Option Investor
Newsletter

Daily Newsletter, Saturday, 1/13/2018

Table of Contents

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

Market Wrap

Irrational Exuberance

by Jim Brown

Click here to email Jim Brown

Alan Greenspan must be taking sleeping pills at night after this recent rally.

Weekly Statistics

Friday Statistics

After a strong first week, the markets opened sharply lower on Monday but immediately rebounded to finish the week sharply higher. The Dow gained 2%, small caps 2%, biotechs, banks and brokers 3% and oil and the transports up more than 4%. Euphoria is breaking out all over.

This has turned into a classic FOMO market (fear of missing out). The difference in the market over the last four weeks could not be more profound. The last two weeks of 2017 were dead flat with the Dow closing at 2-week lows. The first two weeks of 2018 have been nearly vertical with the Dow gaining 1,083 points in only nine days. If we gain another 200 points next week to 26,000 it will be the fastest ramp ever between 1,000 point levels.

The market has now posted the best two weeks to start the year since 2003 and S&P targets just keep rising. Fundstrat's Tom Lee said his base case for 2018 is now 3,025 on the S&P but we could easily see 3,300. Let's hope he is right.


In a strange twist of circumstances, the AAII investor sentiment survey retreated from the 59.8% high for bullish sentiment we saw last week. This survey does end on Wednesday and that was the day the market dipped sharply by -130 points at the open on the China worries. It is entirely possible that one hiccup seriously dented sentiment. I am sure the back-to-back 200-point gains on Thr/Fri have converted some of those fence sitters back into the bullish camp. Next Wednesday's survey will be interesting.

The prior week's 59.8 bullish reading was the highest level in 7 years. The last time sentiment was that bullish was December 23rd, 2010 at 63.3%. Bearish sentiment at 15.6% was the lowest since November 6th, 2014 with the historical average 30.5%. Even without the Dow dip on Wednesday, we were due for sentiment to fade slightly.


Helping lift the market on Friday was the retail sales report for December. The headline number rose +0.4% and just slightly under estimates for +0.5%. The number for November was revised higher by one tenth to 0.9%. Building materials and nonstore retailers saw the biggest rise at 1.2% each. Food service rose +0.7%, furniture and furnishings +0.6%, food and beverages +0.5% and general merchandise +0.1%. Sporting goods fell -1.6%, clothing -0.3% and electronics/appliances -0.2%.

It was a strong holiday season with October rounding out the quarter at +0.7%. Overall December sales were 5.4% above December 2016.

The Consumer Price Index (CPI) rose only 0.1% for December indicating that inflation is still weak. The headline number was weakened by a -1.2% decline in energy prices. The core CPI, excluding food and energy, rose +0.3%. Natural gas was a big drag and offset rising oil prices. Food prices rose +0.2%. The core CPI is up only 1.8% over year ago levels. However, services are up 2.6% while goods are down -0.8%. Goods inflation has been negative on a year over year basis since February 2016. The Fed is going to be hard pressed to hike rates more than 2-3 times in 2018.

The California Manufacturing Survey for Q1 slipped from 64.9 to 61.8. Anything over 50 is growth so they are still expecting the economy to expand but at a slightly slower rate. Despite the decline in the headline number, the index is still at historical highs. New orders declined from 69.1 to 65.4 and employment fell from 62.5 to 57.6. The commodity cost component rose from 72.7 to 76.2 suggesting future prices for goods are going to rise.

Business inventories rose +0.4% in November, up from a -0.1% decline in October. The October number was revised up to zero. Wholesalers saw a 0.8% rise in inventories and manufacturers inventories rose +0.4%.

The economic reports for the week combined to lift the Atlanta Fed real time GDPNow forecast for Q4 to 3.3% growth. This is up from 2.8% on January 10th. If these numbers hold and there is no reason why they should not, this will be the third consecutive quarter of GDP growth over 3% and this has not happened since early 2005. The first release of the actual Q4 numbers will be on January 26th and any number over 3% is going to get a lot of press and that will help to lift the economy even further if people begin to believe this economic recovery is in rally mode. Strong growth promotes additional growth.


There are no market moving economic reports due out next week. The Philly Fed Survey and the Fed Beige Book are the most watched but they are not likely to get anyone excited.

The biggest challenge is going to be the potential government shutdown on Friday. After the preliminary agreement was shot down on Thursday and President Trump made the s***hole comment, the democrats are even more determined to shove their immigration desires through the process. However, Trump is not the guy you want to push into a corner or unexpected events could occur. The president has 46.6 million followers on Twitter and he is not afraid to use that pulpit. He is already slamming them and their "missed" DACA opportunity on Twitter a couple times per day.

The odds of a government shutdown appear to be increasing but there is always the possibility of another can kick down the road in order to buy more time on the budget resolution.


The Q4 earnings cycle has begun with several of the big banks reporting on Friday. The cycle will gain some speed next week with four Dow components and another round of banks reporting.

So far, 26 S&P companies have reported and 76.9% have beaten earnings estimates and 84.6% have beaten on revenue. The current earnings forecast is for 12.1% earnings growth and 7.0% revenue growth. There have been 70 earnings warnings for Q4 and 45 positive guidance upgrades. There are 27 S&P companies reporting this week.


