Option Investor

Daily Newsletter, Saturday, 12/2/2017

Table of Contents

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

Market Wrap

Real Volatility Returns

by Jim Brown

Click here to email Jim Brown

The Dow plunged 350 points intraday, S&P -42, Nasdaq -137 and Russell 2000 -46.

Weekly Statistics

Friday Statistics

Fortunately, all the indexes rebounded to recover most of their losses. The combination of the Michael Flynn charge and headlines he would testify against the Trump administration along with the uncertain outlook for tax reform in the senate, pushed the indexes to lows that were downright scary for a few minutes.

The speed of the decline was the scary part despite a couple rebounds on the way down where program traders bought the initial dips. Each rebound was small and short-lived. Once the bottom was made at 11:30, there was 30 minutes of wild swings as the buyers and sellers battled it out. The index ETFs including the SPY, IWM, QQQ and DIA saw huge volume. The SPY normally trades about 50-60 million shares per day. Friday's volume was 164 million. Volume in the IWM averages about 23 million and 63 million shares traded. The QQQ averages 28 million and traded 59 million shares.

Art Cashin remarked as the bottom was being made that there was not a large surplus of sellers but all the bids were suddenly cancelled. Any computer trying to place a sell order was finding an air pocket that lasted for several minutes. Since 60% of our daily volume is computer trading, they are making the decisions based on headlines, direction and bid/ask spreads. When the machines hit a volatility event, they reset and wait for the volatility to pass. The bids are cancelled until the machines can detect a pattern that is tradable. These programs cost tens of millions of dollars but they need parameters that fit a scenario before they can trade. That scenario can take milliseconds to appear or even minutes depending on the volatility.

Add in the human traders and their stop losses and suddenly everyone is moving in the same direction. When something happens in the market that is unexpected like the initial -300 point drop in less than 8 minutes it cause a panic. The drop started at 11:06 and traders stared in disbelief. That turned into a panic to sell because they do not know what happened other than the bottom fell out.

Almost everyone believes we could have another flash crash even though we have a lot more circuit breakers today than we did when the first one happened. Anyone with reasonably tight stop losses was more than likely stopped out on Friday. With the tsunami of headlines on TV about Flynn, Trump and tax reform, I am pretty sure there were a lot of traders that simply sat out the rest of the day.

The headline causing the biggest problem on Friday suggested that Flynn was directed by the "highest levels" in the Trump headquarters to contact the Russians during the 2016 campaign. Brian Ross at ABC said in a special report that Michael Flynn is prepared to testify that "candidate," Donald Trump, "directed him to make contact with the Russians." That would be completely contrary to everything President Trump has said about the Russian collusion investigation.

Later, that statement was corrected to say Flynn was directed by a high-level person in the "post election transition team" to make contact with Russia "initially as a way to work together to fight ISIS in Syria." That was significantly different than the original news story.

The problem for Flynn is that he initially lied to the FBI about not having contact with Russia. Actually, having contact is not illegal but an unauthorized individual cannot negotiate anything. The 1799 law that forbids it has never been tested and is thought to be unconstitutional.

The key point is the lying, which to the FBI could suggest Flynn was trying to cover up something. There is also the question of whether President Trump was trying to obstruct justice at any point in the early stages of the investigation. When the story suggested Flynn had agreed to testify against the Trump administration, the ramifications could be huge and the headlines tanked the market.

Later in the day, the headlines were clarified again and it was Trump's son-in-law, Jared Kushner, in the president's transition team who directed Flynn to contact Russia about a UN resolution condemning Israel to determine their posture on the matter. This suggests Kushner is the one that may be in the FBI spotlight here.

On Saturday, the reporter, Brian Ross, was suspended for four weeks without pay for reporting false news. By saying it was "candidate" Trump instead of a person on the "post election transition team" the impact was dramatically different. Candidates are not authorized to negotiate with other countries. Transition teams always contact world leaders to get up to speed before inauguration. By saying it was candidate Trump there was an entirely different set of potential assumptions that crashed the market. Had he said a Trump transition team member, the market would not have crashed.

Early Saturday morning the tax reform bill in the Senate was passed with a 51-49 vote and will now move on to the conference committee to iron out the differences between the House and Senate versions. The president wants the bill passed before Christmas so it will be all hands on deck for the next week. Unfortunately, I think it is going to be VERY difficult if not impossible to get it done in that time frame. Because of the complexity of the differing views, we will be lucky to get it done in January.

