Option Investor

Daily Newsletter, Thursday, 1/18/2018

Table of Contents

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

Market Wrap

Government Shutdown Looms, Again

by Thomas Hughes

Click here to email Thomas Hughes


Another government shutdown is looming over the market but even that hasn't put a damper on earnings. It's still early in the season but so far the signs are good; earnings are beating expectations and companies are talking about the positive impacts of tax reform. The shut down, it's a blip on the radar that will pass and likely pass quickly. When it does we'll still have economic and earnings growth on the horizon. Today's data was positive, in line with trends and points to continued expansion into the short term.

Asian indices were mixed. The Nikkei finished the day down, shedding nearly -0.45%, after moving up to touch a 23 year high. China meanwhile moved up by nearly a full percent on better than expected GDP. Official data shows the country grew at a pace of 6.9% for 2017 and ahead of expectations. European indices were largely higher on positive earnings although gains were muted by weak action on Wall Street. The DAX led with a gain of 0.74%, the FTSE lagged with a loss of -0.32%.

Market Statistics

Futures trading was flat for most of the morning. The trade edged up to just above break even going into the open resulting in a mildly positive open. The S&P 500 held above break even for the fist half hour or so and then dipped to just below it shortly after 10AM. The better part of the day was spent with the indices in the red but losses were marginal. Around 2:30PM the market started to drift higher resulting in a move back above break even for the SPX. This move was short lived, the index dipped back below break even by late afternoon to close near the low of the day.

Economic Calendar

The Economy

Initial claims for unemployment fell by -41,000 to hit 220,000. This is a new low dating back to February of 1973 and a much better read than what was expected. The previous week's data was not revised. The four week moving average of claims fell -6,250. On a not adjusted basis claims fell -10.8% versus an expected gain of 6.0% and are up 2% from last year.

The number of continuing claims for unemployment jumped by 76,000 from an upward revision of 7,000 to hit 1.952 million. The four week moving average of claims gained 4,000 to hit 1.921 million. Despite the gains the figure remains low relative to trend and consistent with labor market health.

The total number of claims jumped a whopping 236,753 to hit 2. 341 million. This jump is above expectation but in line with seasonal and long term trends. Now that the post holiday spike has occurred we can expect to see this figure begin receding as soon as next week. Looking forward the total claims figure should hit a new seasonal and long term low sometime in May.

Building permits fell by -0.1% in December but remain up over the last year. The December figure is up 2.8% over the same time last year. Single family homes made up the bulk of gains, up 1.8% in the month and 4.7% for the year. Housing starts fell by -8.2% in December and are down 6% YOY. Single family starts fell 11.8% in the month but are up 2.4% YOY.

The Philly Fed's Manufacturing Business Outlook Survey shows expansion continues in the manufacturing sector but at a slower pace than in the previous month. Manufacturers also report a rise I prices at both the input and output levels, suggesting inflation is rising systemically. The headline activity index fell to 22.2 from last month's upwardly revised 27.9. Even so, activity remains high as does forward outlook. Most sub indices remained positive although all declined from previous levels. Unfilled orders is the only to turn negative suggesting a decline the back log of orders. Looking forward the 6 month outlook index also fell but remains high and consistent with continued expansion.

The Dollar Index

The Dollar Index tried to move higher in today's session but gains were capped and reversed. The day's candle is small and red although losses were negligible, the index holding steady at break even. Regardless, the index is now below my support target and looks like it will continue to drift lower. While the dollar is supported by US economics and FOMC outlook other world currencies are seeing similar updrafts for similar reasons; data from the UK, the EU, China, Japan and elsewhere suggests accelerating growth among global economies. With risk on sentiment driving the market the index could easily move down to lows not seen since before the FOMC began to taper.

The Gold Index

With the dollar falling gold should be rising but this is not the case. The metal shed close to -0.85% as risk-on appetite caused traders to leave the safe haven asset in favor of other investments. Spot gold is now falling from possible resistance at the $1,345 level with a possibility of moving lower. First target for support is $1,330, a break below that may move to $1,315 or 1,300. Over the next 2 to 3 weeks there is a fair amount of inflation related data culminating in the January FOMC meeting. The bank is still not expected to raise rates at this meeting but it is still expected to hike 3 times this year.

The Gold Miners ETF GDX fell -1.5% on the drop in gold and is confirming the long term trading range. The ETF has created a medium/long red candle falling below the $24.00 support/resistance target and likely to move down to the moving average cluster at least. The moving average cluster, the 30 and 150 day EMA's, are tightly packed near the mid point of a long term trading range at $23. A break below the MA's would be bearish within the range. Longer term this sector is still firmly range bound.

The Oil Index

Oil prices held steady near $64 after a record draw down of US crude supplies. The news was taken with a grain of salt, the draw down is bullish for the market but tighter OPEC supplies are still expectd to increase US production. Even so oil prices are well supported in the near term and likely to remain at or near current levels until data or outlook indicates otherwise.

The Oil Index shed about a half percent from yesterday's close but action was sideways rather than down. The index is trending sideways near long term multiyear highs and forming a likely continuation pattern within an up trend. The up trend is driven by earnings and forward outlook that are currently supported by rising oil prices. The indicators are both moving lower, consistent with consolidation, and setting up for a possible trend following signal. A move up to new highs would be bullish and trend following, upside target is 1,450 in the near term, 1,500 in the short.

In The News, Story Stocks and Earnings

Morgan Stanley reported before the bell and joined the ranks of mega-financial institutions to deliver better than expected results. The company reported a 5.3% increase in YOY earnings that beat estimated by more than $330 million. This resulted in earnings of $0.87 which beat estimates by nearly 10%. The beat was driven by wealth management services which saw a substantial increase revenue, offset by weakness in institutional and trading services. Shares of the stock jumped 2% in the premarket but opened with a gain of only about 1%. The stock proceeded to trade flat from there, just shy of 8 year highs, closing near the high of the day.

