Option Investor

Daily Newsletter, Thursday, 1/4/2018

Table of Contents

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

Market Wrap

Dow 30K On The Horizon

by Thomas Hughes

Click here to email Thomas Hughes


Trump said it first, now that the Dow has crossed 25,000 our new number is 30K. As wild as that sounds it is not out of the question. The blue chip index gained 25% in the past year and could easily see double digits again this year provided economic trends persist. Today's move was not overly strong but was the 3rd day of gains since the first of the year, took the index to new all times and is supported by forward earnings outlook.

Global markets were positive in the overnight session. Both Asian and European indices closed with substantial gains and led by the Nikkei. The Nikkei advanced more than 3.25% on optimism for 2018. The standout laggard was the Korean Kospi. It closed with a loss of -0.80% on weakness in automakers and tech. Standouts in Europe include the German Dax and French CAC which both posted gains in the range of 1.5%.

Market Statistics

Futures trading was positive from the get-go although a bit weak to start. That changed throughout the morning as positive economic data and early 4th quarter earnings reports lifted spirits. By opening time the SPX was indicated up by roughly 7 points resulting in a small gap at the bell. The index extended those gains during the first hour and half of trading and then entered a trading range which dominated action the remainder of the day. The indices closed with gains in the range of 0.5% with most at new all time highs.

Economic Calendar

The Economy

Lots of data today and mostly labor related. First up is the Challenger, Grey & Christmas report on planned layoffs. The number of planned layoffs fell by -7.4% in December to 32,423. This is -3.6% below last year and brings the 2017 year end total to 418,770. Full year 2017 is down 20% over the previous year and the lowest level of layoffs since 1990. On the flipside hiring plans were at the lowest level all year in December but the 8,000 or so new planned jobs brings the full year total to an all time record and 25% above last year.

The ADP Employment figures show a surprise gain job creation this month. The headline figure of 250,000 outpaced expectations by more than 65,000 and reinforces ongoing labor market trends. The November figure was revised lower but only by 5,000. Gains were led by small and medium size business which accounted for 77.6% of all new jobs created. Gains were dominated by services which accounted for about 90% of all new jobs. On the bright side there were 15,000 new construction jobs so maybe we'll see an uptick in building once the weather warms up.

Initial claims for unemployment benefits rose 3,000 on top of an upward revision of 2,000 to hit 250,000. The four week moving average of claims gained 3,500 to hit 241,750. On a not adjusted basis claims rose 8.3% versus an expected 7.0% and are up 0.3% over last year. This is the first time that not adjusted claims have been up on a YOY basis in some time but not unexpected. This has happened from time to time in the past, so long as it does not persist there shouldn't be a problem. Other than that these figures remain consistent with long running labor market trends and overall labor market health.

Continuing claims for unemployment fell -37,000 to hit 1.914 million. The last week's figure was revised higher by 8,000. The four week moving average of claims gained 750 to hit 1.9122 million and remains consistent with ongoing labor market health. Looking forward and based on seasonal trends we may begin to see this figure begin to move lower as spring approaches.

The total number of claims for unemployment assistance rose 17,935 to hit 2.022 million. This increase is in line with seasonal and long term trends, likely preceding a sharp uptick in the next 2 weeks. The good news is that the uptick is expected and likely to fall short of last years peak. My target is somewhere in the range of 2.25 million. As we move into January the total claims should retreat back to test and possibly set new lows.

The Dollar Index

The Dollar Index fell in today's session despite the round of positive data and hawkish tone to yesterday's FOMC minutes. The problem is persistently low inflation and the undermining effects of positively trending data abroad. While it looks like the index could continue to move lower in the near term tomorrow's NFP could be a catalyst for gains. A strong NFP may not be what it takes but a strong increase in average hourly earnings could. The average earnings have been trending near 2.5% YOY for the past year, a move above could firm outlook for the next rate hike. A move down will likely find support at $91, a move up may find resistance at the short term moving average, neither move will break the index out of its short term trading range.

The Gold Index

Gold prices moved up despite today's positive data. The metal gained about $5 to trade near $1,325 for the first time in months. Price is supported by industrial demand and a persistent belief the FOMC will stay the course or even back off its rate hike timeline due to low inflation. The risk of course is that inflation will begin to pick up and there are signs it is already doing that. Strong numbers in tomorrow's NFP could alter that outlook and put an end to gold's rally.

The Gold Miners ETF GDX posted a gain near 0.5% on today's strength in gold. Today's candle is a small green bodied once to the side of the previous red candle and looks like it may be part of a bullish consolidation. The indicators are both consistent with such a move but have not yet confirmed with trend following crossovers. A move higher would be bullish with an upside target near $25.50 that would leave the ETF range bound in the longer term. The risk, as with gold prices, is in tomorrow's NFP and any other data that may indicate a need for FOMC tightening.

