Option Investor

Daily Newsletter, Wednesday, 3/7/2018

Table of Contents

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

Market Wrap

Thin Markets Seesaw Lower

by Richard Cox

Click here to email Richard Cox
Weaker trading volumes and generalized uncertainty send the S&P 500 to its first negative close in four days.

Asia Market Close

Stock markets closed negative in Asia overnight, as investors withdrew from risky assets with global exposure to the possibility of trade tariff implementation. Japan's Nikkei 225 was lower by -0.77%, India's BSE Sensex declined by -0.85%, Hong Kong's Hang Seng dropped -1.03% and China's SSE Composite fell -0.55%.

European indexes were mixed, with the German DAX gaining +0.51% and the FTSE 100 flat at +0.13%. The French CAC 40 fell -0.19% and Spain's IBEX was lower by -0.22% on the session. All of this bearish activity put downside pressure on U.S. stock futures prior to the New York open in bearish moves that persisted throughout the day.

US Pre-Market Activity

Shares in all 30 Dow stocks (NYSE: DJIA) fell in pre-market trade. The DJIA was down by -1.14%. Caterpillar Inc. (NYSE:CAT) slid -2.2% while General Motors (NYSE: GM) and Boeing (NYSE: BA) fell by -1.08% and -1.55%, respectively. Intel Corporation (NYSE: INTC) and Apple Inc. (NYSE: AAPL) were down by -1.03% and -0.85%, respectively.

Some of the biggest losers in today's pre-market activity were Caravana Co. (NYSE: CVNA) which fell -12.7% after it reported a net Q4 2017 loss of $47.2 million, Dollar Tree, Inc. (NASDAQ: DLTR) which fell -11.8% after it issued a weak forecast, AeroVironment, Inc. (NASDAQ: AVAV) slid -9.5% as the maker of drone aircraft posted a loss of $0.8 million and Colony NorthStar Inc (NYSE: CLNS) which was down by -8.2%.

On the positive side, Aptose Biosciences Inc (NASDAQ: APTO) was up by 18.9%, Medifast Inc.(NYSE: MED) rose by +11.5% and Medical Transcription Billing Corp (NASDAQ: MTBC) was up by +8.4% after stronger-than-expected earnings results brought a lift to share prices.

ADP Employment Report

Today's ADP/Moody's employment report showed that the U.S. private sector added 235K jobs in the month of February 2018. This was well above the 200K figure that was expected but a small decline from the 244K printing that was seen in January. The report is closely watched in terms of its implications for the government payrolls that will be released before the market open on March 9th.

Medium businesses (50-499 employees) made up the largest share (41.2%) of the new jobs; while large businesses (greater than 500 employees) contributed an increase of 29.7%. Small businesses added 28.9% to the labor count. This was the fourth month that the figures crossed the 230,000 mark (a milestone not achieved since the end of 2014). Overall, this supports the outlook for wage growth and this could lead to suggestions that the Federal Reserve will increase interest rates four times this calendar year.

Mark Zandi, the Chief Economist at Moody's, stated that the increase in jobs was due to the positive impact of tax reform and emphasized that congressional spending plans would lead to sustained growth in labor markets toward the second half of 2018 and early 2019. He also warned that the implementation of Trump’s tariff plan could negatively impact the labor market if downstream industries that use steel and aluminum are forced to reduce their workforce.

Today's gains in the ADP employment report should be enough to bring down the U.S. unemployment rate from 4.1% on Friday. The report measures employment trends in the private sector but is typically viewed as a key predictor in the larger nonfarm employment report that will be released by the Bureau of Labor Statistics on Friday.

US Trade Deficit at 9-year Highs

Amidst the high tension of an impending trade war due to potential tariff policies, the Department of Commerce released its trade balance figures for January. The report showed a monthly trade deficit of $56.6 billion, which is the highest since October 2008. Exports declined by -1.3% while import figures were little changed.