The economic reports for Friday were mixed. The ISM Manufacturing Index for November declined from 58.7 to 58.2. That was down from the 60.8 in September and the highest level since February 2011 at 61.4. The index is still at multiyear highs. New orders remain strong at 64 along with employment at 59.7. Order backlogs were flat at 55.

Construction spending for October rose 1.4% and well over estimates for a 0.5% rise. Residential spending rose +0.4% and nonresidential rose 0.9%. Government/public spending rose 3.9%. This was the strongest report in five months.

Auto sales declined sharply from 18.1 million to 17.5 million on an annualized rate and below estimates for 17.8 million. This was significantly below the 18.6 million rate from September. The auto buying to replace hurricane-damaged vehicles has passed. Domestic sales declined from 14.2 million to 13.7 million while imported vehicle sales declined from 3.9 million to 3.8 million. Auto sales fell from 6.6 million to 6.4 million. Light truck sales declined from 11.5 to 11.1 million.

After the economic reports for the week, the Atlanta Fed real time GDPNow for Q4 is projecting a 3.5% growth rate. This was up from a 2.7% print on Nov 30th. The forecast of real consumer spending rose from 2.6% to 3.1% based on Friday's ISM. The forecast for fixed investment spending rose from 6.7% to 8.4% based on the surprise jump in the construction spending report. It is going to be exciting to see how the 2018 numbers play out if we actually get a tax cut.

The economic calendar for next week is highlighted by the payroll reports and the ISM Services report. However, the elephant in the room is the government-funding deadline for next Friday at midnight. Schumer and Pelosi have vowed to shut down the government if the republicans do not include a DACA provision to allow those individuals to remain in the US. There are several GOP lawmakers that would allow that to happen. There will be a fight simply because the democrats are going to try and impose their will on something because they are losing on the tax reform process. This could be a major market mover as the week progresses unless there is some sort of compromise.

There is going to be a push to try and get the tax reform out of the conference committee and passed before Christmas. There are only about 9 days for both items to be passed before both houses leave for the holidays. That means there will be a barrage of critical, potentially market moving headlines for the next two weeks.

The earnings calendar for next week has several retailers but the big report for the week will be Broadcom (AVGO).

Broadcom will likely provide an update on their move to the USA and the offer for Qualcomm (QCOM). Broadcom is planning on nominating a slate of directors for Qualcomm's board before the December 8th deadline. Reportedly, they will postpone increasing the offer price until just before the Qualcomm board meeting in March. By going hostile with the slate of board members, they are hoping to convince shareholders to lean on the board to accept Broadcom's next offer. That will force Qualcomm to try and convince shareholders why it should continue as an independent company in what is turning into a very competitive space. Broadcom offered $70 for Qualcomm and it was declined. A shareholder survey found that even a $10 hike in the price would convince most to sell.

Broadcom may also be waiting to see what happens with Qualcomm's acquisition attempt for NXP Semiconductors (NXPI). Regulators are holding up the deal but it should be cleared as early as the end of December. Qualcomm offered $110 and shares are trading at $115. Qualcomm will have to offer more than $115 to entice at least 80% of shareholders to tender their holdings so the deal can be completed. NXPI is a Dutch company and those are the rules in a hostile takeover.

If Broadcom acquires Qualcomm, they will immediately become the default provider for the basic set of components needed for the one billion smartphones sold each year. They would become the third largest chip company. Intel and Samsung are the top two.

There was some stock news on Friday but it was buried under the mountain of political headlines. Big Lots (BIG) reported earnings of 6 cents that beat estimates for 4 cents. Revenue of $1.11 billion missed estimates for $1.12 billion. For the current quarter, they guided for earnings of $2.35-$2.40 and analysts were expecting $2.37. For the full year, they guided for $4.23-$4.28 per share. Shares declined with the market.