Facebook (FB) shares were knocked for an $8 loss on Friday after Mark Zuckerberg said they were making changes to the news feed to prioritize user interactions and reduce the amount of non-advertising content from publishers and brands. Facebook has been criticized for allowing too much fake news into user pages and this is one way they are going to try and combat it. The company said the new ranking system would hurt non-advertising content from publishers and brands, like news stories and viral video posts, but not change the ranking of paid advertisers.

Shares were crushed because Zuckerberg said page views and user time on Facebook could decline with the change. However, what this means is that publishers and advertisers will have to pay up and increase their spending to get the same number of page views they got in the past. Advertising agencies immediately warned that prices would go up. With fewer opportunities and more advertisers bidding for those opportunities, it becomes a seller's market. Analysts were at first worried it would impact revenue for Facebook but if you read the news it says "non-advertising content" will be restricted. I believe this is a buying opportunity.

There is strong support at $176 from the 100-day average, uptrend support and horizontal support. You know they are going to beat on earnings estimates when they report on January 31st. Lastly, Zuckerberg has warned three times before on changes they were going to make to the news feed and every dip was bought.


Gamestop (GME) shares fell 11% after they reported a big spike in holiday sales. The problem came from an impairment charge of $350-$400 million related to their technology brands business. They said gamers were not upgrading their phones as rapidly as in the past. The longer upgrade cycle, limited availability on the iPhone X and changes made by AT&T to the compensation structure prompted the charge.

For the 9-week holiday period same store sales rose 11.8% globally and 18.7% in the US. Overall sales rose 10.6% to $2.77 billion. Hardware sales rose 38.3% thanks to the Nintendo Switch and Xbox One X. Video game accessory sales rose 33.7% but pre-owned sales declined -8.1%. They guided for full year 2017 earnings "near the middle" of prior guidance for $3.10-$3.40 and same store sales growth of 4% to 6%.

If the chart were not so ugly, I would have said this was a buying opportunity as well. Their sales are exploding and they are writing off the phone business. However, they have been plagued with constant gaps lower on earnings and they will not report actual earnings until late March.


A rumor broke shortly before Friday's close that Viacom (VIAB) and CBS (CBS) were talking about merging. The two companies were one over a decade ago and split. Both are controlled by Sumner Redstone or more correctly by his daughter Shari Redstone. She is vice chairman of both companies. Shares shot higher but less than an hour later the rumor was rebutted saying the companies were not involved in active discussions.

Apparently, Shari had discussed at some point in the past the idea of recombining the two companies because one larger company would have a better chance of competing in today's market. There was an attempt to talk up a merger in 2016 but it failed. Shares declined only slightly off their highs despite the rumor denials. Even in afterhours, shares held their closing levels. Traders are probably thinking "where there is smoke, there is fire" and just talking about it in the news could rekindle the merger talks from 2016.


Kohl's (KSS) shares rallied to a new two-year high after RBC Capital and JP Morgan upgraded the stock on the same day. RBC upgraded from sell to neutral but JPM upgraded from neutral to overweight, the equivalent of a buy rating. Citigroup reiterated a buy rating and $69 price target on Wednesday. JPM called Kohl's a "rare large cap 'value' idea." The analyst said the company focused on households earning over $75,000 a year and with store locations outside of malls. They expect Kohl's to generate multi-year high-single to low-double-digit EPS growth.


Lowe's (LOW) shares rallied 5% after news broke that activist investor D.E. Shaw was building a stake in the company. The firm plans to agitate for changes at Lowe's. The store needs some help. While Home Depot raised earnings estimates significantly after the hurricanes, Lowe's kept full year estimates the same and below analyst forecasts. The store chain is not as aggressive as Home Depot and they are losing the market share battle. Their prices are also higher than Home Depot for the same items. On the positive side, Lowe's locates its stores in higher income areas that can afford the higher prices.


Aflac (AFL) shares fell 7% after a story in The Intercept claiming the company was defrauding its contractors. Supposedly, the company pushes a high-pressure contract scheme on employees. Reportedly, the company exploits its employees by forcing them to register as contractors and then pressure them with sales goals that push workers to sell policies to customers without the customer's consent. They also claimed that Aflac attracted new sales associates and contract positions with the promise of earning an unrealistic amount of money, with new hires only making a small percentage of those promised earnings. Then Aflac reportedly pushes these new associates to sell policies to friends and relatives, while also making them targets to be recruited.

The article in the Intercept was only the first in a series of articles that claims they will explain in detail how Aflac implements this scheme, pending lawsuits on these claims and what employees have to say about the scheme. Aflac spokesman Jon Sullivan said "these allegations are baseless and we will be filing to have the suits dismissed." These claims are being propagated by a very small number of contractors and does not represent the thousands of Aflac employees.