The trade deficit with China rose by 16.7%, the deficit with Canada rose by 65%, and trade gaps with the European Union slid by 13.9%. The volatile aircraft exports metric saw a drop of $1.8 billion. Petroleum exports fell by $600 million, despite an increase in oil prices. The value of petroleum imports rose by $3.2 billion.

Overall, the downtrend in trade based on oil markets has been described as seasonal and many analysts expect the figures for the first quarter to be weaker on a relative basis. But with the U.S. trade balance now standing at its highest level in nine years, this is a report that could be referenced more intensely in the weeks ahead.

Federal Reserve Beige Book

Today's Beige Book report stated that the economic growth continued at a "modest to moderate" pace across all 12 Federal Reserve districts.

According to the Fed's assessment for January, the economic activity outlook remains optimistic and, as stated in the last report, it should remain positive in 2018. Since it last published its Beige Book, the Fed has continuously highlighted improvements in the labor market. Employment grew at a moderate phase with an active demand for qualified workers.

This complements the ADP employment report, which shows an increase in private sector jobs growth. In response to the tight labor market and the benefit of tax cuts, several districts raised wages and expanded benefits packages. Labor demand is strong in many districts, however, worker shortages are hampering recruitment plans for many companies.

Due to moderate inflationary pressures, prices increased in all 12 districts. In the New York jurisdiction, comments suggest there is deeper concern that price increases could be passed on to consumers. Today's Beige Book reinforces the possibility that the Fed is increasing its interest rate targets and this suggestion was validated by comments made today by Federal Reserve Governor Lael Brainard. Ultimately, the goal would be to ensure that tightness in the labor market does not increase inflation to an excessive degree.

On balance, the report suggests Fed is not changing its tone but markets may be more concerned about inflation in the short-term and this is being reflected in treasuries.

U.S. Treasury Yields

The US Treasury Yields were more or less unchanged with the yield on the 10-year Treasury note at 2.87% and the 30-year at 3.14%. Yields pushed higher on Tuesday when North Korea announced a willingness to engage in denuclearization talks with the U.S.

The recent push for tariffs in steel and aluminum, along with the prospect of rising inflation within the U.S. consumer economy has sent yields higher. Bond yields move inversely to prices and so the market will be forced to contend with building inflation numbers as they continue to drive yields. This volatility in bonds is likely to persist throughout this period of trade tariff uncertainty.

Market-Moving Stocks

Into the New York open, all 11 sectors in the S&P 500 were lower. After about an hour of trade, bulls managed to stage a turnaround (with the NASDAQ momentarily turning positive). These upside moves were short-lived, however, and selling pressure prevailed into the close.

The biggest single-stock mover on the day was Dollar Tree (NASDAQ: DLTR), which posted a disappointing outlook in its fourth-quarter results and quickly encountered losses of more than -15%.

Same store sales rose by +2.4%, supported by increases in the average ticket and comparable transaction metrics. Under the Dollar Tree banner head, same store sales rose +3.8% on a constant currency basis. Same store sales under the Family Dollar banner rose by 1%. The report showed $1.89 in adjusted earnings per share on revenues of $6.36 billion (+12.8% gain relative to the same period last year). This missed the consensus estimates of $1.90 in adjusted per share earnings, and $30 million in revenues.

Gross profits rose by +16.3% (to $2.10 billion), and gross margins as a percentage of sales rose +33.0%. The improvements came as a result of markdowns, lower merchandise costs, and lower occupancy costs. Operating margin rates grew 130 basis points to 11.7%.

Next quarter, Dollar Tree expects low single-digit increases in same store sales, and for net sales to range between $5.53 billion and $5.63 billion. Diluted earnings per share is expected to range between $1.18 and $1.25. Guidance for fiscal year 2018 suggests that net sales will fall between $22.7 billion and $23.12 billion.

Technical price support in DLTR is now seen at 87.66 but this looks like it could be broken once the sideways consolidation finishes.

On the other side of the spectrum, we have Autodesk, Inc. (NASDAQ: ADSK), which extended on its gains from yesterday and was today's biggest gainer in the S&P 500. Tuesday's earnings report showed that the company surpassed estimates on both the earnings and revenue sides of the equation.

