knew? He said the demographic had changed from older couples taking vacations and visiting the grandkids to younger families that can do short camping trips on the weekends or even just drive it to kids soccer games and have all the comfort of home with air conditioning, refrigerators and a restroom. Shares spiked 13% on the news.

Autodesk (ADSK) reported a loss of 12 cents after the close. That was slightly better than the 13-cent loss analysts expected. Revenue of $515.3 million beat estimates for $514.1 million. The company guided for the current quarter for a loss of 10-14 cents on revenue of $537-$547 million. Analysts were expecting $544.8 million. Full year losses are expected to range from 49-53 cents with revenue of $2.04-$2.05 billion. Autodesk is shifting to a subscription model and that typically produces paper losses for up to 2 years but then a much stronger revenue stream in the future. Shares fell below $110 in afterhours but rebounded to $116 at the close.

Marvel Technology Group (MRVL) reported earnings of 34 cents that beat estimates of 33 cents. Revenue of $616.3 million beat estimates for $613.1 million. They guided for the current quarter for earnings of 29-33 cents on revenue of $595-$625 million. Analysts were expecting 27 cents and $590 million. Marvel announced last week it was buying Cavium for about $6 billion.

Nuance Communications (NUAN) reported earnings of 20 cents that beat estimates for 15 cents. Revenue of $474.7 million beat estimates for $455.7 million. Shares spiked about 5% in afterhours.

The earnings highlight for Wednesday is Jack in the Box followed by Ulta Beauty and VMWare on Thursday.

AMD and Nvidia (NVDA) were weak after Mizuho warned that mining for crypto-currencies would decline in 2018. Nvidia only gets about $80 million a year in revenue from GPU mining but AMD sees about $500 million. The analyst said Ethereum could move in early 2018 from "proof of work," which requires GPU mining to "Proof of Stake" protocol, which no longer uses GPU mining. The decline in AMD and NVDA continued to weigh on the chip sector, which has been down the last two days.

Bitcoin set a new record high Tuesday afternoon at just over $10,065. With exchange Coinbase adding 100,000 accounts a day and a technical limit of only 21 million bitcoins, the price is going to continue to rise. One analyst today said we could see $40,000 by the end of 2018. Former hedge fund manager at Fortress, Michael Novogratz, said bitcoin could quadruple in the next 12 months and Ethereum could triple. He said there was a big wave of institutional money coming and he was going to launch a $500 million digital assets fund. He correctly called the $10,000 level back on October 10th when bitcoin was $4,874. He said he bought just under $20 million in bitcoin when the price crashed to $6,000 in mid November.


I get hate mail all the time when I say a particular market move is a short squeeze. I am sorry, but that is what drives quite a few market gains. Investors did not suddenly decide today, after four days of stagnation, that they wanted to buy stocks $3-$4 higher than they could have bought them on Monday.

We had several days of low volume and declining internals with the indexes at new highs. The Dow had failed at 23,600 several times. With Goldman Sachs, Cowen and Morgan Stanley saying they doubted the tax bill would be passed in 2017, it was the perfect setup for the shorts. They expected negative headlines and a post Thanksgiving decline. Instead, they were hit with positive headlines and a monster short squeeze. These events are a fact of life in the market and happen routinely. We should thank the shorts for donating their money to the bullish cause.

If you look at the S&P chart below for the last four months there are no other candles like the one we got today. Shorting new highs is a favorite bearish pastime and this one bit them badly.

The S&P is again in blue-sky territory and without some unfortunate event, bullish sentiment could be locked in for the rest of the year.

Likewise, on the Dow there are no other candles over the prior four months like the candle we got today. This was a major breakout and there was a lot of price chasing, making it even more painful for the shorts. The Dow has gone from fighting resistance at 23,600 to well over 23,800 and the next target for December is round number resistance at 24,000. Let me be the first to say it. If we get a favorable tax deal signed into law, we could see 25,000 by the end of December. That is only about 4% over our current level.

The Nasdaq did not participate in the Dow rally. There were more big cap decliners than advancers and even Apple was lower for the day. The tech stocks powered the rally last week and while the indexes were positive today they were muted compared to the 1% gains on the Dow and S&P. This is actually good news. As long as there is consolidation on the way up, it allows for continued gains longer term.

The Nasdaq Composite closed over 6,900 and could easily reach 7,000 in the days ahead. There are no tech earnings to power the move but December normally provides a steady melt-up for the tech stocks.

The Russell 2000 was the leader for the day with a 1.5% gain of 23 points. After stalling at 1,520 for 4 days, the breakout was huge. However, it did not become huge until after the tax vote at 2:30. The index was under resistance at 1,520 at 2:00 and rallied 17 points into the close after the vote.

