Option Investor

Daily Newsletter, Thursday, 11/30/2017

Table of Contents

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

Market Wrap

Market Goes Ballistic On Tax Reform

by Thomas Hughes

Click here to email Thomas Hughes


The major indices all gained more than 1% on news the Senate version of tax reform would soon be passed. Specifically, there is word that hold-out Senator John McCain has given his thumbs up and paving the way toward passage. The next step is for the House and Senate to come together on a joint bill that can be put before the President for signing.

Asian markets were a little mixed as weakness in tech continues to plague indices. Japan closed higher by roughly 0.50% but was the only one to close in the green. Hong Kong led with a fall near -1.5% followed closely by South Korea. European indices were also mostly lower as traders eye data, political woe at home and the possibility of tax reform here in the U.S. The FTSE led with a loss near -0.90% as recent strength in the pound weighs on prices.

Market Statistics

Futures were up and edging higher all morning. The trade was indicative of gains near 0.33% by the opening bell. The SPX opened as expected and at new all time highs, it then proceeded to trend sideways for the next couple of hours before news began to hit the market. By 11:30 the indices were moving higher and setting new all time highs, and then moving higher again as it seemed more and more likely a Senate tax bill would pass. By 1PM the SPX was roughly 1.15% above yesterday's close and just shy of the 2,660 level. This turned out to be a near term top and capped gains into the afternoon. The indices sold off from their peak all afternoon to close well off the highs but still at new all time highs.

Economic Calendar

The Economy

The tax reform news was good and overshadowed a round of good but not overly exciting economic data. On the jobs front initial claims fell -2,000 from an upward revision of 1,000 to hit 238,000. The 4 week moving average of claims rose 2,250 to hit 242,250. Not adjusted claims fell -18.5% versus an expectation of -17.7% and are down -10% YOY. There is still some volatility in the numbers post-hurricanes but the data remains consistent with long term labor market trends. Puerto Rico reports that it has processed its backlog, the Virgin Islands is still dealing with theirs.

Continuing claims jump 42,000 to hit 1.957 million and its highest level since the storms passed through. The last week's data was revised up by 11,000 for a net gain of 53,000, the four week moving average increased 18,250 to hit to 1.911 million. Despite the gains continuing claims remain low relative to long term trends, near 44 year lows and consistent with labor market health.

The total number of claims jumped by 108,176 to hit 1.761 million and the highest level since early September. The jump is not unexpected and is consistent with seasonal trends. On a long term basis this week's figure is -7.5% from the same time last year and consistent with ongoing labor market recovery.

Personal Income and Spending show sustained and moderate growth in both income and spending. Income rose 0.4% and a tenth hotter than expected while spending rose 0.3% and as expected. On the inflation side PCE came in as expected and under the 2.0% target rate but shows a noticeable increase over the past 2 months that could be telling. Month to month PCE prices grew by 0.1% headline and 0.2% core; YOY PCE prices grew 1.6% headline and 1.4% at the core. While these do not alter expectation for rate hike at the December FOMC meeting (100%) they have helped increase outlook for another hike before mid 2018.

Chicago PMI came in at 63.9% for November and is the 21st month of positive reading. The index shows moderate to strong activity in the region although it did cool a bit from last months multi-year high. All sub indexes were positive, employment moving above 50 after falling below last month, with notable gains in deliveries and inventories. Deliveries increased at their fastest pace in 13 years while inventories is sitting at an 8 month high.

The Dollar Index

The Dollar Index fell in today's trade despite positive data. The move is due to equally positive data from the EU and elsewhere that has served to undermine dollar strength. The index is moving sideways within a trading range and likely to do so over the next two weeks, up to and until December 13th.. December 13th marks the start of a 2 day period in which the ECB, BOE and FOMC are scheduled to make policy statements within 24 hours of each other.

Today's action saw the index shed -0.40% in a move that tested both support and resistance. The index created a medium bodied red candle with visible upper and lower shadows, indicative of support and resistance. Today's action is the 6th in a row of trading at this level, near the mid-point of a short term trading range, and suggests prices could remain at or near this level.

The Gold Index

Gold prices sank even as the dollar lost ground on hopes the Senate would pass their tax bill. Spot prices fell about -0.75% to break below the $1280 support and trade near the $1,275 level. Even so, gold remains range bound within a tight near term range. Support has been near $1,270 over the past 6 week's and may continue to hold until the central bank meetings next month. Tax reform is a big catalyst too but not a done deal until signed by the President.

