The Dow posted three triple digit reversals intraday to confuse investors. After a -136 point decline at the open, +292 point rebound and -219 point decline in the afternoon, the index posted a 37 point gain. The opening volatility with futures severely negative stopped us out of our remaining long call positions. The volatility is becoming extreme and normal traders are more than likely headed to the sidelines. The market is no longer directional and trying to trade it is dangerous.
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.
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
HOG - Harley-Davidson
The long put position was entered at the open.
QQQ - Powershares QQQ
The long put position was entered at the open.
DLTR - Dollar Tree
The long call position was stopped at the open.
FLIR - FLIR Systems
The long call position was stopped 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
DLTR - Dollar Tree - Company Profile
No specific news. Shares crashed with the market at the open to stop us out.
Original Trade Description: January 27th
Dollar Tree, Inc. operates variety retail stores in the United States and Canada. It operates in two segments, Dollar Tree and Family Dollar. The Dollar Tree segment offers merchandise at the fixed price of $1.00. It provides consumable merchandise, including candy and food, and health and beauty care products, as well as everyday consumables, such as household paper and chemicals, and frozen and refrigerated food; various merchandise comprising toys, durable housewares, gifts, stationery, party goods, greeting cards, softlines, and other items; and seasonal goods, which include Valentine's Day, Easter, Halloween, and Christmas merchandise. This segment operates under the under the Dollar Tree and Dollar Tree Canada brands, as well as 11 distribution centers in the United States and 2 in Canada, and a store support center in Chesapeake, Virginia. The Family Dollar segment operates general merchandise discount retail stores that offer consumable merchandise, which comprise food, tobacco, health and beauty aids, household chemicals, paper products, hardware and automotive supplies, diapers, batteries, and pet food and supplies; and home products, including housewares, home decor, and giftware, as well as domestics, such as blankets, sheets, and towels. It also provides apparel and accessories merchandise comprising clothing, fashion accessories, and shoes; and seasonal and electronics merchandise, which include Valentine's Day, Easter, Halloween, and Christmas merchandise, as well as personal electronics that comprise pre-paid cellular phones and services, stationery and school supplies, and toys. This segment operates under the Family Dollar brand, 11 distribution centers, and a store support center in Matthews, North Carolina. As of January 28, 2017, the company operated 14,334 stores in 48 states and the District of Columbia, and 5 Canadian provinces.
Company description from FinViz.com
In late November, DLTR reported earnings of $1.01 that beat estimates for $90 cents and was well above the 70 cents reported in the year ago quarter. Revenue of $5.32 billion beat estimates for $5.28 billion. For the current quarter, they guided for revenue in the range of $6.32-$6.43 billion and analysts were expecting $6.26 billion. Full year earnings guidance was $4.64-$4.73 and $22.2-$22.31 billion. That is up from $4.44-$4.60 in prior guidance. Analysts were expecting $4.69.
Same store sales (SSS) for the system rose 3.3% and beat estimates for $2.4%. Dollar Tree SSS rose 5.0% and Family Dollar sales rose 1.5%.
Next earnings Feb 20th.
After earnings, Moffett Nathanson initiated coverage with a buy. Two weeks ago Guggenheim initiated coverage with a buy rating and $125 price target. The Guggenheim buy rating saw the shares spike from $110 to $115 and then traded sideways to down for a week as traders took the unexpected profits.
Dollar Tree is Amazon proof. With everything in the store $1 or less even Amazon cannot sell and ship items that cheap. Since their acquisition of Family Dollar, they now operated 14,334 stores. This is a retail powerhouse and even if the economy weakens, their business will thrive because of the low price point.
Last week Oppenheimer started DLTR with a buy rating and $130 price target. The analyst said the company is going to grow earnings at a double-digit rate on low single-digit comps. They will benefit significantly from the lower taxes and from consumers having more money in their pocket. The acquisition of Family Dollar in 2014 is still being integrated and the company is remodeling all the old stores using "multiple improvements in merchandising and other improvements that will drive up profitability long term" according to the analyst. They currently have about 14,500 stores and management said they can grow to 25,000 stores.
I believe DLTR is going to break out to a new high.
Closed 2/1: Long March $120 call @ $3.27, exit 2.31, -.96 loss.
FLIR - FLIR Systems - Company Profile
No specific news. Shares crashed with the market at the open to stop us out then rebounded to close positive for the day.
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.
Closed 2/1: Long Feb $50 call @ $1.55, exit $1.80, +.25 gain.
BEARISH Play Updates (Alpha by Symbol)
HOG - Harley Davidson - Company Profile
No specific news. Shares declined with the market to open at the low for the day. That spiked our put premium to give us a bad entry.
Original Trade Description: January 31st.