You can call today's move anything you want to call it. There may even have been some month end portfolio adjustments involved in the closing sprint. Big gains like these seldom continue back to back. We "should" see some consolidation but market sentiment has taken a giant leap higher and that could continue to lift the markets as long as the tax headlines continue to be positive. What goes up could come down just as fast if the news turns negative.

Enter passively, exit aggressively!

Jim Brown

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New Option Plays

Blowout Caution

by Jim Brown

Click here to email Jim Brown

Editors Note:

Today's short squeeze on tax headlines could be the start of a good run. There could also be some reality returning soon. The headline was good but the next hurdle will be the full vote in the Senate. That will be a market mover and the direction will be up to the results. Option premiums exploded today and there is no reason we should rush into the market and eagerly pay those high prices.


No New Bullish Plays


No New Bearish Plays

In Play Updates and Reviews

Lightning Strike

by Jim Brown

Click here to email Jim Brown

Editors Note:

The calm markets were powered higher by tax news and Fed hearings. The dormant market from Monday was the exact opposite of Tuesday's monster short squeeze. Never short a dull market.

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

XRAY - DentSupply Sirona
The long call position was entered at the open.

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

Credit spreads and naked puts = OptionWriter

Long term option investments = LEAPS Investor

3-6 month Option Trades = Ultimate Investor

Iron Condors = Couch Potato Trader

Long and short equity trades = Premier Investor

BULLISH Play Updates

CCOI - Cogent Communications - Company Profile


No specific news.

Original Trade Description: November 20th

Cogent Communications Holdings, Inc., through its subsidiaries, provides high-speed Internet access and Internet protocol communications services primarily to small and medium-sized businesses, communications service providers, and other bandwidth-intensive organizations in North America, Europe, and Asia. The company offers on-net Internet access services to bandwidth-intensive users, such as universities, other Internet service providers, telephone companies, cable television companies, Web hosting companies, content delivery network companies, and commercial content and application service providers; and to corporate customers located in multi-tenant office buildings, including law firms, financial services firms, advertising and marketing firms, and other professional services businesses. It also provides its on-net services in carrier-neutral data centers, Cogent controlled data centers, and single-tenant office buildings. In addition, the company offers off-net services to businesses that are connected to its network primarily by means of 'last mile' access service lines obtained from other carriers primarily in the form of metropolitan Ethernet circuits. Further, it provides Internet connectivity to customers that are not located in buildings directly connected to the company's network, as well as offers voice services. The company operates 52 data centers. Company description from FinViz.com.

Cogent missed on earnings in early November and shares fell 20% in the days that followed. They reported earnings of 8 cents and analysts expected 14 cents. Revenue of $122 million also missed estimates for $123.6 million. Revenue was up 8% over the year ago quarter and 2.7% over Q2. Cash flow from operations rose 26.1% to $28.8 million. Total customer connections rose 16.2% to 69,417.

Expected earnings Feb 1st.

One of their biggest plusses is the number of buildings where they offer internet service to all tenants. This is stable income and the ongoing costs are minimal. Once the building is wired all the material costs are over. Their connected buildings rose 34% for the quarter.

The increased their dividend by 2 cents to 48 cents payable Dec 4th to holders on the 17th. We are past the ex-dividend date.

Shares traded sideways for two weeks after the post earnings drop. They started to tick up on Thr/Fri and surged $1.55 today. The post earnings depression appears to be over.

Position 11/21/17:

Long Apr $50 call @ $3.10, see portfolio graphic for stop loss.

COST - Costco - Company Profile


No specific news. New 5-month closing high.

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.

DXCM - Dexcom Inc - Company Profile


No specific news. Excellent $2.30 gain.

DXCM will present an update on the company to be presented at 11:AM ET on Dec 14th at the BMO healthcare conference.

Original Trade Description: November 25th

DexCom, Inc., a medical device company, together with its subsidiaries, focuses on the design, development, and commercialization of continuous glucose monitoring (CGM) systems in the United States and internationally. The company offers its systems for ambulatory use by people with diabetes; and for use by healthcare providers in the hospital for the treatment of patients with and without diabetes. Its products include DexCom G4 PLATINUM system for continuous use by adults with diabetes; DexCom G4 PLATINUM with Share, a remote monitoring system; and DexCom G5 Mobile, a CGM system that directly communicates to a patient's mobile and its data can be integrated with DexCom CLARITY, which is a next generation cloud-based reporting software for personalized, easy-to-understand analysis of trends to improve diabetes management. The company also offers sensor augmented insulin pumps. It has a collaboration and license agreement with Verily Life Sciences LLC to develop a series of next-generation CGM products. The company markets its products directly to endocrinologists, physicians, and diabetes educators. Company description from FinViz.com.