JP Morgan (JPM) reported earnings of $1.07 compared to estimates for $1.69. Revenue of $25.45 billion beat estimates for $25.15 billion. However, the earnings included a 69-cent charge or $2.4 billion for accounting changes caused by the tax reform law. Excluding the charge the net income would have been $6.7 billion, down -1% from the year ago level. Provision for credit losses rose from $864 million to $1.3 billion. The bank took a mark to market loss of $143 million for a margin loan to a single account.

Corporate and investment banking net income fell 32% from $3.43 billion to $2.32 billion with revenues declining -12%. Revenue in markets and investor services fell -22% caused by a 26% drop in markets revenue.

The results were definitely lackluster but shares spiked nearly $2 to a new high. The motive power came from rousing comments from Jamie Dimon that despite the big charge for tax changes, the new law would make banks more competitive on a global basis and more profitable in future quarters. Unless revenue begins to rise again he is going to have a tough task proving those comments.


Wells Fargo (WFC) reported earnings of $1.16 compared to estimates for $1.23. Revenue of $22.05 billion missed estimates for $22.45 billion. The bank reported a $3.35 billion benefit from the tax bill where other banks have large liabilities. Wells had a tax deferred liability instead of deferred tax assets held by the other banks. Unfortunately, they also booked a $3.25 billion charge for litigation related to their past problems related to bogus accounts, car insurance forced on auto-loan customers and bogus fees assessed on mortgage loan clients.

Residential mortgage originations were $53 billion, down from $59 billion in Q3. Auto loan originations declined 33% to $4.3 billion as they intentionally cut back on that sector. Loan loss provisions declined from $805 million to $651 million.


Blackrock (BLK) reported earnings of $6.24 compared to estimates for $6.07. Revenue of $3.47 million also beat estimates for $3.35 billion. For the full year, they reported a profit of $30.23 per share or $4.97 billion on revenue of $12.49 billion. The company said assets under management rose to more than $6.3 trillion with the strongest inflows in history at $367 billion. CEO Fink said the stimulus from the tax bill is likely to drive more money into investment products and push stock and bond prices even higher. The CEO said the tax bill is going to do "wonderful things" for small businesses and raise the GDP.


The Bitcoin Investment Trust (GBTC) announced a 91:1 stock split. The trust will reward holders on January 22nd with 90 additional shares for every share they own. The actual split date will be January 26th. This will turn the 1,916,000 current outstanding shares into 174,510,600 shares. Shares closed at 1,970 on Friday and a 91:1 split will reduce that share price to about $21.65 each depending on how much movement there is over the next week. Currently a share of the trust represents ownership in 0.092 bitcoin. After the split, each share will represent roughly 0.001 bitcoin. The good news is that the shares will be significantly cheaper and you can buy a lot of them and still not invest a lot of money. The bad news is that at 0.001 bitcoin per share, the price of bitcoin will have to rise a lot for the GBTC shares to move significantly.

Since the majority of investors will have no clue about the operation of the trust, there will probably be a lot of new buyers and the shares could rise immediately after the split simply from the new demand. If you are going to play this, I would buy some shares at the current price so you will be in the split. I would then sell them several days after the split when the initial price bump is over. If they were to rise just a buck or two post split, that would be worth a couple hundred presplit dollars. Of course, there is always the possibility they do nothing.

Because of the rise and flow of demand for GBTC shares, they have traded as much as 2.32 times the value of the bitcoins they hold. The median price is about 42% higher than the corresponding bitcoin value. This is an example of how the speculation factor works when investors do not understand the underlying holdings.



Crude prices rose almost $3 for the week to close at $64.40. This was due to another large decline in inventories but also a monster decline in the dollar. The dollar index closed at a three-year low on Friday. Gold prices have surged to $1,338 and only $27 below their $1,365 highs from 2016.

The rise in oil prices well over $60 and the end of the holidays caused a big spike in rig activations. Oil rigs rose by 10 to 752 and gas rigs rose by 5 to 187 for the week ended on Friday. That is not likely to be a one-week event. With oil prices closing in on $65, the shale drillers will be throwing caution to the wind and ramping up drilling programs on the hopes of generating some big profits. Just a month ago, the big producers had been calling for calm in the sector and a return to a reasonable drilling rate with restrained capex spending. It is amazing what an $8 rise in oil prices can do to the animal spirits in the oil patch.





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Market

For the first full week of the year, Bank of America said there were inflows of $24.4 billion into equity funds. That was the sixth highest inflows ever. Inflows into bond funds were $13.1 billion, also abnormally high. With the dollar crashing, investors are racing to put those dollars into anything that can supply a return.

The expected benefits to earnings from tax reform are the number one bet in the market today. Analysts worried all December about the impact already being priced into the market and the gains from 2018 having been pulled into 2017. So far in 2018 that does not appear to be the case.

Every day the market moves higher we are moving father into dangerous territory. There is a tremendous risk that Q4 earnings and guidance could get messy. Nobody really knows what impact the tax reform will have on all corporations. Just like JPM took a huge charge for the accounting changes and WFC booked a $3.35 billion gain. Nobody knows what to expect other than lower taxes going forward.

This should be good for further market gains for the next four weeks. Once the Q4 earnings start to fade, the rally will be at risk for major profit taking. At that point, the 2018 guidance will be known and profit expectations will be known and priced into the market. I hope I am wrong but somewhere around February option expiration there could be some increased volatility.