Disney (DIS) is suing Redbox to halt sales of Disney movies. The company recently began offering customers codes they could use to download movies at significant discounts from prices on other websites like the Apple Music store. Disney said Redbox is violating its copyrights. Disney said it was not supplying Redbox with the codes. Redbox was buying DVD and Blue-ray packages that include the codes to give customers the access to the digital copies of the movies. Redbox takes apart the packages and sells the codes separately from the rented DVDs. Redbox was charging $14.99 for the Rogue One: A Star Wars Story and iTunes sells it for $19.99. Redbox sells some movie codes as cheap as $7.99. The DVD combo packs have a warning that the codes are not for sales or transfer. Disney is demanding up to $150,000 per copyrighted DVD sale. Redbox is no longer public. It was acquired by Apollo Global in 2016 for $1.6 billion.

Separately, Disney re-entered talks to buy parts of Fox. Comcast, Sony and Verizon are also in the bidding. Fox is considering selling its Twentieth Century Fox movie and TV studio and some international assets including its 39% stake in Sky, India's Star TV, and some cable networks, including FX and National Geographic. Reportedly, the talking price is $25 billion.

Blue Apron (APRN) CEO and co-founder Matt Salzberg resigned from the company following the prior resignation of the other founder Matt Wadiak. Salzberg will remain as executive chairman of the board. With two of the founders now out of the company, there is a small chance the management staff can right a sinking ship. Revenue growth continues to fall, average revenue per customer is declining, customers are leaving and they laid off 300 workers to narrow the drain on cash flow. The sector is very competitive with as many as 20 companies in the space including Amazon. Shares have fallen from the IPO price of $10 to $3.00.

Western Digital (WDC) is reportedly close to a deal with Toshiba in the legal dispute over the sale of their joint venture chip unit. Toshiba signed a deal to sell the unit for $18 billion to a consortium led by Bain Capital, which includes Dell Technologies, Seagate Technology, chipmaker SK Hynix and several other companies. WDC filed suit and an arbitration case claiming Toshiba was prohibited from selling the joint venture chip unit without WDC's permission. The disagreement has been in progress for about six months.

The Jiji news agency reported on Friday that Toshiba and WDC have agreed to work towards a settlement but the major sticking point is the participation in the consortium by SK Hynix. The South Korean chip company has always been a challenge because Japan does not want Hynix to gain any technical knowledge from the partnership. Letting a competitor into the business would be the equivalent of letting a spy have access to all your intellectual property. Hynix was always a problem for the Bain consortium when there were multiple companies in the bidding process. At one point Hynix was going to be regulated to "silent partner" mode and would not have had any involvement in the operations.

The settlement would have WDC dropping all objections for the sale in exchange for an extension in their joint venture agreements. I am confused as to what this means for the stock price. Obviously, they are not going to end up the owner of the other half of the venture as they had hoped but extending the joint venture agreements means WDC will continue to receive memory at cost and that will benefit drive sales. They already own 50% of the venture so nothing is going to change negatively. With shares at support, this might be a buying opportunity.

Amazon has reportedly held talks with generic drug makers about entering the drug purchasing market. Reportedly, Amazon has had discussions with Mylan (MYL) and Sandoz, owned by Novartis (NVS). The conversations were described as high level and vague. Reportedly, Amazon may be considering becoming a distributor. Sandoz president Peter Goldschmidt confirmed the meetings. There is some confusion on whether Amazon would be a drug wholesaler or a retailer of generic medications. Goldschmidt did not expect Amazon's plans to have a "major impact" on Sandoz business.

If Amazon became a distributor, the biggest competitors would be AmerisourceBergen (ABC), Cardinal Health (CAH) and McKesson (MCK). Adam Fein, president of Pembroke Consulting, a drug supply chain expert, said he did not believe Amazon would be a major threat to other distributors. The regulatory hurdles are too great and the current supply chain is strongly entrenched. In prior correspondence with regulators, Amazon has said it does not plan to store or ship drugs. That could always change. Most analysts believe it is only a matter of time before Amazon operates as an online retail pharmacy.

Amazon does not need drugs to continue making a killing in the holiday market sales. If you are a frequent Amazon holiday shopper, you know that prices shoot up after Thanksgiving. For instance, I bought a specialty flashlight the week before Thanksgiving for $35. It is $44 now with a dozen sellers. A toy my wife bought before Thanksgiving for $39 is now $52. Their low prices fluctuate wildly once the buying binge begins. Next year, plan on doing your holiday shopping before Thanksgiving.