The Oil Index

Crude oil gained another 0.5% to settle above $62 and at a fresh 3 year high. The move was driven on signs of market tightening that will likely continue supporting prices in the near to short term. Today's news was another surprisingly large of US stockpiles and further crackdowns on protests in Iran. US stockpiles fell 7.4 million barrels versus the expected 5.7 million but are offset by increases in gasoline storage and total distillate supply. Over the next few weeks we may see additional drawdowns as cold weather spurs use of heating oil and other heating fuels. Longer term outlook for 2018 remains well supplied with an expectation for prices to fall below $50 by the end of the year.

The Oil Index gained another 0.70% and is fast approaching my 1,390 target. The index is moving up on strong forward earnings outlook that is being supercharged by rising oil prices. The indicators are bullish and on the rise, consistent with higher prices, so there is little reason to think this rally will end. If 1,390 is surpassed next targets are 1,450 and 1,500 for 3 and 4 year highs.

In The News, Story Stocks and Earnings

Macy's delivered some post-holiday sales guidance this morning that was good, but not that good. The company says that total comp sales for the 2 month holiday period are up 1.1%. Company CEO says they are seeing improved trends in the stores, customers are responding well to the loyalty program and online is still growing by double digits. The company also gave updated guidance in a narrower range within the previous but the bottom line remain this; sales are going to fall close to -3%. Shares of the stock shed more than -3% on the news to test support at the pair of moving averages. Today's move looks like confirmation of support following a major moving average crossover and indicative of reversal. Whether this means reversal from down to sideways or down to up remains to be seen.

JC Penny reported a 3.4% gain in holiday season comps driven by strength in home and beauty. The company is seeing explosive growth in online and is able to deliver from all of its brick and mortar locations. Management backed previous guidance in the upbeat statement, driving shares higher. The stock jumped in the premarket session only to open flat and push lower to test support intraday.

Sears announced it was closing more than 100 additional stores including some K-Marts. I have to say I am not surprised. After what I saw at my local Sears store this season I'd say they've given up. The company says it is in ongoing effort to restructure is footprint as part of a turnaround program that is long overdue. Shares of the stock lost another 5% to set another new low.

The Indices

The indices made gains today but the candles are sketchy. In nearly every case today's action looks tentative and uncertain as the market moves up to set new all time highs. The Dow Jones Industrial Average led the way as traders and President Trump turn their eye to infrastructure spending. The index gained more than 0.75% intraday to set a new all time high and create a small green bodied candle. The move is trend following and bullish although the indicators are a bit weak. Both are rolling into trend following bullish crossovers but MACD has not confirmed and the signal showing in stochastic is weak and likely precedes a stronger one yet to come. Regardless, the trend is up and so is price action so a continuation of today's gains is more likely than not.

The broad market S&P 500 is first runner up in today's session with a gain of 0.40%. The index created a small green bodied candle with small upper shadow setting new all time intraday and closing highs. The move is trend following and bullish with indicators consistent with such a move. MACD and stochastic have both confirmed with bullish crossovers in today's action although the stochastic signal is still what I would call early and/or weak. Upside target is 2,800.

The Dow Jones Transportation Average comes in third with a gain of 0.31%. The transports created a medium sized doji candle, possibly a shooting star, while setting a new all time closing high. The index is moving up in line with the prevailing trend and supported by the indicators although there are signs of weakening and weakness. MACD is showing significant divergence from the current highs which suggests a consolidation is due if not a correction. A move higher would be bullish and trend following with target near 11,000, a move lower could indicate consolidation.

The NASDAQ Composite comes in last a gain of 0.17. The tech heavy index created a small red bodied candle despite posting a gain and setting a new all time closing high. The candle may be bearish but is more likely a random red candle within uptrend when compared to the other indices. The indicators are both bullish and strongly bullish in that MACD is above 0 and rising while stochastic is firing a bullish crossover with both %K and %D moving up. Upside target is 7,200.

The indices are moving higher but like I said, the move looks cautious and uncertain. This could lead to correction but until those signals are confirmed the trend is up. If there is a correction or consolidation it would be a good thing and set us up nicely for future rallies in 2018. Tomorrow's NFP could be a catalyst for the market as there is little else on tap right now that could move it. A big number would be bullish for jobs, bullish for the consumer and bullish for the economy. A small number wouldn't be bad but it wouldn't move the market much I think. After that earnings will be the focus. The next cycle will start in a few weeks and is expected to be a good one. I am cautiously bullish in the near term, still firmly bullish for the long.

Until then, remember the trend!

Thomas Hughes



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New Option Plays

Less than Expected

by Jim Brown

Click here to email Jim Brown

Editors Note:

When great results are still less than expected, stocks are punished. This happened to JUNO in December.