For next week, the S&P is likely to hit 2,800. For those analysts like Goldman Sachs with 2018 targets of 2,850 they are probably starting to get nervous. However, I do not recall a single analyst regardless of their yearend target that does not think we will have a summer decline. That potential dip seems to be a recurring theme this year.

The S&P is well above critical support but in some cases when a stock or index breaks out of a well defined regression channel, the prior uptrend resistance becomes support. If that is the case today that would put support around 2,750 and well within range for a short-term test.


The Dow actually used the top of the long-term regression channel as support last week and proves that case. The index has sprinted more than 430 points above that line with back to back 200+ point gains over the last two days. That puts current support around 25,400.

Boeing continues to be the point leader and has added 265 Dow points over the last six trading days. Over that same period of time the Dow has risen 728 points and Boeing was 36% of those gains. Eventually, Boeing is going to rest.


The earnings from Dow components begin next week with UNH, IBM, AXP and GS. Goldman already warned of a $5 billion charge on tax accounting so the bad news is already priced into the stock. None of these four have been big gainers over the last couple of weeks so there is not a lot of risk to the Dow but there is always the potential for an unexpected report.



The Nasdaq, like the other indexes, is completely out of character compared to the last six months of movement. The index had been returning to its uptrend support every 2-3 weeks. If that were to occur today, it would be about a 250-300 point drop to around 6950-7000. I am not predicting it but simply making an observation. The 7,000 level should be support but that is a mighty big drop. I would expect a pause at 7,120 and roughly the lows from Wednesday if a retracement were to occur.



The Russell 2000 exploded higher on Thursday with a 1.73% single day gain. That was dramatically out of character for the index with the last gain of that magnitude back in September. There was a dead stop at uptrend resistance at just below 1,600. After several weeks of single digit point gains, I would be very surprised if the index just blew through 1,600 without looking back.


On Saturday morning, civil defense workers in Hawaii pushed the wrong button twice and sent out a ballistic missile warning using the emergency alert network to everyone in range. It was over 30 minutes before they officially used the same service saying it was a false alarm. The island was in panic mode and the news services have been blasting the headlines all day. Who knows if this will have any impact on the market on Tuesday? While it was traumatic while it was happening, there is no reason for it to carry over into next week. If we were to get an opening dip, it would be a buying opportunity.


As I stated earlier, I expect the market to continue higher, maybe not in a straight line, until somewhere around expiration week in February. The external event that could derail continued gains would be the potential for a government shutdown next Friday. I would like to think they would finally kick the can farther down the road if they cannot come to an agreement but both sides seem to have dug in on their positions and a fight is brewing.

If we were to have a shutdown, I would expect it to also be a buying opportunity for traders. There is the potential for it to damage sentiment and cause the market to lose traction. Currently investors appear to be euphoric. If that euphoria is damaged, it may not return.

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Jim Brown

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Index Wrap

Bullish Blowout

by Jim Brown

Click here to email Jim Brown
After a stunning first week of gains the markets completed a repeat performance with the Dow gaining another 507 points on top of 576 points gained in the first week. The S&P added 43 points on top of 69 the first week. The Nasdaq added 124 on top of the 233 gained in the first four days of the year. These are astounding numbers and even more so since the markets were dormant the last two weeks of 2017. The S&P and Nasdaq had closed at two-week lows on the last day of the year.

Obviously, after a Dow gain of 1,083 points in nine trading days, the question is how much further it can run before profit taking appears. If I could look into a crystal ball and get that answer I would be loading up on either puts or calls depending on the answer. Nobody alive can positively tell you what is going to happen. We can only depend on our charts since there is no accurate crystal ball.

After two blowout weeks, you would expect the A/D charts to be positive and you would not be disappointed. The S&P is at another new high and there are no signs of weakening on this chart. However, the Bullish Percent Index ($BPI) chart gives us a slightly different view.


The BPI chart actually declined last week from its recent high. The damage was minimal with the percentage of S&P stocks with a buy signal falling from 83.2% to 82.0%. That only equates to a drop of 6 stocks and that could be from earnings guidance, a sector decline, etc. One of those stocks could have been Facebook with its $8 drop on Friday.


The percentage of S&P stocks over their 50-day average also declined slightly but definitely nothing to worry about. This is the normal noise associated with an earnings cycle.


Last week the S&P was 178 points or 6.9% above the 100-day average. That has increased to 205 points and 8.0% above the average. This spread is at a decade high and shows how significantly bought the market is ahead of earnings. To say we were priced to perfection would be an understatement.

Also, the RSI or relative strength indicator is at 83.42 and a level not seen since November 25th, 1996. On a weekly chart, it is 87.39 and that is a historic high on my charts but mine only go back to 1970. To say that correctly "it is the highest level in 48 years." Again, anything I could say about the index being overbought would be an understatement.


With the Dow up 1,083 points in nine days, it should be no surprise that the A/D line is at a new high. There is nothing to be learned from this chart.