Despite the tech wreck last week, JP Morgan is going all in on Facebook and Netflix. Analyst Doug Anmuth said Netflix continues to be our "top growth pick" into 2018. "Netflix has considerable room to expand its subscriber base and its shares are under owned compared to other FANG stocks. We believe Netflix will continue to drive and benefit from the ongoing disruption of linear TV, supported by an ever-expanding base of high quality original content." Anmuth expects the subscriber base to rise to 200 million by 2021. He raised his price target to $242 and is now the highest on the street.

His second top pick is Facebook. He raised his price target to $225 saying, "FB continued to deliver strong ad revenue growth, earnings beats and significant number revisions in 2017. We believe FB valuations are compelling at 21x 2019 EPS." Facebook has significant upside to grow Instagram's 800 million monthly users.

Morgan Stanley reiterated their $200 price target on Facebook.

OPEC and non-OPEC producers met on Thursday and agreed to maintain the production cuts of 1.8 million bpd through the end of 2018. However, they will meet in June and decide if changes can be made based on market conditions and the progress towards rebalancing. This was a compromise between Russia, which wanted a shorter commitment and Saudi Arabia, which wanted the cuts for the entire year. Investors will have to decide if this was a nine-month extension or a three-month extension with a six-month option to extend further.

The excess global inventories have already declined from 280 million barrels in May to 140 million in October. That is a significant reduction. According to the keynote address, floating storage has declined by 50 million barrels since June. The decline in inventories has helped lift prices but we are entering a seasonally weak period in the oil market until Q2 2018. With Brent prices around $64, everyone is benefitting from their production cuts but the higher prices also makes them want to sell even more oil. It will be a challenge for OPEC to keep everyone in compliance as the year progresses.

Saudi prince Alwaleed bin Talal is still imprisoned at the Ritz Carlton and has reportedly been tortured for the last three weeks. He is one of Saudi Arabia's richest men and somewhat of a rock star investor with holdings around the world. He has been called the Warren Buffett of Saudi Arabia. The Ritz has become a torture chamber for more than 200 of his fellow princes. Only a handful have been released and Prince Miteb bin Abdullah paid a reported $1 billion for his freedom. There are reports that Mohamad bin Salman (MBS), the new Saudi leader is demanding 80% of their individual net worth as a condition for their release. The torture is to learn about all their holdings. There are multiple credible reports that these princes have been hung upside down by their feet and beaten daily. Bin Talal was one explicitly mentioned as being brutally tortured. His net worth is thought to be over $17 billion. Reportedly, MBS has already confiscated more than $194 billion from the bank accounts and seized assets of those being held prisoner. The hotel itself is being guarded by the Saudi military but the interrogations are being conducted by third party contractors.

The princes are not living in the rooms but on thin mattresses on the floor of the various meeting rooms.

There is no penal code, right to an attorney, due process or civil rights in Saudi Arabia. Whatever the king decrees is the law. We sometimes forget that we are protected from many things in the US that other people worry about all their lives.

Bitcoin had a very choppy week with a $2,000 swing in prices. As of Saturday afternoon, it was $11,013. Bitcoin has made gold almost obsolete as a hedge against the dollar. Gold prices have moved very little over the last couple months while bitcoin has exploded.

New forecasts are making news on bitcoin. One analyst is predicting $40,000 by the end of 2018 and $1 million by the end of 2020. Since the supply of bitcoins is limited to 21 million because of the technology that created it, the sky is the limit on valuations.



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Volatility returned to the market and it is probably not over. The sudden return of volatility has reminded investors that changes in market direction can occur at any time and there is no assurance that an existing trend will continue for the rest of 2017 or even the rest of the week. When sentiment changes, it can change very rapidly.

The AAII sentiment as of Wednesday was roughly even with 35.9% bullish and 31.6% bearish with 32.4% neutral. You can bet that the survey that ends next Wednesday will be significantly different. The market event we had on Friday should have sent investors running to the bearish camp even if we have a decent rebound next week. Sharp and sudden declines tend to cause nightmares because it becomes not about losing uncaptured profits but also losing capital because of the sharp declines.