JUNO - Juno Therapeutics - Company Profile

Juno Therapeutics, Inc., a biopharmaceutical company, engages in developing cell-based cancer immunotherapies. The company develops cell-based cancer immunotherapies based on its chimeric antigen receptor and T cell receptor technologies to genetically engineer T cells to recognize and kill cancer cells. Its CD19 product candidates include JCAR017 that is in Phase I/II trials for adults with relapsed or refractory (r/r) B cell aggressive non-Hodgkin lymphoma (NHL) and pediatric patients with r/r B cell acute lymphoblastic leukemia (ALL); JCAR014, which is in Phase I/II trials to treat various B cell malignancies in patients relapsed or refractory to standard therapies; and JCAR015 that is in Phase II trials for adult patients with r/r ALL. The company's CD22 product candidate comprise JCAR018, which is in Phase I trial for pediatric and young adult patients with CD22-positive r/r ALL or r/r NHL. Its additional product candidates include CD171, a cell-surface adhesion molecule to treat neuroblastoma; Lewis Y for the treatment of lung cancer; JCAR023, which is in Phase I trial for patients with refractory or recurrent pediatric neuroblastoma; MUC-16, a protein for treating ovarian cancers; IL-12, a cytokine to overcome the inhibitory effects; ROR-1, a protein for the treatment of non-small cell lung, triple negative breast, pancreatic, and prostate cancers; WT-1, an intracellular protein that is in Phase I/II clinical trials to treat adult myeloid leukemia and non-small cell lung, breast, pancreatic, ovarian, and colorectal cancers; and IL13ra2 for treating glioblastoma. Juno Therapeutics, Inc. has collaboration agreements with Celgene Corporation, Fate Therapeutics, Inc., Editas Medicine, Inc., MedImmune Limited, and Memorial Sloan Kettering Cancer Center. The company was formerly known as FC Therapeutics, Inc. and changed its name to Juno Therapeutics, Inc. in October 2013.Company description from FinViz.com

Expected earnings January 31st.

This is a simple story. Juno is developing CAR-T drugs. Their JCAR017 drug treats non-Hodgkin lymphoma. The drug is currently in trials. Two other drugs, Yescarta and Kymriah, developed by other companies are already approved and being marketed.

In the latest JCAR017 trial 80% of patients were in complete response at the end of 3 months. At the end of six months they were still in complete response and after the six month date until the end of the trial, 92% stayed in complete response. That is an amazingly successful trial. In early December Juno reported only a 50% response rate using different term length and dosages and investors were expecting something over 70% based on the early results. Shares were crushed.

In reality, the results are still there. Yescarta and Kymriah only showed a 30% to 40% response rate so even with the downplayed results from JCAR017 it is significantly better. Once the drug is approved it is going to be a major winner in the category.

Investors have begun buying the stock again and shares are up from the $42.50 low to close just under $48 today. This is long term support and the 100-day average.

Buy Feb $50 call, currently $3.40, stop loss $44.85.


No New Bearish Plays

In Play Updates and Reviews

Train Left the Station

by Jim Brown

Click here to email Jim Brown

Editors Note:

Investors are racing to buy stocks but the train has already left the station. If you did not own stocks on December 29th, the odds are good you are disappointed. The market has gone vertical over the last three days and the majority of stock charts are broken. They have gone from weak to expensive in a very short period of time. The Nasdaq may be starting to feel the weight of its gains with only a 12 point win today. However, the Dow exploded past 25,000 for a new high and a 152-point gain. The Russell remains the laggard with only a 3-point gain. The market has definitely turned bullish to the surprise of everyone.

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

AKAM - Akamai Technologies
The long call position was entered at the open.

CAR - Avis Budget
The long call position was closed at the open.

QQQ - Nasdaq 100 ETF
The long put position was closed at the open.

TRN - Trinity Industries
The long call position was stopped at $37.25.

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BULLISH Play Updates

AKAM - Akamai Technologies - Company Profile


The Avaya CIO joined Akamai as the new CIO. He called it his dream job.

Original Trade Description: January 3rd.