Autodesk reported fourth-quarter net losses of $173.5 million (79 cents per share), which was roughly inline with the losses of $173.4 million (78 cents per share) reported a year ago. Adjusted losses were -9 cents per share (losses of -11 cents were expected).

The company expects first-quarter adjusted earnings of 1 cent to 4 cents (alongside revenues of $550 million to $560 million), under the new ASC 606 accounting standard. Shares in ADSK have gained 31.4% this year, while the S&P 500 is showing YTD gains of under 2%.

Price targets in the stock have been upgraded by 14 different analysts. A note from J.P. Morgan explained "There has been a lot of concern about the subscription net addition metric since last quarter and we believe this quarter's result and fiscal 2019 guidance will finally focus investors on ARR, the most important metric in the subscription transition."

Technical price support in ADSK is now seen at 131.70, which was the prior high and a level that has already been tested once after the initial gap higher. Prudent move is to wait for retracements back into this area before going long.

H&R Block (NYSE: HRB) is trading higher following its earnings results from yesterday. At the end of last month, the company declared a quarterly cash dividend of 24 cents per share and this helped place a floor in HRB above the $25 level. This brings the stock's total yield to 3.41% at current prices.

The earnings results were mixed, as quarterly losses for fiscal third quarter 2018 were wider than anticipated. This weakness was mitigated by the quarterly revenues, which were better-than-expected, and this helped fuel the current rally. H&R Block lost $245.6 million ($1.18 per share) in the quarter, more than doubling the losses of $104.5 million (50 cents per share) reported last year.

Revenues rose 8% (to $488 million), which is an improvement from the $452 million seen a year ago. The performance was helped by increased return volumes in the company's tax preparation businesses (do-it-yourself and assisted taxes). Analyst surveys conducted by FactSet show expectations for GAAP losses of 95 cents per share (and sales of $459 million) for the quarter. Seasonally, this is H&R Block's second strongest period (after the fiscal fourth quarter), so this is one name that could continue to be in the news over the next few months.

Technical price support in HRB is now seen at 28.05 but the inability to clear prior resistance suggests prices may need to fill the initial price gap before moving higher.

Abercrombie & Fitch (NYSE: ANF) rose +11.9% as sales moved into positive territory last quarter for the first time in 5 years. Comp sales rose +5%, which more than doubled the analyst estimates of 2.13%. The improved results were driven by demand for its Hollister apparel brand. Abercrombie is looking to move back into seasonal clothing promotions as a means for driving traffic into its stores, a strategy that seems to be working given the strong earnings numbers ANF posted during the holiday season.

Technical price support in ANF is now seen at 23.55.

Share prices in Ross Stores (NASDAQ: ROST) are in freefall, with the stock closing down by -6.4% on the day. This comes after the clothing retailer announced plans to increase its minimum wage to $11 per hour a week after rival TJX Cos. said it will only review wage increases on a market-by-market basis.

Ross Stores reported earnings of $1.19 per share, soundly beating the FactSet consensus of $0.93. Sales also beat estimates at $4.07 billion (against $3.96 billion expected). Comp sales were higher by 5% (beating the 3.5% consensus).

Guidance, however, was less optimistic "due to challenging multi-year comparisons as well as a very competitive retail environment." This, along with the acknowledgment of higher labor costs ultimately led to a steep sell-off in the stock.

The company's same store sales forecast for the fiscal first quarter have increased from 1% to 2%, and earnings forecasts were revised higher from $1.03 to $1.07. The FactSet consensus is more optimistic, with same-store sales growth of 2.8% and EPS of $1.07. The conservative guidance suggests that this latest dip in ROST could be a buying opportunity, and the analyst surveys seem to be preparing for a turnaround in share prices.

Technical price support in ROST is now seen at 74.10. Resistance overhead can now be found at the triple-top near 80.80.