There is not a lot you can say about Friday's market other than it was extreme. We had the monster dip on the bogus ABC story on Flynn/Trump and that drove the market for several hours. As the qualifications began to appear and the story started to fall apart, the market recovered. Helping that was Mitch McConnell saying they had enough votes to pass tax reform. The positive mood began to return but it was a Friday afternoon and the weekend event risk fears began to weigh on investors.

While the vote looked promising, it would not happen until late Friday night at best and there was always the fear that another roadblock would appear. I do not blame anyone for going into the weekend flat.

Fast forward to Saturday night and the Flynn story has been completely debunked and the reporter suspended for four weeks. The vote passed and now the focus goes to the conference committee and a potential bill emerging on the 18th. Then we face the voting apprehension all over again. Next week is government shutdown week. The funding expires at midnight on Friday so all week should be focusing on getting at least a continuing resolution and at best funding for the rest of the fiscal year which ends next October.

Despite the intraday decline on Friday, the markets are still overbought. The decline may have relieved some of the pressures but it may also have damaged sentiment.

The S&P hit 2,650 the last two days and that is a psychological barrier from all the analyst targets at that level. On my analyst graphic, there is only one analyst with a target over 2,650 for 2017. There may have been some upgrades I am not aware of but you get the idea. We are right at the upper limit for forecasts.

There were a lot of stop losses erased on Friday and those investors are licking their wounds this weekend. They may not simply rush back into the market on Monday. Anyone wanting to be in the market and waiting on a dip got their opportunity on Friday.

The Dow chart became even more overbought on Thursday and Friday's dip did little to erase the optimism. There were only a handful of losers when the day was over. Boeing's $5 loss accounted for almost the entire 40-point decline in the Dow. Given the recent big gains in UNH and MMM, a minor decline at the close was pocket change. Just looking at the Dow table you would have no way of knowing the Dow was down -350 intraday. This looks like just a normal day.

The Dow is up 2,000 points since the end of September. There was a four-week consolidation pattern at the end of October and that may have removed the overbought pressures from October but now we have another 1,000 point move in the last two weeks with 675 points last week alone. Even with the positive economic and political fundamentals, that is a lot of gains without a pause to consolidate.

The Nasdaq could be our problem child next week. The index lost 41 points for the week and big cap sentiment may have been severely damaged. With the gains for the year in the big caps, there is a lot of uncaptured profit and investors may be rethinking the "hold until January" scenario on the hopes of a lower tax rate.

For the last several months about every four weeks, the Nasdaq has taken a break. The last three have been shallow and the time between events has shortened. I do not think we can claim Friday as an event since it did not close significantly lower. That means it could be the start of an event. The average decline for the last four events has been four days. Friday was the third lower low/lower high for this event. We could be due for a couple additional days of declines even if they are only minor.

Support is 6,800 and I would not be surprised to see that tested again.

The Russell 2000 fell -3% intraday or roughly 46 points. The rebound erased almost that entire decline. This is bullish for the small caps to see that violent of a reversal. If the index trades at 1,550 again, we could see an upside breakout. Small cap stocks should do well in a lower tax environment and investors may be starting to position themselves ahead of next year's results even if the taxes are not going to become effective until 2019. That remains to be seen since the effective date on the house bill is 2018 and the senate is 2019.

Volume has been very heavy over the last week. Wednesday saw 8.0 billion shares, Thursday's rally had 9.0 billion and Friday's dip and rebound traded 8.2 billion shares. Heavy volume like that normally occurs at market tops and bottoms. Since we are not at a bottom that could be a worry for investors.

Decliners were 4:3 over advancers on Friday and advancers 4:3 over decliners on Thursday. Wednesday they were almost dead even. New 52-week highs on Wednesday were 1,018 and 1,033 on Thursday. There were even 349 on Friday. What all this means is even with Friday's panic drop, the internals were not that bad and overall they have been bullish.

This can obviously change in a heartbeat as we saw on Friday. Every monstrous dip may not be bought but until that trend changes we should continue to buy the dips. The long-term fundamentals of economics, earnings and taxes will remain positive. The short-term events like a government shutdown crisis will be over quickly and the market will rebound. I am personally looking for a dip in January but that is still four weeks away. Until then, buy the dip.

Enter passively and exit aggressively!

Jim Brown

Send Jim an email


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Index Wrap

Technical Wreck

by Jim Brown

Click here to email Jim Brown
The massive rally on Thursday and crash on Friday has weakened the technical indicators.