The Dow is now 2,421 points or 10% above its 100-day average. That is also the widest spread I can find. The RSI has risen to 86.15 but it was actually higher on Oct 20th at 88.10. These are nosebleed levels. The Dow used the prior uptrend resistance of the regression channel as support last week. That current level is around 25,500.

I would be surprised if the Dow did not touch 26,000 this week but I would not be surprised if there was a sell the news event. That would be the fastest time between 1,000 increments in history.


The A/D line on the Nasdaq finally broke out of its sideways consolidation and it is now at new highs.


The Nasdaq is 571 points or 9% above its 100-day average. The uptrend resistance has been broken and should now be short-term support. The Nasdaq is slightly less overextended because of the repeated bouts of profit taking over the last six months.


The small cap S&P-600 is not nearly as overextended as the rest of the indexes even after the blowout spike to new highs last week. The index had consolidated for the prior four weeks and the spike was a burst of short covering when that consolidation ended.



The Russell 2000 came to a dead stop at uptrend resistance just below 1,600. The index posted a 1.73% gain on Thursday to punctuate the four-weeks of consolidation. This index is not as overextended as the big cap indexes.


It would be hard for any analyst to tell you this week that the markets are going to continue surging higher. I do believe we will see higher highs but I seriously doubt the indexes will continue their vertical climb. We are due for some profit taking but every dip will likely be bought over the next four weeks.

I would not be surprised to see the gains dwindle rather than suffer big losses. Everyone wants to be invested as the benefits of the tax reform are reflected in the earnings guidance, dividend and stock buyback announcements. As the Q4 earnings cycle begins to wind down, I personally expect the volatility to increase.

The trend is our friend until it ends but there is rarely any warning.

Enter passively and exit aggressively!

Jim Brown

Send Jim an email


New Option Plays

$2 Million for $12

by Jim Brown

Click here to email Jim Brown

Editors Note:

Reducing guidance by $2 million should not cause a $12 stock drop. Dave and Busters warned and paid the price.



NEW DIRECTIONAL CALL PLAYS

PLAY - Dave & Busters - Company Profile

Dave & Buster's Entertainment, Inc. owns and operates venues that combine dining and entertainment in North America for adults and families. It offers food and beverage items combined with an assortment of entertainment attractions, including skill and sports-oriented redemption games, video games, interactive simulators, and other traditional games. The company operates its venues under the names Dave & Buster's and Dave & Buster's Grand Sports Caf. As of June 17, 2014, it had 69 company-owned locations in the United States and Canada. The company was founded in 1982 and is based in Dallas, Texas. Company description from FinViz.com.

On Monday January 8th, Dave & Busters revised earnings guidance for fiscal 2017 from $110-$112 million to $108-$110 million. That $2 million adjustment caused the stock to drop from $56 to $44. They also lowered revenue slightly from $1.148-$1.155 billion to $1.138-$1.142 billion. Same store sales was reduced to -1.0%-0.7%, down from +0.75%.

They had previously warned in the Q3 conference call that Q4 started slow. They expected it to pick up in December, which is normally a busy month but revenue never caught up with the slow start in October. Quarter to date through Jan 6th, same store sales were down -5.1% with the end of year bad weather causing people to stay home. They also suffered from the lack of interest in the NFL games in Q4.

They were positive on their new format stores. They expect to open 14-15 new stores in 2018 and the same class of store in 2016 returned 54% one-year cash on cash returns in 2017. This was an improvement on the returns on their 2014-2015 class of stores. With each generation they are improving the returns.

Expected earnings March 6th.

The sharp decline last week was very overdone for the minimal decline in earnings expectations. Shares are already rebounding and with two months before earnings they have plenty of time for a decent rebound. For Q3 they reported earnings of 29 cents that beat estimates for 23 cents and shares were on an upward trajectory until Monday's guidance warning.

With so many stocks in blowout mode and not currently buyable, investors are going to be looking for less risky buying opportunities and PLAY could be the perfect answer.

Buy April $50 call, currently $3.40, initial stop loss $43.50.


NEW DIRECTIONAL PUT PLAYS

No New Bearish Plays



In Play Updates and Reviews

Dow 26,000

by Jim Brown

Click here to email Jim Brown

Editors Note:

There is a very good chance we will see Dow 26,000 next week. The market continues to explode higher and one more day like Friday and we will hit Dow 26,000 in record time. All the major indexes posted new highs and there was a complete lack of sellers in the big cap indexes. The Russell almost hit 1,600 intraday but faded to close at 1,591. The bulls are stampeding ahead of earnings.



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


RHT - Red Hat
The long call position was entered at the open.



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

Credit spreads and naked puts = OptionWriter

Long term option investments = LEAPS Investor

3-6 month Option Trades = Ultimate Investor

Iron Condors = Couch Potato Trader

Long and short equity trades = Premier Investor



BULLISH Play Updates

ARNC - Arconic Inc - Company Profile

Comments:

No specific news.

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.

Update 1/8/17: Arconic said it was freezing the pension plans at current levels for 7,900 employees and would make contributions to 401K plans instead. This will save them $140 million.