Netflix (NASDAQ: NFLX) traded under pressure for most of the day. Analysts from Stifel downgraded streaming video company's stock from "buy" to "hold" citing the recent rally as overdone: "We are attracted to Netflix's business and competitive position but believe share price may have sprinted ahead of fundamentals in the short-term," the Stifel analysts said in their report.

NFLX is trading a massive 67.3% higher year-to-date. Technical price support in NFLX is now seen near 297.50 but we will likely see a period of consolidation before heading lower. Resistance overhead can now be found at 325.70.

Coca Cola (NYSE: KO) announced a break with its 136-year tradition and will be offering a new alcoholic beverage in Japan called Chu-Hi. The company said there are no plans to initiate sales of alcoholic beverages in any country other than Japan. The stock has come off sharply in the early parts of this year, but we are still in striking distance of the long-term highs.

Technical price support in KO is now seen at 42.90. Resistance overhead can now be found at 44.40.

Costco (NASDAQ: COST) released its second quarter fiscal 2018 financial results after the close, posting adjusted earnings of $1.42 per share and revenues of $32.28 billion. The stock has hit lows of 185.44 in the aftermarket session, as this misses the consensus estimates of $1.45 per share. The $32.28 billion in revenues was a positive gain of +10.8% but this missed expectations of $32.72. Same store U.S. sales also rose by +7.1% and e-commerce sales climbed by a massive +28.5%. The Republican tax bill aided Costco's non-adjusted earnings per share by $0.17.

Technical price support in COST is now seen at 185.70, followed by 175.90.

Markets are now eagerly anticipating the earnings release from Kroger (NYSE: KR) slated for tomorrow morning. The stock is already trading much lower ahead of the company's earnings report due out tomorrow morning.

The traditional grocer has fallen out of favor as another casualty in the war against Amazon, and recent earnings disappointments have put investors on edge with respect to its true turnaround prospects. But with the stock losing -6.4% in today's trade, we could be in for a short-term bounce if we do not see any significant deviations from the market's expectations. Consensus estimates on Kroger are for revenues of $30.8 billion, no change in sales growth (+1.4%) and EPS of $0.63.

Technical price support in KR is now seen at 25.95, which is the neckline of an ominous head and shoulders pattern on the long-term charts. Downside breaks here will almost certainly be volatile Resistance overhead can now be found at 28.30.

Stock Index Performances

Trading volumes were thin today, as some investors look to be standing on the sidelines as a means for avoiding potential volatility.

Dow Jones Industrials

Into the open, the Dow Jones Industrial Average (INDEXDJX: DJI) was sharply lower (-238 points) at 24,758.15. Intraday highs were modest (at 24,849.68) and the index dropped to a whopping low of 24,535.12 (-300 points) at the height of the selling pressure. The Dow closed at 24,801.36, or 82.76 points lower (-0.33%) on the day. The Dow is trading higher by 18.92% on a YTD basis.

Technical price support in DJI is now seen at 24,217. Resistance is now found at 25,800.

S&P 500

The S&P 500 opened at 2,710.18 (-17.94 points), and reached intraday highs of 2,730. 60 before reversing lower. This is somewhat encouraging, given the fact that this was higher than the previous day's close. But the sellers were clearly in control today, and the index eventually hit lows of 2,701.74. Overall, the S&P 500 closed at 2,726.80, which is -1.32 points lower (or -0.05%) on the day.

Technical price support in SPX is now seen at 2.653. Resistance is now found at 2,773.

NASDAQ Composite

The NASDAQ Composite (INDEXNASDAQ: .IXIC) opened at 7,311.74 (-60.27 points lower), and reached intraday highs of 7,403.79 while it hit lows of 7,311.74 at the opening itself. It closed at 7,396.65, or 24.64 points higher (+0.33%). NASDAQ is trading higher by 26.71% on a YTD basis.

Technical price support in the NASDAQ is now seen at 7,084. Resistance is now found at 7,438.


The Russell 2000 opened at 1,560.97 (-1.23 points lower) and reached intraday highs of 1,576.73. The relative strength here is being attributed to the fact that small cap companies are less likely to be exposed to most of the negative impact from trade tariffs.