The Gold Miners ETF GDX fell more than -0.60% to create a small doji like candle below the $22.50 support line and at the bottom of the 1 month congestion band. This band is consistent with a wind up in gold and the dollar occurring ahead of the next FOMC meeting and may dominated trading over the next 2 weeks. Support is near $22.50 and the bottom of today's candle, a break below here would be bearish with a possible target near $21.00. A bounce from support may be bullish but would face resistance near $23 and the long term moving average.

The Oil Index

Oil prices held steady while OPEC members hold their semiannual meeting in Vienna. The bloc along with partner in crime Russia have agreed to extend the production cap until the end of 2018 as expected. The group says they'll come back in June to discuss production levels at their regularly scheduled meeting. Nigeria and Libya, two nations exempt from the cut, have reportedly agreed to expand production above 2017 levels. This news was balanced by rising rig counts, high storage levels and tepid demand to leave WTI trading near $57.30 and UNCH from yesterday's settlement.

The Oil Index is moving back to retest the recently set long term high. The index gained more than 1% in an extension of yesterday's bounce from support and looks like it will move higher. This move is being driven by forward earnings outlook and the idea that estimates may be too low. The indicators are both in support of this move although MACD has yet to confirm. Stochastic is pointing higher after firing a trend following bullish crossover with plenty of room to run. Upside target is the current high near 1,290 and then 1,300. With OPEC in support of production caps and global demand slowly picking up the question now is how much oil can the rest of the world pump?

In The News, Story Stocks and Earnings

Shares of Sears jumped more than 25% in the early hours on better than expected earnings. The jump in share prices did not last though, traders and investors seized this opportunity to sell shares leaving it down for the day at the close of trading. The once king of shop-at-home services beat EPS estimates by $1.82, the bad news of course is that the company posted a loss of -$2.64 anyway. Revenue missed estimates by only marginally, the news there is that it fell more than -27% YOY. The decline is due to a massive drop in comp store sales, -15.3%, the CEO Eddie Lambert is still trying to fix. My suggestion, offer Sears to Amazon, they seem to want a physical presence now. Sears is a great big store, has a nationwide footprint and is already well known for mail-order and delivery.

Costco gained 3.75% on a double shot of good news. First, the store chain released November sales data and the numbers are more than good. Revenues grew 13.4% YOY and came in well above expectations and driven on double digit gains in comp store sales. Total comps came in at 10.8% with 10.2% in the US and 13..8% in Canada, analysts had been expecting in the range of 7%. Even excluding gasoline sales total comps were nearly 8% and well above expectations.

Ambarella, notable for its association with GoPro among others, reported after the bell. The maker of HD semiconductors reported a double digit decline in revenue from the previous year but managed to beat estimates for revenue and EPS. Balancing this is YTD figures which show both revenue and earnings up from the last year. Forward guidance was also slightly above expectations and drove the stock 5% higher in after hours trading.

The Indices

The indices moved higher in a broad rally today although there were standouts in terms of leader and laggard. The leader is the Dow Jones Transportation Average with a gain of 2.00%. I have to say that when I first looked at this chart I had wow moment, even with the bullish signals/bounce from the long term trend line this is the kind of move that grabs your attention. The index created a long green bodied candle, the third in a row of three that may be considered Three White Soldiers and a sign of strength. This move is trend following, begins at a firm level of long term support and is confirmed by the indicators so I would expect to see it continue in the near to short term. Oh, and the index set another new all time high.

The Dow Jones Industrial Average posted the second largest gain, near 1.25%. The blue chips created a long green bodied candle in an extension of gains begun earlier this week. The index is moving up from the short term moving average with strength and set another new all time high. The indicators are both bullish, pointing higher and showing some strength so I would expect to see this move continue higher. Next target is 24,800 to 25,000.

The S&P 500 gained more than 1% to set another new all time high. The index created a medium/long green bodied candle with some visible upper shadow but does not appear to have hit any form of major resistance. The indicators are both bullish and pointing higher so I would expect to see prices contiue to move up. The caveat is that stochastic is a bit mixed with %K pointing lower and consistent with a touch to resistance. Now that 2,600 is broken next target is 2,700.