Position 12/28/17:

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


CGNX - Cognex - Company Profile

Comments:

No specific news.

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 Feb 15th.

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.


FLIR - FLIR Systems - Company Profile

Comments:

No specific news. Shares closed at a new high.

Original Trade Description: January 10th.

FLIR Systems, Inc. develops, designs, manufactures, and markets thermal imaging systems, visible-light imaging systems, locater systems, measurement and diagnostic systems, and threat-detection solutions worldwide. The company operates in six segments: Surveillance, Instruments, Security, OEM and Emerging Markets, Maritime, and Detection. The Surveillance segment provides enhanced imaging and recognition solutions for various military, law enforcement, public safety, and other government customers for the protection of borders, troops, and public welfare. This segment also develops hand-held and weapon-mounted thermal imaging systems for use by consumers. The Instruments segment offer devices that image, measure, and assess thermal energy, gases, electricity, and other environmental elements for industrial, commercial, and scientific applications. The Security segment develops and manufactures cameras and video recording systems for use in commercial, critical infrastructure, and home monitoring applications. The OEM and Emerging Markets segment provides thermal and visible-spectrum imaging camera cores and components that are utilized by third parties to create thermal, industrial, and other types of imaging systems. The segment also develops and manufactures intelligent traffic systems; imaging solutions for the smartphone and mobile devices market; and thermal imaging solutions for commercial-use unmanned aerial systems. The Maritime segment develops and manufactures electronics and imaging instruments for the recreational and commercial maritime market under the FLIR and Raymarine brands. The Detection segment offers sensors, instruments, and integrated platform solutions for the detection, identification, and suppression of chemical, biological, radiological, nuclear, and explosives threats for military force protection, homeland security, first responders, and commercial applications. The company was founded in 1978 and is headquartered in Wilsonville, Oregon. Company description from FinViz.com.

The short description is that FLIR makes night vision equipment for the military. They are the primary provider of these high tech night vision systems and they are very expensive. With the military budget being greatly expanded in 2018 and probably 2019, FLIR is going to be getting a lot more contracts for new equipment and for replacement equipment and parts.

For Q3, FLIR reported earnings of 52 cents that beat estimates for 48 cents. Revenue of $464.7 million rose 14.7% and easily beat estimates for $446 million. The surveillance segment revenues rose 7.6%, instruments rose 10.5% and OEM and emerging markets revenues rose 39.1%. Detection systems revenues rose 18.9%. The security segment sa revenues rise 16.5%. The marine segment was the slacker with only a 4.2% increase. Order backlogs rose 10.1% to $709 million.

The company guided for full year earnings of $1.83-$1.88 up from $1.81-$1.91 with revenue of $1.78-$1.83 billion.

Earnings February 13th.

Shares rallied last week to close at a new high at $48.25 and just over two-month resistance at $47.90. They spiked again on Monday when they announced a high-resolution camera kit for self-driving cars. If this breakout continues, it should produce some short covering given the long period of consolidation after the spike from Q3 earnings in October.

I am recommending an inexpensive February ATM option with earnings on the 13th. I intend to hold this position over earnings unless we have profits to protect by that date.

This is also a longer-term position in the LEAPS newsletter.

Position 1/11/118:
Long Feb $50 call @ $1.55, see portfolio graphic for stop loss.


JUNO - Juno Therapeutics - Company Profile

Comments:

No specific news. The 4-week high only lasted one day.

Original Trade Description: January 4th.

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.

Position 1/5/18:
Long Feb $50 call @ $3.50, see portfolio graphic for stop loss.


RHT - Red Hat - Company Profile

Comments:

No specific news and a minor retracement of 21 cents.

Original Trade Description: January 11th.

Red Hat, Inc. provides open source software solutions to develop and offer operating system, virtualization, management, middleware, cloud, mobile, and storage technologies to various enterprises worldwide. It offers infrastructure-related solutions, such as Red Hat Enterprise Linux, an operating system platform that runs on hardware for use in hybrid cloud environments; Red Hat Satellite, a system management offering that helps to deploy, scale, and manage in hybrid cloud environments; and Red Hat Enterprise Virtualization, a software solution that allows customers to utilize and manage a common hardware infrastructure to run multiple operating systems and applications. The company offers application development-related and other technology solutions, such as Red Hat JBoss Middleware, a solution for developing, deploying, and managing applications; integrating applications, data, and devices; and automating business processes in hybrid cloud environments; Red Hat cloud offerings, a software solution that enables customers to build and manage various cloud computing environments; Red Hat Mobile, a software development platform that enables customers to develop, integrate, deploy, and manage mobile applications for enterprises; and Red Hat Storage, a software solution that enables customers to manage large, unstructured, or semi-structured data in hybrid cloud environments. It also provides consulting, support, and training services; and real-time operating system, distributed computing, directory services, and user authentication. Red Hat, Inc. has a collaboration with Wipro Limited to set up a cloud application factory that offers developers and IT teams a methodology for application modernization across public, private, and hybrid clouds. The company was formerly known as Red Hat Software, Inc. and changed its name to Red Hat, Inc. in June 1999. Red Hat, Inc. was founded in 1993 and is headquartered in Raleigh, North Carolina. Company description from FinViz.com.