The stock hit lows of 1,550.47 before closing at 1,574.53, or 12.33 points higher (+0.79%). The Russell 2000 is trading higher by 15.33% on a YTD basis.

Technical price support in the RUSSELL 2000 is now seen at 1,540 followed by 1,495. Resistance is now found at 1,614.80. Expect sideways consolidation while oversold indicators correct themselves.

Crude Oil

Oil futures were negative into the open, which is not entirely surprising given the long-term event risks now developing within the global manufacturing sector. Some of the most heavy selling pressure on the day was seen in energy, as shares in oil companies fell after the sharp decline in oil prices. At the worst of it, WTI crude oil and April Gasoline futures (NYMEX: RBJ8) both dropped by 2.9%, while brent crude posted losses of 2.6%.

The drop in oil prices was briefly offset after the Energy Information Administration reported an inventory of 2.4m barrel build in crude (against the analyst estimations of 2.7m barrels). Gasoline inventories dropped by 800,000 barrels last week.

But the damage was already done, and oil prices closed the day 2% lower. The drop in oil prices likely intensified due to the fall in the benchmark Indexes and the strengthening of the U.S. dollar. Investor fears that a trade war could hamper economic growth seem to be growing and this is an outlook that could continue to negatively impact valuations in crude oil in the coming weeks.

Technical price support in WTI crude oil is now seen at 60.10. Resistance is now found at 62.55.

US Dollar

Long-term, the U.S. dollar has been under pressure, despite the many positive economic data releases we have seen of late. To a large extent, this is surprising because the greenback does not even seem to be benefitting from the safe-haven characterizations that typically influence sentiment during times of heightened volatility or uncertainty.

That said, the U.S. dollar index was higher for the day as those more traditional stances seemed to be taking hold. The U.S. dollar index opened at 89.51, reaching highs of 89.78 before closing at 89.59. DXY is -2.76% YTD.

Technical price support in DXY is now seen at 89.40. Resistance is now found at 90.90.

The markets rebounded today on hopes the tariffs would not be as bad as originally expected and the retaliation would be reduced. We still have two days left in the week and we could be significantly higher or lower based on the headlines still to follow. The White House said they would release the tariff details on Thursday or Friday. Expect some volatility when those appear.

Richard Cox

New Option Plays

Northeaster Winds

by Jim Brown

Click here to email Jim Brown

Editors Note:

The tariff headlines may have calmed but there is a major winter storm approaching. The markets rebounded when it appeared there may be exemptions to the proposed tariffs but we really do not know the details. They are supposed to be announced on Thursday or Friday. You can bet the announcement will cause some market volatility. If we are lucky they will be toned down significantly and the market will explode higher. However, everyone understands the unpredictability in the White House and anything could appear. I believe it is best to wait out the storm and then enter new positions next week. There is nothing to be gained by fighting the whirlwind. There is always another day to trade.


New positions are only added on Wednesday and Saturday except in special circumstances.


No New Bullish Plays


No New Bearish Plays

In Play Updates and Reviews

Miraculous Recovery

by Jim Brown

Click here to email Jim Brown

Editors Note:

Headlines began to leak out of the White House that tariffs would not be global. The market reaction to the tariffs and the resignation of Gary Cohn may have softened President Trumps position on the entire tariff proposal. We heard late Wednesday that Canada and Mexico could be exempt. Later there was a leak that EU countries could be exempt. That exempts our major trading partners and leaves only China, Asia Pacific, South America and a few others. That is a big downgrade from a global plan and the markets rebounded strongly on the news. The Dow did not get back to positive territory and lost -82 points but that is significantly better than the -349 at the low and Dow futures down over 400 last night.

We have been relatively lucky on most of our positions. However, the Walmart, Target and Home Depot declines have been painful. I am recommending we drop Walmart because there is little to no chance of a meaningful rebound. Target is only about $3 under our strike so there is a decent possibility of a recovery. Home Depot is down with the Dow and the hangover from Lowe's earnings. If the Dow recovers, HD should recover as well. CAT is down on the potential for tariff retaliation but with tariffs fading, CAT should rebound with the Dow.