JBHunt reported before the bell and delivered an astounding beat. The company says revenue increased by 15% from the last year but earnings are up more than 200%. The EPS gain is well above consensus and driven by the estimated impact of newly passed tax laws. Shares of the stock fell in the premarket session but recovered their mojo by end of day to close with a gain of 0.80% and at a new all time high.

IBM reported after the bell and also beat estimates. The company reports revenue and earnings grew from the previous quarter and YOY period for the first time in 23 quarters. The company is expecting to see revenue growth for all of 2018 despite the expected negative impact of tax reform. The company has also announced plans to suspend the stock buyback plan for the first half of the year. Shares of the stock fell on the news, shedding more than -2% in the after market hours to trade near $165.

The Indices

The indices saw a little bit of volatility from government shut down fears but were able to hold their ground. The one posting the largest decline is the Dow Jones Industrial Average at -0.37%. The blue chips created a small red candle after setting a new all time high but does not appear to have hit major resistance. The indicators remain bullish and in support of higher prices although there is a wee bit of weakness showing in the near term. A fall from this level is not expected at this time but if so, could fall as much as 1,000 points before finding support near 25,000.

The Dow Jones Transportation Average is the only index to close with a gain, 0.03%. The transports created a small doji candle to the side of yesterday's candle and appears to be forming a consolidation pattern with up trend. The indicators are bullish but are a bit mixed in terms of signal; MACD is showing a divergence that is of concern while stochastic points lower. A fall from this level could move down to 11,000 or 10,750 if the first target is broken.

The S&P 500 posted the second largest decline, -0.15%. The broad market index created a small, doji like, red candle to the side of yesterday's candle and at current all time highs. While price action was not bullish, it was not bearish either and part of a near term consolidation. The trends are up and supported by indicators consistent with a trend following entry. A move to new highs would be bullish with target near 2,900 in the near term. A fall from this level might be bearish but more likely a consolidation and entry for bullish positions than a signal of reversal.

The NASDAQ Composite Index posted the smallest decline, -0.02%. The tech heavy index created a small doji spinning top to the side of yesterday's candle and just below the current all time high. The index is forming a small near term consolidation within uptrend and is supported by the indicators. Both MACD and stochastic are convergent with the freshly set all time high and now set up to fire trend following bullish entry signals. A move up to new highs would confirm and bring targets near 7,600 into play.

Today's action was tepid but did not end or reverse current trends. The indices took a pause as earnings season gets underway, and the country watches to see if the our duly elected leaders can agree to fund the government. In the near term it looks like the market is in a consolidation. This could carry on through the earnings cycle, or until enough companies have reported for the market to feel comfortable moving on to the next brick in the wall of worry. I remain firmly bullish for the long term and view any pull backs and corrections that may form as entry points for new positions, I am cautiously bullish in the near term.

Until then, remember the trend!

Thomas Hughes

New Option Plays

11th Hour

by Jim Brown

Click here to email Jim Brown

Editors Note:

The House passed a short-term spending bill but the democrats claim to have enough votes to block it and shut down the government. The senate vote will probably not occur until Friday after all the arguments are presented both for and against. Tonight the senate leaders are claiming they have enough votes to block it and 4 republicans are going to vote against it. It would 13 democrats to switch sides and vote for passage to avoid a government shutdown.

The market declined today on worries a shutdown will occur. In reality, any market dip caused by a shutdown would be a buying opportunity. However, with both sides as polarized as they are today, we could be looking at a multi day event before they hammer out a compromise.

I continue to recommend no new positions until we see how this plays out. We should not risk new money in front of a potentially negative event.


No New Bullish Plays


No New Bearish Plays

In Play Updates and Reviews

Repeat Reversal

by Jim Brown

Click here to email Jim Brown

Editors Note:

The Dow reversed again with a -206 point intraday drop before rebounding slightly for a 98-point loss. The volatility is increasing as we move closer to the potential government shutdown. Goldman believes the chances are between 35% and 50% that a shutdown will occur. I think the odds are a little higher than that but with all the posturing in progress nobody knows. A lot of lawmakers will say one thing leading up to a vote and then have a last minute conversion once they see the political implications of the pending vote. If your entire caucus is set to vote in one direction then there is plenty of cover for you to join them. However, if the caucus begins to fracture, the outcome of individual votes are more important when elections return. The market will more than likely be range bound or negative on Friday as the hourly headlines post the shutdown news.

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

SYNA - Synaptics
The long call position was stopped at $45.85.

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


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


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


No specific news.

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 14th.

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.

PLAY - Dave & Busters - Company Profile


No specific news.

Original Trade Description: January 13th.

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.

Position 1/16/18:
Long April $50 call @ $3.40, see portfolio graphic for stop loss.

RHT - Red Hat - Company Profile


No specific news. Gave back half of yesterday's gains.

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


No specific news. Shares dipped again and we were stopped out for a gain shortly after the open.

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 7th.

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.

Update 1/13: 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.

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

TGT - Target Corp - Company Profile


Target announced its first exclusive fragrance brand called Good Chemistry. 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.

Update 1/13/18: MKM Partners reiterated a buy rating and shares gained another $2.80 to a new 52-week high.

Position 12/14/17:

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

BEARISH Play Updates (Alpha by Symbol)

DIA - Dow SPDR ETF - ETF Profile


Once we see what happens to the potential government shutdown this weekend, I will either close this position or turn it into a spread. If a shutdown lasted a week, the market could decline significantly.

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.

Monte Gore, Mike Brown, Steve Spodyak, Gary Rhoads, John Tighe, Thomas McGraw

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