Linux has always been immune to most of the attacks on the internet but Red Hat has taken that to a new level. There are multiple versions of free Linux versions but free means little support and questionable fixes. Red Hat has taken their Linux product and built it into multiple enterprise versions for individual applications and cloud use on virtual machines with an entire suite of applications.

In the Q3 earnings the company reported 73 cents that beat estimates for 70 cents. Revenue of $748 million beat estimates for $734.4 million. They guided for Q4 for revenue of $758-$763 million and that beat estimates for $754.7 million. They guided for $2.88 for full year earnings and revenue of $2.91 billion. Deferred revenues rose 23% to $2.11 billion and subscription revenue from infrastructure offerings rose 15% to $495 million.

The good news on all fronts was not enough and shares dropped $9 intraday after the report. $120 appeared as support and shares have been rising steadily.

Deutsche Bank reiterated a buy with a $150 target saying the new Amazon Linux product was no threat and they were only targeting a fraction of the market for test systems before eventually going live on the Amazon cloud. The analyst said the Amazon Linux competes with Ubuntu/CentOS and not Red Hat. Finally an analyst that actually understands what he is analyzing.

Expected earnings March 20th.

I am picking a March option even though it expires a week before earnings. Those after earnings are far too expensive. I am expecting some serious profit taking in the market after the majority of Q4 earnings are over, probably around the February expiration. That should take us out of this position before well before RHT earnings.

Options are still expensive so I am turning this into an optional spread to reduce the net debit.

Position 1/12/18:
Long Mar $130 call @ $3.40, see portfolio graphic for stop loss.
Optional: Short Mar $140 call @ 90 cents, see portfolio graphic for stop loss.
Net debit $2.50, maximum gain $7.40.


SYNA - Synaptics - Company Profile

Comments:

Wow! Keybanc upgraded SYNA to buy with a price target of $60 saying the company was more diversified than ever with strong growth potential. He noted that Vivo demonstrated an OLED phone at CES with the new Synaptics fingerprint sensor. The company claims fingerprint sensors are twice as fast as facial recognition technology and nearly impossible to fool. The analyst said the new smart home technology was an opportunity to partner with not only Amazon and Google but also with Asian operators like Alibaba. New 5-month high today with a $5 gain.

Original Trade Description: January 8th.

Synaptics Incorporated develops, markets, and sells intuitive human interface solutions for electronic devices and products worldwide. The company offers its human interface products solutions for mobile product applications, including smartphones, tablets, and touchscreen applications, as well as mobile, handheld, wireless, and entertainment devices; notebook applications; and other personal computer (PC) product applications, such as keyboards, mice, and desktop product applications. Its products include ClearPad, which enables users to interact directly with the display on smartphones and tablets; ClearView products that provide advanced image processing and low power technology for entry-level smartphones; TouchView products, which integrate touch and display technologies to deliver performance and simplified design; and Natural ID, a fingerprint ID product that is used in smartphones, tablets, notebook PCs, PC peripherals, and other applications. The company??s products also comprise TouchPad, a touch-sensitive pad that senses the position and movement of one or more fingers on its surface; SecurePad that integrates fingerprint sensor directly into the TouchPad area; ClickPad that offers a clickable mechanical design to the TouchPad solution; and ForcePad, a thinner version of its ClickPad. In addition, its other product solutions include dual pointing solutions, which offer TouchPad with a pointing stick in a single notebook computer enabling users to select their interface of choice; TouchStyk, a self-contained pointing stick module; and TouchButtons, which provides capacitive buttons and scrolling controls, as well as display interface products. The company sells its products through direct sales, outside sales representatives, distributors, and resellers. It serves smartphone, tablet, and PC original equipment manufacturers, as well as various consumer electronics manufacturers. Company description from FinViz.com

Expected earnings February 6th.

In August, Synaptics reported earnings of $1.18 that beat by a penny and revenue of $426.5 million that exactly matched estimates. However, they guided for the next quarter for revenue of $380-$425 million. That was a sequential decline and they blamed it on the mobile business. However, based on orders in the pipeline they expected future quarters to show significant gains. Investors were not impressed and shares fell from $56 to $33.

In early November, the company reported earnings of $1.03 that beat estimates for 97 cents. Revenue of $417.4 million beat estimates for $397.6 million. For the current quarter they guided for revenue of $410-$450 million. Shares spiked to $44 on the news then fell back to $35 again. The company said it lost market share with Apple's fingerprint sensor business because its product was not completely ready for Apple's manufacturing cycle.

The current quarter is normally seasonally strong for Synaptics. They are now shipping fingerprint sensors in volume to Huawei and Samsung. Huawei sold more than 100 million phones in the first three quarters of 2017 and has outsold Apple since the new iPhones were introduced. Samsung has adopted the Synaptics technology for their Galaxy S8 and Note 8. For the next evolution of the Note 8 the sensor will be built tight into the screen.

Synaptics is also big in touch screen technology and device driver integration or TDDI. This is their specialty. Demand is expected to grow from 100 million units in 2017 to $654 million by 2022.