Akamai Technologies, Inc. provides cloud services for delivering, optimizing, and securing content and business applications over the Internet in the United States and internationally. The company offers Web and mobile performance solutions, such as Ion, a situational performance solution that consists of an integrated suite of Web delivery, acceleration, and optimization technologies; Dynamic Site Accelerator that helps in consistent Website performance; IP Application Accelerator to enable enterprises to deliver Internet Protocol-based applications; Global Traffic Management, a fault-tolerant solution; Image Manager that automatically optimizes online images; and Cloudlets, which provides self-serviceable controls and capabilities. It also provides cloud security solutions, including Kona Site Defender, Bot Manager, Fast Domain Name System, Prolexic Routed, and Client Reputation; enterprise solutions comprising Enterprise Application Access and Akamai Cloud Connect. In addition, the company offers media delivery solutions, such as adaptive delivery solutions, download delivery solutions, media delivery acceleration solutions, media services, media analytics, and NetStorage, a cloud storage solution. Further, it provides network operator solutions, including Aura Licensed CDN suite of solutions, Aura Managed CDN solutions, and Intelligent DNS Solutions; and professional services and solutions. Company description from FinViz.com

Expected earnings Feb 6th.

Akamai reported Q3 earnings of 62 cents that beat estimates for 59 cents. Revenue of $621.4 million beat estimates for $610 million. Web division revenue rose 14% to $328 million. Media division revenue fell -1% to $273 million. Enterprise and carrier division revenue rose 2% to $20 million. Performance and security solutions revenue rose 11% to $381 million. Cloud security solutions revenue rose 27% to $121 million. Services and support revenue rose 12% to $57 million. International revenue rose 18% to $213 million. Cash on hand was $1.4 billion. They repurchased $129 million shares of stock in the quarter.

Shares spiked $4 on the report but faded over the next week. Deutsche Bank reiterated a buy rating and raised their price target to $75. The analyst pointed to what would be monster traffic volumes from the Winter Olympics in Q1 and the World Cup Soccer in Q2.

In October, Akamai announced the acquisition of Nominum, a market leader in DNS and enterprise security solutions for carriers. Akamai also announced the launch of Bot Manager Premier, designed to help organizations manage the impact of bots across their entire digital environment, including websites, mobile applications and wed APIs.

The company guided for Q4 revenue of $638-$656 million with gross margins of 65% to 77%. Earnings are expected to be in the 60-65 cent range after a 4-cent impact from the acquisition of Nominum. They are forecasting 5% to 8% growth for the year with a 64% gross margin. There is nothing wrong with their business.

Akamai said the rapid advancement of video on demand was a strong factor in future earnings since they are the largest provider of content. Also seeing a rapid ramp was the cloud storage business. Akamai has a security hook in that growth and the redundancy of that storage.

Akamai collaborated with Google, Cloudfire, Flashpoint, RiskIQ and the RBI to squash a botnet named WireX that had infected 120,000 Android phones in early August. The bot was generating 20,000 page requests a second against a set of targeted servers in a DoS attack.

Akamai announced it had set a new record for throughput delivered on September 12th with more than 60 terabytes per second (Tbps). That beat the old record of 47 Tbps set on August 29th. Akamai delivers more content on a daily basis than any other content provider. In January 2017, they set a single event record of 8.7 Tbps streaming the Presidential Inauguration. The company has more than 200,000 servers spread across 130 countries to accomplish this record content delivery.

Akamai announced the Content Delivery Network (CDN) capabilities for enterprises are now available on the IBM cloud. The new offering is part of the IBM Cloud Content Delivery Network. Akamai currently provides CDN services on 1,700 networks in 131 countries. That now included IBM's footprint of 60 cloud centers across 19 countries. Akamai has more than 200,000 servers across 130 countries.

In mid December Elliott Management disclosed at 6.5% stake in Akamai saying the shares were significantly undervalued. Elliott said it would attempt to talk with the board, other shareholders and potential acquirers about strategic alternatives. Shares spiked to $67 on the news and have faded only slightly with support appearing at $65.

I have to use the May calls because the February calls have a $1.25 bid/ask spread on a $3 option. Just because we buy May does not mean this is a long term position. We will exit before the Feb 6th earnings. I am just using May because the bid/ask spread of only 35 cents. They should also hold their premium better than the February strikes.

Position 1/4/18P:
Long May $70 call @ $3.20, see portfolio graphic for stop loss.

ARNC - Arconic Inc - Company Profile


No specific news. Huge 5% gain to a new 10-month high.

Original Trade Description: December 27th.

Arconic creates breakthrough products that shape industries. Working in close partnership with our customers, we solve complex engineering challenges to transform the way we fly, drive, build and power. Through the ingenuity of our people and cutting-edge advanced manufacturing techniques, we deliver these products at a quality and efficiency that ensure customer success and shareholder value. Company information from Arconic.

Earnings January 22nd.

Arconic was the original Alcoa. They spun off the aluminum business then changed their name to Arconic. This company makes precision aluminum parts for aircraft and transportation equipment. Eliott management has been agitating for change and managed to get the long term CEO Klaus Kleinfeld kicked out and oversaw the five-month process to get 24-year GE veteran Charles Blankenship installed as the new CEO.