The vast majority of technical indicators are either oscillators or moving average trackers. In each case the 350 points moves up and down on Thr/Fri have weakened their effectiveness. The 350 point gain on Thursday expanded the bullish divergence on the MACD and then the rebound on Friday confirmed that bullish print even though the intraday charts were ugly.

The result is that the charts look bullish even though we dodged a bullet on Friday. In theory, December should be bullish. This is the end of the year and portfolio managers will want to be fully invested for their end of December statements. The earnings cycle is over and companies should be working on completing their outstanding stock buyback authorizations. That means dips will more than likely be bought.

The intraday blip on Friday was a fluke. It was powered by a bogus news story and quickly erased. The only reason we did not close positive was the delay in voting in the senate and the weekend event risk.

If we ignore the very ugly candles on the charts, the markets appear to be overbought once again. We should ignore the candle because it was based on a bogus event that did not happen and was quickly erased. It was a reaction to an error.

Technical analysts will tell you that everything in the market is always priced into the charts. Good news, bad news and even unexpected news is factored into the market movement. While that is true, we periodically get news we are not expecting. That is what happened on Friday.

I am going to ignore the Friday dip as noise. The chart I always point to as evidence of market direction is the A/D chart for the S&P. If we ignore the Friday blip the A/D for the S&P is at a new high and solidly bullish. This is based on earnings, economics, a decrease in regulations and the expected tax cut. Investors are turning outright bullish as the tax reform process moved to the center of attention. Obviously, should that become derailed, the market will also leave the track.

S&P resistance is now 2,650 with support in the 2585-2600 range. The index is short term overbought and could do with a rest.

The S&P Bullish Percent Index exploded higher with 89 new S&P highs on Wednesday, 108 on Thursday and 38 on Friday. The Point & Figure charts are busting out into bullish buy signals across the board. The 77.4% bullish number is a 9-month high.

The Dow A/D line is equally as bullish and Friday's 350 point intraday drop did not even appear on the chart because most of the Dow stocks closed positive for the day.

The Dow chart is very overbought after the 673 point gain for the week. The indicators are positive but the chart is an example of what not to buy. The index should rest soon and this week would be a perfect opportunity before the budget battle later in the week.

The Nasdaq could be our trouble spot for the week. The index lost 41 points for the week when the Dow gained 673. That kind of divergence is never good. The big cap tech stocks are faltering with most negative for most of the week. The big decline on Wednesday was a drop from a new high and never a bullish event. The rebound on Thursday was lackluster and the index made a two-week low on Friday. There was a rebound from the triple digit decline but it was still a lower high/lower low.

Big cap tech sentiment is damaged. If we do not see a recovery in the big caps soon, we could see investors begin to bail and take profits for 2017.

The prior resistance at 6,800 is now support and that level was broken severely intraday on Friday.

The small cap A/D line began to deteriorate on Wednesday. The spike to a new high stalled at the opening print and held there all day. Thursday struggled to make a new intraday high at the open and then faded the rest of the day. Friday's decline erased 3% from the Russell 2000 but recovered most of the damage by the close. The small caps are not as bullish as the large caps despite the Tuesday spike. If the Russell and the S&P-600 were to set a new intraday high next week it could be a trigger for a new move higher. However, the small cap internals are weaker than the big caps.

The Russell 3000 closed at a new high on Thursday and only declined 3 points on Friday. This is the broad market. As long as the R3K can continue higher or even just hold its current gains the major indexes are not going much lower.

The market is at a precarious point. In theory, it should be moving higher but Friday's panic selling may have damaged sentiment. If the budget battle next week turns contentious, the market could retrace some gains and wait for the various votes to complete. December is normally good for about a 1.5% gain on average since 1950. With the market vacillating 2-3% on Friday it demonstrated we could capture the gains for the month in just a couple days even if we paused this week for a political rest.

I would continue to buy the dips but be careful of any major declines. We need to post several days of gains to convince investors it is safe to go back into the water.

Enter passively and exit aggressively!

Jim Brown

Send Jim an email

New Option Plays

Technology Leader

by Jim Brown

Click here to email Jim Brown

Editors Note:

This is the common denominator within all tech stocks. Semiconductors are the building blocks of every tech products. Even Adobe, Microsoft and Facebook rely on chips to power the devices that powers their services.