DSCM was slammed for a $22 loss at the open on Sept 28th on news that Abbott Labs had made a glucose monitoring system that did not require the daily pinprick to draw a drop of blood. Shares fell from $67.50 to $44.50 and stayed there for a month. Investors feared diabetics would drop the DexCom monitoring products in a heartbeat and move to Abbott's system.

On November 1st, the company posted better than expected earnings and revenue and the stock began to rise again.

Expected earnings January 31st.

The DexCom CEO gave an interview on CNBC last week and he said the Abbott system will not have a dramatic impact to DexCom sales. He pointed out that they had been competing against the Abbott Libre system in Europe for three years and growth has continued to rise. It wa sup 80% in Q3 alone.

The CEO said the DexCom system does much more than the Abbott system. "Our system connects to phones. We share data with people who watch patients. We offer performance and accuracy that others do not. He said DexCom could release its own blood-free glucose monitoring device by the end of 2018. DexCom is also in a venture with Apple to monitor glucose through the Apple Watch. The data will go straight to the cloud for monitoring and there will be no need to communicate through a daily phone call. The watch will become your monitoring device.

The $20 drop was serious overkill and the stock is rebounding now that investors understand there is no immediate impact and there are new devices on the horizon.

We have to reach out to the March strikes because the February series has not yet been added. With earnings January 31st we need to hold an option dated after the earnings to avoid the rapid decline in premium in pre-dated options.

Position 11/27/17:

Long Mar $60 call @ $3.30, see portfolio graphic for stop loss.

FB - Facebook - Company Profile


No specific news. Big cap tech stocks were weak.

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.

Update 11/17/17: Facebook launched Facebook Creator, a video service to offer social media influencers a means to foster communities around their content. The new Creator app provides video creators exclusive tools such as a Live Creative Kit for adding intros and outros to broadcasts, a unified inbox of Facebook and Instagram comments and Messenger chats, cross-posting to Twitter and expansive analytics.

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. Still clinging to support at $72.50.

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. Nice surge higher.

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.

MU - Micron Technology - Company Profile


Baird Equity Research raised the price target from $52 to $60 on strong demand for DRAM and NAND. Standpoint Research upgraded them from reduce to hold.

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.

Update 11/27: Morgan Stanley downgraded Western Digital on the assumption NAND prices are going to weaken. Another MS analyst actually defended Micron saying the fears were not justified. A Stifel Nicolaus analyst said don't believe the Morgan call. Prices and costs are coming down because of the commoditization of memory and the increased demand. Stifel has a buy rating and $65 price target. Shares fell $2 intraday.

Position 11/13:

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

PYPL - PayPal - Company Profile


No specific news. Shares are still weak after the Square downgrade to sell on Monday.

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.

Update 11/16/17: 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.

Update 11/21/17: Paypal is going to allow customers to buy stocks through app-based micro investor Acorns. The app automatically invests your spare dollars into stocks you select. This can be a one-time investment or can be set up as a recurring investment. You can also have the app "round up" your Paypal purchases and invest the change into low cost diversified ETFs.

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. Shares rebounding after the downgrade of WDC by Morgan Stanley.

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.

XRAY - Dentsply Sirona Inc - Company Profile


No specific news. New closing high.

Original Trade Description: November 27th

DENTSPLY SIRONA Inc. designs, develops, manufactures, and markets various dental and oral health products, and other consumable healthcare products primarily for the professional dental market worldwide. It operates through two segments, Dental and Healthcare Consumables; and Technologies. The company provides dental consumable products, including endodontic instruments and materials, dental anesthetics, prophylaxis pastes, dental sealants, impression materials, restorative materials, tooth whiteners, and topical fluoride products; and small equipment products comprising dental hand pieces, intraoral curing light systems, dental diagnostic systems, and ultrasonic scalers and polishers. It also offers dental laboratory products, such as dental prosthetics that include artificial teeth, precious metal dental alloys, dental ceramics, and crown and bridge materials. In addition, the company provides dental equipment, such as treatment centers, imaging equipment, and computer aided design and machining systems for dental practitioners and laboratories; and dental implants and related scanning equipment, treatment software, and orthodontic appliances for dental practitioners and specialists, and dental laboratories. Further, it offers healthcare consumable products, such as urology catheters, various surgical products, medical drills, and other non-medical products. DENTSPLY SIRONA Inc. markets and sells its dental products through distributors, dealers, and importers to dentists, dental hygienists, dental assistants, dental laboratories, and dental schools; and urology products directly to patients, as well as through distributors to urologists, urology nurses, and general practitioners. Company description from FinViz.com.