Elliott has seen their investment lag for the last year as the spinoff and CEO hunt took the wind out of Arconic's sales. Now they could be reaching the end of their struggle with a potential buyout on the horizon.

One analyst got the fire started a couple weeks ago when he suggested Honeywell was on the prowl and would eventually buy Arconic. Honeywell lost out on Rockwell Collins (COL) when United Technologies bought them for $30 billion or 14 times EBITDA.

Honeywell was under pressure by Dan Loeb to spin off its aerospace unit. Instead, they agreed to spin off the homes and global distributions unit and the transportation business leaving (by the end of 2018) the aerospace unit intact and the surviving business. Now Honeywell needs to bulk up its aerospace business of they will be the nex company acquired.

With Dan Loeb on one side urging Honeywell to build aerospace and Elliott Management on the other side urging Arconic to sell itself, this is a match made in heaven and could happen in early 2018 according to the analyst.

Shares have sprinted higher since the news story broke a couple weeks ago. They are very close to a 52-week high over $28 and a move over that level could trigger additional buying and short covering.

I am using a July option to get well past the January and April earnings. We will not hold it that long but the uncertainty surrounding those events should keep the premium up if we have a market drop in January.

Position 12/28/17:

Long July $30 call @ $1.50, see portfolio graphic for stop loss.

BITA - BitAuto Holdings - Company Profile


No specific news. IBD raised their relative strength rating from 64 to 76.

Original Trade Description: December 30th.

Bitauto Holdings Limited provides Internet content and marketing, and transaction services for the automotive industry in the People's Republic of China. The company operates in three segments: Advertising and Subscription Business, Transaction Services Business, and Digital Marketing Solutions Business. The Advertising and Subscription Business segment provides advertising services, including new automobile pricing and promotional information, specifications, reviews, and consumer feedback to automakers through its bitauto.com and taoche.com Websites, as well as mobile applications. It also provides Web-based and mobile-based integrated digital marketing solutions to automobile dealers. The Transaction Services Business segment operates automotive transaction services platform that provides e-commerce transaction services to automobile dealers; and offers online automotive financial platform services to consumers and financial institutions, including banks, auto finance companies, and insurance companies. The Digital Marketing Solutions Business segment provides one-stop digital marketing solutions, such as Website creation and maintenance, online public relations, online marketing campaigns, and advertising to automakers. The company also distributes its dealer customers' automobile pricing and promotional information through its Internet service provider partners. Bitauto Holdings Limited was founded in 2000 and is headquartered in Beijing, the People's Republic of China. Company description from FinViz.com.

For Q3 BITA reported earnings of 23 cents that missed estimates for 33 cents. Revenue of $352.4 million rose 54% and beat estimates for $334 million. They guided for Q4 revenue of $360.7 to $368.3 million, a 51% increase, and that was well above estimates at $331 million.

Shares were crushed on the earnings miss despite the 54% increase in revenue and strong guidance. Their Yixin website generated approximately 140,000 automobile transactions in Q3. Active monthly users rose to 51 million and they have more than 15,000 dealerships in the network. Transaction services rose 145.7% in Q3. Advertising and subscription service businesses saw revenue rise 19.3%. The company ended the quarter with $487 million in cash.

Their Yixin subsidiary IPOed on the Hong Kong exchange on Nov 15th and that raised a significant amount of money that will allow them to rapidly expand that portion of the business. The perceived dilution was also a factor in the stock decline.

The company is growing rapidly and guidance was very strong. There is no reason why the shares should not continue rebounding. There is strong support at $28.50.

I am recommending a February option because it is cheap. Normally I would reach out to the next month to capture the expectation premium of their Feb 19th earnings but the options are twice as expensive and with potential market volatility in January, i would rather risk less with cheaper options.

Position 1/2/18:
Long Feb $35 call @ $1.55, see portfolio graphic for stop loss.

CAR - Avis Budget Group - Company Profile


No specific news. We closed the position at the open for a minor loss and shares sank lower for the day.

Original Trade Description: December 23rd.

Avis Budget Group, Inc., together with its subsidiaries, provides car and truck rentals, car sharing, and ancillary services to businesses and consumers worldwide. The company operates through two segments, Americas and International. It operates the Avis brand car rental system with approximately 5,550 locations that supply rental cars to the premium commercial and leisure segments of the travel industry; the Budget brand vehicle rental system with approximately 4,050 car rental locations, which serve the value-conscious segments of the industry; and the Zipcar brand, a membership-based car sharing network that provides vehicles to approximately 1 million members. The company also operates the Payless brand, which comprises approximately 240 vehicle rental locations; the Apex brand primarily in the deep-value segment of the car rental industry with approximately 25 rental locations in New Zealand and Australia; and the Maggiore brand that provides vehicle rental services in the commercial, leisure, and insurance replacement/leasing segments with approximately 130 rental locations in Italy, as well as the France Cars brand, which offers light commercial vehicle fleets with approximately 60 rental locations in France. In addition, it is involved in the local and one-way truck rental businesses with a fleet of approximately 22,000 vehicles, which are rented through a network of approximately 1,000 dealers and 480 company-operated locations that serve the consumer and light commercial sectors in the continental United States. Further, it offers optional insurance products and coverages, such as supplemental liability, personal accident, personal effects protection, emergency sickness protection, automobile towing protection, and cargo insurance products. The company was formerly known as Cendant Corporation and changed its name to Avis Budget Group, Inc. in September 2006. Avis Budget Group, Inc. was founded in 1946 and is headquartered in Parsippany, New Jersey. Company description from FinViz.com.