In the last quarter, the company received 14% of its revenue from IoT devices. That is expected to rise to 24% in the current quarter. They recently bought Conexant and that will expand their addressable market. Conexant makes voice and audio solutions for Amazon's Alexa voice assistant.

The company just announced a partnership with Microsoft to develop voice enabled solutions for Cortana using Synaptics far-field DSP voice technology.

Synaptics has a lot on their plate and much of these efforts are just now reaching broad commercialization with the major device manufacturers. Shares are rebounding and broke over resistance at $42.50 on Monday.

Position 1/9/17:
Long Mar $45 Call, currently $3.10, see portfolio graphic for stop loss.


TGT - Target Corp - Company Profile

Comments:

MKM Partners reiterated a buy rating and shares gained another $2.80 to a new 52-week high.

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.

Update 1/9/18: Target raised Q4 earnings guidance from $1.05-$1.25 to $1.30-$1.40. Same store sales are expected to rise 3.4% and well above analyst expectations for 1.25%. They guided for 2018 earnings of $5.15-$5.45 and well above estimates for $4.36.

Position 12/14/17:

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


TXT - Textron - Company Profile

Comments:

No specific news. New 10-year closing high.

Original Trade Description: January 6th.

Textron Inc. operates in the aircraft, defense, industrial, and finance businesses worldwide. It operates through five segments: Textron Aviation, Bell, Textron Systems, Industrial, and Finance. The Textron Aviation segment manufactures and sells business jets, turboprop aircraft, piston engine aircraft, and military trainer and defense aircraft; and commercial parts, as well as provides maintenance, inspection, and repair services. The Bell segment provides military and commercial helicopters, tiltrotor aircraft, and related spare parts and services. The Textron Systems segment produces unmanned aircraft systems; smart weapons, airborne and ground-based sensors and surveillance systems, and protection systems; armored vehicles, turrets, and related subsystems, as well as marine craft; test equipment and electronic warfare test, and training solutions; piston aircraft engines; and intelligence software solutions. This segment also designs, develops, manufactures, installs, and maintains full flight simulators, as well as offers training services. The Industrial segment offers blow-molded plastic fuel systems, windshield and headlamp washer systems, catalytic reduction systems, and engine camshafts, as well as plastic bottles and containers; golf cars, off-road utility and light transportation vehicles, aviation ground support equipment, professional turf-maintenance equipment, and turf-care vehicles; and powered equipment, electrical test and measurement instruments, mechanical and hydraulic tools, cable connectors, fiber optic assemblies, underground and aerial transmission and distribution products, and power utility products used in the construction, maintenance, telecommunications, data communications, electrical, utility, and plumbing industries. The Finance segment provides financing to purchase new and pre-owned aircraft and helicopters. Textron Inc. was founded in 1923 and is headquartered in Providence, Rhode Island. Company description from FinViz.com

Expected earnings January 31st.

With Airbus acquiring a stake in Bombardier, Boeing a stake in Embraer, Honeywell, United Technologies, Rockwell Collins, etc, all circling each other like sharks around a wounded whale, Textron is a potential acquisition candidate.

There are no formal rumors but options activity is huge. On Friday there were 5,400 of the Jan $55/$60 calls traded with the $55 calls at $3.50. There were 9,500 of the Feb $60 calls traded at $1.70 against an open interest of 261 contracts.

Textron has lagged the other defense contractors because they are in a contract period where capex is high but the eventual income has not yet appeared.

Last week FedEx (FDX) announced an order to buy 50 of Textron's Cessna SkyCourier 408 aircraft with an option to increase the order to 100. FedEx worked closely with Textron to design the plane for package delivery to small and medium sized markets.

The Textron aviation chief said Amazon was another potential customer because the need to ship express packages to addresses outside major cities was rapidly growing. Textron produces Cessna, Beechcraft and Hawker business jets.

Textron/Bell/Boeing produces the V-22 Osprey aircraft. They just achieved first flight on the new V-280 Valor, which is a new generation tiltrotor aircraft like the Osprey. Bell, as in Bell Helicopter, is the division producing the V-280. The aircraft has twice the speed and range of a conventional helicopter and carries a much larger payload.

The company has so many projects in the works they are right on the edge of a new chapter in their growth. With the $700 billion defense program that passed in September, they will be getting a wide variety of new orders.

There is no way to know if somebody is about to make any offer but the dramatic surge in option volume is typically a sign or rumors making the rounds.

I am recommending the March option to retain premium longer but we will probably exit before earnings on Jan 31st.

Position 1/8/18:
Long Mar $60 Call @ $2.15, see portfolio graphic for stop loss.



BEARISH Play Updates (Alpha by Symbol)

DIA - Dow SPDR ETF - ETF Profile

Comments:

No decline here. This position is dead unless we can get a 2-3 day decline ahead of the potential government shutdown. If we can get a decent drop, even just a couple days, we can sell a short put to turn it back into a spread and reduce our loss. This is a March position so we have plenty of time for disaster to strike. I believe it is worth the 70 cents to hold it just in case.

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.




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