Dentsply reported Q3 earnings of 70 cents that beat estimates for 66 cents. Revenue of $1.01 billion beat estimates for $978.4 million. The company guided for full year earnings of $2.65-$2.70.

Expected earnings Feb 2nd.

The company is being helped by strong demand for dental supplies and the renewal of several major marketing contracts. They extended the existing agreement with Henry Schein Canada through Dec, 31, 2020. The new agreement includes new product lines that did not exist when the original agreement was signed in 2005.

They renewed a market agreement with Pacific Dental Services, which covers 580 centers i 17 states. During the term of the agreement, management expects the number of offices using DentSupply Sirona's technologies to rise over 800.

Shares closed at a new high on Monday. They have been volatile over the last year because of prior changes in marketing agreements where companies leaving the distribution network let inventories decline to zero and did not reorder for the six-month period. That has passed and everything is running smoothly again.

Because their earnings are not until February we have to reach out to April to insure the premium remains inflated with earnings expectations. There is no February option series yet. We can buy all the time we need but we do not have to use it. We will exit before earnings.

Position 11/28/17:

Long Apr $70 call @ $3.41, see portfolio graphic for stop loss.

BEARISH Play Updates (Alpha by Symbol)

DIA - Dow SPDR ETF - ETF Profile


The Dow exploded higher on the Powell confirmation hearing outcome and the passage of the tax bill out of the finance committee.

Original Trade Description: November 16th

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.

Position 11/17/17:

Long March $230 put @ $5.16, see portfolio graphic for stop loss.
Short March $210 put @ $1.71, see portfolio graphic for stop loss.
Net debit $3.45.

FL - Foot Locker - Company Profile


No specific news. Nike was cut from buy to hold at HSBC and FL shares rebounded. Never a dull moment. I believe this was just short covering in an explosive market.

Original Trade Description: November 18th.

Foot Locker, Inc., through its subsidiaries, operates as an athletic shoes and apparel retailer. The company operates in two segments, Athletic Stores and Direct-to-Customers. The Athletic Stores segment retails athletic footwear, apparel, accessories, and equipment under various formats, including Foot Locker, Kids Foot Locker, Lady Foot Locker, Champs Sports, Footaction, Runners Point, Sidestep, and SIX:02. As of April 29, 2017, this segment operated 3,354 stores in 23 countries in North America, Europe, Australia, and New Zealand. The Direct-to-Customers segment sells athletic footwear, apparel, equipment, and team licensed merchandise for high school and other athletes through Internet and mobile sites, and catalogs. This segment operates sites for eastbay.com, final-score.com, eastbayteamsales.com, and sp24.com, as well as footlocker.com, ladyfootlocker.com, six02.com, kidsfootlocker.com, champssports.com, footaction.com, footlocker.ca, footlocker.eu, runnerspoint.com, and sidestep-shoes.com. In addition, the company had 62 franchised Foot Locker stores in the Middle East and South Korea, as well as 15 franchised Runners Point stores in Germany. Foot Locker, Inc. was founded in 1879 and is headquartered in New York, New York. Company description from FinViz.com.

On Friday, Foot Locker (FL) reported earnings of 87 cents that beat estimates for 80 cents. Revenue of $1.87 billion beat estimates for $1.84 billion. Same store sales fell -3.7%, up from the -4% to -5% expected. Shares rose only slightly until the company said they were expanding their marketing relationship with Nike (NKE) to include a pop-up store called Sneakeasy NYC that will open on Nov 22nd. The store will only be open one week and will feature Nike and Jordan products. Foot Locker said they were now taking reservations on the Special Air Force-1 priced at $160.

Foot Locker said it was hiring new employees with Nike training who will serve as full-time "Nike Pro Athletes" and "Nike Pro Leads." They are going all out to bring awareness to the Nike brand and try to move some of those high priced shoes. For Q4 Foot Locker is expecting same store sales to decline 2% to 4% and slightly better than prior guidance of -3% to -4%. Earnings are expected to decline 15% to 25% to $1.03-$1.16 and below analyst estimates for $1.18.

Shares exploded higher on the less bad results and the new Nike marketing program. I am surprised the Nike news overpowered the negative same store sales and 15% to 25% drop in earnings guidance.

Post earnings spikes rarely continue higher and in the cash of Foot Locker when the fundamentals are so bad, you have to believe that 28% short squeeze on Friday is going to fail. Seriously, a 28% gain on guidance for earnings to decline 15% to 25% for Q4? That is ridiculous.

Position 11/20/17:

Long Feb $38 put @ $2.05, see portfolio graphic for stop loss.

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