Expected earnings Feb 6th.

Avis Budget reported Q3 earnings of $3.10 that beat estimates for $2.97. Revenue of $2.75 billion also beat estimates. The company guided for full year earnings in the range of $2.45-$2.65 on revenue of $8.8-$8.9 billion. Prior guidance was $2.40-$2.85 on revenue of $8.80-$8.95 billion.

The big drop in the chart in early November is the lowered earnings guidance. Fortunately, for CAR they have already recovered from the drop and are moving higher. Part of the lift came from news their largest shareholder, SRS Investment Management, had boosted their stake by 41% to 12 million shares or 14.7% of the shares outstanding. SRS had previously disclosed a new position with a stake of 10.4% as of September 30th. They are continuing to buy and they already own stakes in other car companies. They have 24 total positions worth more than $5 billion and they are not an activist shareholder. They are a hedge fund.

Shares of CAR made a new two-year high on Monday and drifted lower on Tuesday. After holding their gains for a week, it looks like they will try to make a higher high.

I am trying to recommend a position that should make only a minimal decline if we see some profit taking in January. Big names like Boeing or Home Depot could sell off hard. This is a stock that is recovering from a drop to $21 back in the summer and another $8 drop in November. Any weak holders should have already left.

Position 12/29/17:

Closed 1/4: Long Feb $46 call @ $1.85, exit $1.75, -.10 loss.

Previously closed 12/28: Long Feb $46 call @ $2.50, exit $1.65, -.85 loss.

CGNX - Cognex - Company Profile


No specific news. Another $2 gain. No complaints.

Original Trade Description: December 9th.

Cognex Corporation provides machine vision products that capture and analyze visual information in order to automate tasks primarily in manufacturing processes worldwide. The company offers machine vision products, which are used to automate the manufacturing and tracking of discrete items, such as mobile phones, aspirin bottles, and automobile tires by locating, identifying, inspecting, and measuring them during the manufacturing or distribution process. Its products include VisionPro, a software suite that provides various vision tools for programming; displacement sensors with vision software for use in 3D application; In-Sight vision systems that perform various vision tasks, including part location, identification, measurement, assembly verification, and robotic guidance; In-Sight vision sensors; ID products, which are used for reading codes that are applied on discrete items during the manufacturing process, as well as have applications in logistics automation for package sorting and distribution; DataMan barcode readers; barcode verifiers; vision-enabled mobile terminals for industrial barcode reading applications; and barcode scanning software development kits. The company sells its products through direct sales force, as well as through a network of distributors and integrators. Cognex Corporation was founded in 1981 and is headquartered in Natick, Massachusetts. Company description from FinViz.com.

Cognex is a tech stock where growth is booming. Every manufacturer is looking to automate as many tasks as possible and Cognex provides them the opportunity with robotic vision equipment that can inspect and track items much faster than humans.

For Q3 they reported earnings of $1.14 that beat earnings for $1.05. Revenue of $259.7 million beat estimates for $256.8 million. They guided for the current quarter for revenue of $170-$180 million and analysts were expecting $155 million. That was a major guidance beat.

Expected earnings Jan 29th.

They announced a 2:1 split that was effective on December 4th. Shares immediately sank $7 on post split depression and Nasdaq rotation but have rebounded the past two days. The 50% decrease in the stock price also reduced the option premiums by 50% and made them cheap enough to buy.

Position 12/11/17:

Long Feb $67.50 call @ $3.20, see portfolio graphic for stop loss.

PYPL - PayPal - Company Profile


No specific news. Only a 2 cent decline after a $3 gain on Wednesday.

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 reentered this new position on Nov 30th.

Update 12/2: 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.

Update 12/13: BMO Capital raised their price target from $80 to $85 saying the sale of the credit business will reduce expenses and increase earnings per share. The sale will free up $1.0 billion in cash for 2018 and $2.5 billion in 2019.

Position 11/30/17:

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

TGT - Target Corp - Company Profile


No specific news. The entire retail sector was down on Thursday.