SMH - Semiconductor ETF - ETF Profile

VanEck Vectors Semiconductor ETF (SMH) seeks to replicate as closely as possible, before fees and expenses, the price and yield performance of the MVIS US Listed Semiconductor 25 Index (MVSMHTR), which is intended to track the overall performance of companies involved in semiconductor production and equipment. The index seeks to track the most liquid companies in the industry based on market capitalization and trading volume. Industry Leaders: Index methodology favors the largest companies in the industry. Global Scope: Portfolio may include both domestic and U.S. listed foreign companies allowing for enhanced industry representation.

The semiconductor sector leads the Nasdaq because chips affect every tech product and service. The semiconductor sector was down -8% at the low on Friday in only four days. The decline stopped at the 50-day average, which has been support several times over the last year.

If the Nasdaq is going to move higher the chip sector will lead it.

Buy Feb $100 call, currently $3.50, no initial stop loss.
Sell short Feb $105 call, currently $1.15, no initial stop loss.
Net debit $2.35.


No New Bearish Plays

In Play Updates and Reviews

Volatility Returns

by Jim Brown

Click here to email Jim Brown

Editors Note:

The Dow fell -350 points intraday on the Flynn headlines but recovered by the close. We were expecting volatility from the tax headlines but the arrival of headlines on another topic nearly killed the market. The volatility was huge intraday with large bounces and multiple dips but the market recovered most of its losses by the close after Mitch McConnell said they had enough votes to pass the senate's version of tax reform.

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

COST - Costco
The long call position was stopped at $181.85.

CCOI - Cogent Communications
The long call position was stopped at $46.50.

XRAY - DentSupply Sirona
The long call position was stopped at $65.85.

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Credit spreads and naked puts = OptionWriter

Long term option investments = LEAPS Investor

3-6 month Option Trades = Ultimate Investor

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Long and short equity trades = Premier Investor

BULLISH Play Updates

CCOI - Cogent Communications - Company Profile


No specific news. The 350 point Dow drop caused a drop in the stock to stop us out.

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:

Closed 12/1/17: Long Apr $50 call @ $3.10, exit $1.95, -1.15 loss.

COST - Costco - Company Profile


No specific news. The big Dow drop intraday caused a drop in the stock and we were stopped out. This was a very profitable position. I had tightened the stop loss on Thursday to pr3event giving back our gains of nearly $15 per share.

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.

Update 11/30: 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.

Position 10/16/17:

Closed 12/1: Long Jan $165 call @ $3.85, exit $18.60, +$14.75 gain.

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


JPM said FB and Netflix were the two best ideas in tech for 2018. They have a $225 target on FB and $242 on Netflix. Facebook Messenger should get a boost in two weeks as AOL Instant Messenger (AIM) will shut down on Dec 15th.

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.

Update 11/30: 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.

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


No specific news. Shares posted a decent gain in a weak market.

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.

Update 11/30/17: Maxim Group upgraded Gilead from hold to buy with a $94 price target. Gilead closed at $75 giving it plenty of room to run.

Position 11/8/17:

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

MCK - McKesson - Company Profile


Another news headline that Amazon was in preliminary talks with generic drug makers, knocked the stocks in that sector lower. Amazon would be a competitor to McKesson.

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


Keybanc believes the Venmo payment app is going to be a breakout hit in 2018 and raised his price target for Paypal from $85 to $90. In a recent survey of 500 consumers, Venmo was the preferred payment option for 76% of respondents. Paypal is forecasting $75 billion in Venmo payments in 2018 and they get an estimated 4 cent EPS boost for every $10 billion.

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.

XRAY - Dentsply Sirona Inc - Company Profile


After the downgrade from HC Wainright from buy to neutral, the intraday market volatility caused a dip that stopped us out.

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:

Closed 12/01: Long Apr $70 call @ $3.41, exit $2.10, -1.31 loss.

BEARISH Play Updates (Alpha by Symbol)

DIA - Dow SPDR ETF - ETF Profile


When the Dow was down -350 intraday, I was glad we still had this position. After the huge rebound I am not so sure. This is an insurance position so we only win here if we are losing in the long positions.

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.

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