Harley-Davidson, Inc. primarily manufactures and sells cruiser and touring motorcycles. The company operates through two segments, Motorcycles & Related Products, and Financial Services. The Motorcycles & Related Products segment designs, manufactures, and sells wholesale on-road Harley-Davidson motorcycles, as well as motorcycle parts, accessories, general merchandise, and related services. It offers motorcycle parts and accessories, such as replacement parts, and mechanical and cosmetic accessories; general merchandise, including MotorClothes apparel and riding gears; and various services to its independent dealers comprising motorcycle services, business management training programs, and customized dealer software packages. This segment also licenses the Harley-Davidson name and other trademarks. It sells its products to retail customers through a network of independent dealers, as well as ecommerce channels in the United States, Canada, Latin America, Europe, the Middle East, Africa, and the Asia-Pacific. The Financial Services segment provides wholesale and retail financing services; and insurance and insurance-related programs primarily to Harley-Davidson dealers and retail customers in the United States and Canada. This segment offers wholesale financial services, such as floorplan and open account financing of motorcycles, and motorcycle parts and accessories; and retail financing services, including installment lending for the purchase of new and used Harley-Davidson motorcycles. It also operates as an agent providing point-of-sale protection products, including motorcycle insurance, extended service contracts, credit protection, and motorcycle maintenance protection. Harley-Davidson, Inc. was founded in 1903 and is based in Milwaukee, Wisconsin. Company description from FinViz.com.
Harley-Davidson (HOG) reported earnings of 54 cents compared to estimates for 46 cents. Revenue of $1.05 billion beat estimates for $1.01 billion. These numbers were up from 27 cents and $933.0 million in the year ago quarter. That is where the good news ends. The company said it was going to incur consolidation costs of $170-$220 million and $75 million in capital costs over the next two years. The consolidation of plants would save them $65-$75 million annually after 2020.
The company said Q4 sales declined 9.6% year over year with sales down -11.1% in the USA. Industry sales were down -6.5%. Overall shipments by Harley in 2017 were the lowest in six years. The company said the customer base was getting older and younger customers were lukewarm to the brand. They lowered 2018 guidance for shipments of 231,000-236,000 motorcycles, down from actual shipments in 2017 of 241,498 and its prior 2018 forecast of 241,000-246,000. Shares fell 8% on the lowered guidance.
The outlook is negative. Higher costs, lower earnings, falling shipments. This should be a cloud over the stock for weeks to come.
Long March $47.50 put @ $1.99, see portfolio graphic for stop loss.
NTNX - Nutanix Inc - Company Profile
No specific news. Only a minor rebound and closed off the highs.
Original Trade Description: January 29th.
Nutanix makes infrastructure invisible, elevating IT to focus on the applications and services that power their business. The Nutanix Enterprise Cloud OS software leverages web-scale engineering and consumer-grade design to natively converge compute, virtualization and storage into a resilient, software-defined solution with rich machine intelligence. The result is predictable performance, cloud-like infrastructure consumption, robust security, and seamless application mobility for a broad range of enterprise applications and services. Company description from FinViz.com.
Expected earnings March 1st.
Nutanix is a good company. They have a great software product. Their challenge is a lot of competition and a rapidly evolving market place. They are faced with educating potential customers about the long-term benefits of the products and then convincing them to lay out a lot of money to change the way they run their server farms.
They are moving into a new layer of software development that will converge all factors of enterprise computing and cloud operations. JP Morgan said that moving to a "new software-oriented model" could "create near-term business disruption" give that it will require operational adjustments for new and existing customers alike. The analyst also warned a recent change to the leadership team might be disruptive as well. Given the recent 4-month rally in NTNX shares, there could be some material impact from implementing the new model.
Shares closed at a two-month low on Monday.
Long March $30 put @ $2.49, see portfolio graphic for stop loss.
QQQ - Powershares QQQ - ETF Profile
Shares declined with the market to open at the low for the day. That spiked our put premium to give us a bad entry.
Original Trade Description: January 31st.
PowerShares QQQ, formerly known as QQQ or the NASDAQ- 100 Index Tracking Stock, is an exchange-traded fund based on the Nasdaq-100 Index. The Fund will, under most circumstances, consist of all of stocks in the Index. The Index includes 100 of the largest domestic and international nonfinancial companies listed on the Nasdaq Stock Market based on market capitalization. The Fund and the Index are rebalanced quarterly and reconstituted annually. ETF description from Powershares.
The chart on the QQQ has shown several failures lately at the $170 level and the volatility is increasing. Rising volatility (strong reversals) is typically a sign of investor indecision see at market tops and bottoms.
If the tech sector decides to take profit from the nearly 10% gain in 2018, the drop could be significant. Uptrend support is around $162.
This is a speculative position on the potential for a post earnings depression decline over the next three weeks.
Long March $166 put @ $3.13, see portfolio graphic for stop loss.
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