Original Trade Description: December 13th.

Target Corporation operates as a general merchandise retailer. It offers household essentials, including pharmacy, beauty, personal care, baby care, cleaning, and paper products; dry grocery, dairy, frozen food, beverages, candy, snacks, deli, bakery, meat, produce, and pet supplies; and apparel for women, men, boys, girls, toddlers, infants, and newborns, as well as intimate apparel, jewelry, accessories, and shoes. The company also provides home furnishings and decor, such as furniture, lighting, kitchenware, small appliances, home decor, bed and bath, home improvement, and automotive products, as well as seasonal merchandise, such as patio furniture and holiday decor; music, movies, books, computer software, sporting goods, and toys, as well as electronics, such as video game hardware and software. In addition, it offers in-store amenities, including Target Cafe, Target Photo, Target Optical, Starbucks, and other food service offerings. Target Corporation sells products through its stores; and digital channels, including Target.com. As of September 13, 2017, the company operated 1,816 stores in the United States. Target Corporation was founded in 1902 and is headquartered in Minneapolis, Minnesota. Company description from FinViz.com.

I would not normally recommend a retailer only two weeks before Christmas but I expect Target to overcome the normal post holiday depression.

Earnings Feb 14th.

Target announced on Wednesday they were buying grocery delivery platform Shipt Inc for $550 million in cash. The company said they would be offering same day delivery across all major product categories by the end of 2019. They will be offering same day delivery for groceries, essentials, home products, electronics and other items by mid 2018.

Shipt's services cost $99 a year for unlimited deliveries. Shipt already has a network of more than 20,000 personal shoppers to fulfill orders from various retailers and deliver within hours in more than 72 markets. Shipt partners include stores like Costco, Whole Foods, Meijer, etc.

Target is going to continue letting Shipt deliver for their other customers. The more widely recognized the brand is the larger it will grow and Target will be able to benefit from their ability to scale deliveries all over the country. Plus, they will profit from the fees received for those other deliveries.

This is a great deal for Target as it ramps up competition against Amazon.

I wrote last week that shippers were noting the increase in packages from Target. They were the second largest volume in UPS trucks after Amazon. They should have a great Q4.

Update 1/2/18: Influential tech analyst Gene Munster said he believes Amazon will buy Target in 2018. Target has a market cap of $37 billion but it would require a huge premium to get a deal done, probably something in the $50 billion range. Amazon has a market cap of $573 billion. The deal makes sense in the long run because it would give Amazon 1,802 major store outlets with a huge warehousing system that Amazon could use to its advantage. The addition of Amazon specific products to the already broad range of products offered by Target, would be a major boost to Amazon sales. The stores would function as customer delivery points for Amazon packages and because of the large store footprint it would allow Amazon to expand its same day, next day delivery offering to most of the US.

While it might make sense on paper, I would not hold my breath expecting a deal to be done. That would be a big bite for Amazon and there may be a problem getting regulatory approval. President Trump already believes Amazon is a monopoly with too much power and that could keep a deal from completing.

Position 12/14/17:

Long March $65 call @ $2.90, see portfolio graphic for stop loss.

TRN - Trinity Industries - Company Profile


No specific news. Shares declined from the 3-year highs to stop us out.

Original Trade Description: December 4th.

Trinity Industries, Inc. provides various products and services to the energy, chemical, agriculture, transportation, and construction sectors in the United States and internationally. Its Rail Group segment offers railcars, including autorack, box, covered hopper, gondola, intermodal, tank, and open hopper cars; and tank cars, as well as railcar maintenance services. This segment serves railroads, leasing companies, and industrial shippers of various products. The company's Railcar Leasing and Management Services Group segment leases tank and freight railcars to industrial shippers and railroads; and provides management, maintenance, and administrative services. As of December 31, 2016, this segment had a fleet of 85,110 owned or leased railcars. Its Construction Products Group segment offers highway products, such as guardrail, crash cushions, and other barriers; aggregates, including expanded shale and clay, crushed stone, sand and gravel, asphalt rock, and other products, as well as other steel products for infrastructure-related projects; and trench shields and shoring products for the construction industry. This segment offers aggregates to concrete producers; commercial, residential, and highway contractors; manufacturers of masonry products; and state and local municipalities. The company's Energy Equipment Group segment manufactures structural wind towers; utility steel structures for electricity transmission and distribution; storage and distribution containers; cryogenic tanks; and tank heads for pressure and non-pressure vessels. Its Inland Barge Group segment provides deck barges, and open or covered hopper barges to transport grain, coal, and aggregates; and tank barges to transport chemicals and various petroleum products, as well as fiberglass reinforced lift covers for grain barges. Trinity Industries, Inc. was founded in 1933 and is headquartered in Dallas, Texas. Company description from FinViz.com.