The NASDAQ Composite is today's laggard with a gain of only 0.5%. The tech heavy index moved higher but did not set a new all time high. This action is alarming as appears to confirm yesterday's Dark Cloud Cover and the idea of consolidation/correction. The indicators are both consistent with such a move, rolling over from bullish peaks and pointing lower, although strong bearish signals are absent. A move lower may find support at the short term moving average. A move up would be bullish and trend following with target at the current all time high.

The markets are moving and they are moving higher. These moves are supported by economic trends, earnings expectations and hopes tax reform will pass and pass quickly. The only thing standing in the way now it seems is expectations; the market is melting up on expectations and may soon become overextended. If tax reform gets delayed, if the data weakens, if the FOMC turns dovish or geopolitical fear flare up again we could see correction. That being said I'm still bullish and looking for the market to move higher. Final thought; if the transports lead the market they are giving off one heck of a signal.

Until then, remember the trend!

Thomas Hughes

New Option Plays

Not Today

by Jim Brown

Click here to email Jim Brown

Editors Note:

The S&P futures are down -8 on setbacks on the Senate tax bill. We knew this was going to be a problem in the coming days until all the various boxes were checked and several successful votes were held. This could pass by morning but with the Dow up 718 points since Tuesday's open there is a lot of irrational exuberance in play.


No New Bullish Plays


No New Bearish Plays

In Play Updates and Reviews


by Jim Brown

Click here to email Jim Brown

Editors Note:

The Dow moved into even more overbought territory with a +331 point gain. This is getting ridiculous and it cannot continue. Friday could bring a hard dose of reality if the tax bill is NOT passed in the Senate.

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

FB - Facebook
The long call position was reentered at the open.

PYPL - PayPal
The long call position was reentered at the open.

FL - Foot Locker
The long put position was closed at the open.

STX - Seagate Technologies
The long call position was stopped at $38.35.

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


Costco reported November sales rose 13.2% to $11.26 billion, up from $9.95 billion in the year ago month. This was a blowout report. For the 12 weeks in the first fiscal quarter ending Nov 26th, sales rose 13.3% to $31.13 billion and that was with one day less than last year because of where Thanksgiving fell on the calendar. Online E-commerce sales rose 39% for the month and 43.6% for the quarter. Shares exploded higher with a a $6.90 gain to a new record high close.

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. Minor retracement.

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


MKM Partners boosted their price target from $200 to $240 and the highest on the street. Shares rebounded $2. The analyst said consensus expectations for revenue decline were overstated.

Original Trade Description: November 29th

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.

Facebook fell $8 intraday and came to rest right on uptrend support and the support of the 60-day moving average.

Facebook has been showing good relative strength in the past several weeks and analysts continue to raise the price targets. This is a buying opportunity ahead of window dressing in late December. What fund manager does not want to have FB in his year end portfolio?

The original FB position was stopped out in the Nasdaq crash on Nov 29th and we rentered this new position on Nov 30th.

Position 11/30/17:

Long Feb $180 call @ $8.00, see portfolio graphic for stop loss.
Short Feb $195 call @ $2.55, see portfolio graphic for stop loss.
Net debit $5.45.

GILD - Gilead Sciences - Company Profile


Maxim Group upgraded Gilead from hold to buy with a $94 price target. Gilead closed at $75 giving it plenty of room to run. Gilead benefitted from the sector rotation out of tech stocks on Wednesday.

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. No material move.

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.

PYPL - PayPal - Company Profile


No specific news. Nice $2.50 rebound from support.

Original Trade Description: November 29th

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.

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.

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.

Paypal closed exactly on horizontal support and the 30-day average, which has been support since February. The company is more of a bank than a tech stocks and should benefit from any further rotation into banks.

The original PYPL position was stopped out in the Nasdaq crash on Nov 29th and we rentered this new position on Nov 30th.

Position 11/30/17:

Long Feb $75 call @ $3.75, see portfolio graphic for stop loss.

STX - Seagate Technology - Company Profile


No specific news. Only a minor decline but it was enough to stop us out.

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:

Closed 11/30: Long Jan $39 call @ $1.14, exit $1.20, +.06 gain.

XRAY - Dentsply Sirona Inc - Company Profile


No specific news. Decline today made up for no decline on Wednesday.

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


I am still in a daze over the Dow rally. However, if we did not have this position already I would be adding it today.

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. The position was closed at the open.

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:

Closed 11/30: Long Feb $38 put @ $2.05, exit $1.17, -.88 loss.

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