More than 11,500 January $35 calls traded on Monday against an open interest of only 325. The excitement was generated by activist shareholder ValueAct Holdings, which has acquired 1.3 million shares since October and now owns 18.595 million and more than 12% of the company. Their last purchase was 43,000 shares on November 16th.

In October, the courts reversed a $663 million judgment against Trinity. The claim was for fraud after the company changed its formula for the steel in highway guardrails in 2005 and did not tell the Federal highway system. Billions of dollars of these rails have been installed around the country and after extensive testing the government found nothing wrong but complained anyway. A Texas court in 2015 awarded the judgment and Trinity appealed. The appeals court wrote a 42-page opinion tossing the case and reversing the judgment.

Earnings estimates for Trinity for Q4 have risen 31 cents to 42 cents per share over the last two months. That is a 300% rise. For the full year estimates have risen from $1.25 to $1.44.

Earnings January 24th.

Shares closed at a new 52-week high on Monday and appear destined to make higher highs. That massive amount of option volume at the money at $1.25-$1.50 per share represents $1.6 million in premium at an average of $1.40 per share. I am recommending we follow this trade only buy a higher strike.

Update 12/12: Trinity announced a plan to spin off the company's infrastructure related businesses to shareholders. The tax free spin will occur in late 2018. The infrastructure businesses are leaders in their respective sectors with construction, energy and marine markets. Trinity manufacturers highway guard rails, crash cushions and other barriers. It supplies various aggregates including sand, stone, shale, clay, asphalt and steel products for infrastructure projects. Read the description below for the full list.

This will allow Trinity to concentrate on its highly profitable rail business where it manufactures, sells and leases railroad cars.

The company also announced a $500 million share repurchase program.

Position 12/5/17:

Closed 1/4: Long Jan $37 call @ $1.20, exit .73, -.47 loss.

BEARISH Play Updates (Alpha by Symbol)

DIA - Dow SPDR ETF - ETF Profile


The Dow finally posted a major breakout today and moved well over 25,000 without any round number selling. The only risk left in the market would be a government shutdown on the 19th.

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.

Update 12/18/17: The Dow is moving ever closer to 25,000, which could end up being a monster sell the news trigger. The Dow is up 6,900 points since the election. That is 38.5% in 13 months. There is a 100% chance there will be a correction in the future. The only unknown is when.

I am recommending we close the short put side of the spread. That captures that portion of the trade and once the Dow rolls over we do not have to deal with the rise in value in the short put. Secondly, that gives us other options to raise additional premium in the future, including selling a higher put if the index does not decline.

Position 11/17/17:

Long March $230 put @ $5.16, see portfolio graphic for stop loss.

Closed 12/19: Short March $210 put @ $1.71, exit .43, +1.28 gain.

QQQ - Nasdaq 100 ETF - ETF Profile


The position was closed at the open and the Nasdaq only gained 12 points. We may be wishing we had this back on Friday.

Original Trade Description: December 18th.

PowerShares QQQ, formerly known as "QQQ" or the "NASDAQ-100 Index Tracking Stock", is an exchange-traded fund based on the Nasdaq-100 Index. The Fund will, under most circumstances, consist of all of stocks in the Index. The Index includes 100 of the largest domestic and international nonfinancial companies listed on the Nasdaq Stock Market based on market capitalization. The Fund and the Index are rebalanced quarterly and reconstituted annually.

The Nasdaq Composite hit 7,000 intraday and came to a dead stop. Less than half the big cap tech stocks made a material contribution. The index has gained 260 points in the last two weeks and the majority of those points were the last two days. The Nasdaq has hit long-term uptrend resistance.

The Nasdaq 100 hit round number resistance at 6,500 and stopped. The $NDX is up roughly 300 points over the same two-weeks.

While there is nothing preventing the indexes from moving higher, they are now well into overbought territory. The lack of participation by half the big cap stocks is troubling. Many investors have large gains in tech stocks after the 1,950 points the index has gained since the election. Since taxes will be lower starting on January 2nd, that gives investors an incentive to hold on to their gains until January. That incentive expired on December 31st.

There have been numerous minor dips along the way but those dips have grown progressively shallower in recent months. The Nasdaq rally may be building to a climax over the next several weeks.

The Nasdaq Composite is 12% over its 50-week average and 24% over its 100-week average. Neither have been touched since July of 2016. These are extreme levels of bullishness.

I am recommending we buy a February put on any weakness in the QQQ. I do not want to jump in front of the moving train but I do want to be short if a derailment occurs. Support is back at $152.

Position 12/19 with a QQQ trade at $157.75
Closed 1/4: Long Feb $156 put @ $2.40. Exit $1.30, -1.10 loss.

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