The recovery from the morning lows was very encouraging. This time last night the outlook was very grim. The strong earnings picture is going to be the component providing lift to the market.

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

No Changes

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

Full updates on all plays on Wednesday and Saturday. Only closed plays are updated on other days.

BULLISH Play Updates

CAT - Caterpillar - Company Profile


No specific news. Shares were down hard again on worries CAT will be the target for tariff retaliation. However, late in the day the White House suggested there would be carve outs for various countries on the steel tariffs. That allowed shares to recover $3 and should be positive for tomorrow. Morgan Stanley initiated coverage with an overweight.

Original Trade Description: February 5th

Caterpillar Inc. manufactures and sells construction and mining equipment, diesel and natural gas engines, industrial gas turbines, and diesel-electric locomotives for heavy and general construction, rental, quarry, aggregate, mining, waste, material handling, oil and gas, power generation, marine, rail, and industrial markets. Its Construction Industries segment offers backhoe, compact, track-type, small and medium wheel, knuckleboom, and skid steer loaders; small and medium track-type, and site prep tractors; mini, wheel, forestry, small, medium, and large track excavators; and motorgraders, pipelayers, telehandlers, cold planers, asphalt pavers, compactors, road reclaimers, and wheel and track skidders and feller bunchers. The company's Resource Industries segment provides electric rope and hydraulic shovel, landfill and soil compactor, dragline, large wheel loader, machinery component, track and rotary drill, electronics and control system, work tool, hard rock vehicle and continuous mining system, scoop and hauler, wheel tractor scraper, large track-type tractor, and wheel dozer products; longwall, highwall, and continuous miners; and mining, off-highway, and articulated trucks. Its Energy & Transportation segment offers reciprocating engine powered generator set and engine, integrated system, turbine, centrifugal gas compressor, diesel-electric locomotive and component, and other rail-related products and services. The company's Financial Products segment offers finance for Caterpillar equipment, machinery, and engines, as well as dealers; property, casualty, life, accident, and health insurance; and insurance brokerage services, as well as purchases short-term trade receivables. Its All Other operating segments provides parts distribution and digital investments services. The company was formerly known as Caterpillar Tractor Co. and changed its name to Caterpillar Inc. in 1986. The company was founded in 1925 and is headquartered in Peoria, Illinois. Company description from FinViz.com.

2/5/18: Buy the market dip tactical trade: CAT declined to the 100-day average and bounced significantly. They had good relative strength on Friday and I would expect them to rebound significantly as soon as the market turns positive.

Update 2/14: CAT reported their rolling 3-month sales rose 34% globally. There was a 23% ris ein North America. Resource segment sales rose 49%, construction sales +30%, rnergy and transportation rose 16%, power generation +8%, industrial sales +13% and oil and gas sales +27%. This company is in the sweet spot of the global economic boom. The report the rolling 3-month average to smooth out the big ticket sales spikes from month to month.

Position 2/6/18:
Long APR $160 Call @ $4.03, see portfolio graphic for stop loss.

EXPE - Expedia - ETF Profile


No specific news but shares rocketed $3 higher in an initially weak market.

Original Trade Description: February 24th

Expedia, Inc., together with its subsidiaries, operates as an online travel company in the United States and internationally. It operates through Core OTA, Trivago, HomeAway, and Egencia segments. The company facilitates the booking of hotel rooms, airline seats, car rentals, and destination services from its travel suppliers; and acts as an agent in the transactions. It serves leisure and corporate travelers, including travel agencies, tour operators, travel supplier direct websites and their call centers; consolidators and wholesalers of travel products and services; online portals and search websites; and travel metasearch websites, mobile travel applications, social media websites, as well as traditional consumer e-commerce and group buying websites. It also engages in advertising and media business. The company was founded in 1996 and is headquartered in Bellevue, Washington. Company description from FinViz.com.

Expected earnings May 10th.

Expedia reported Q4 earnings of 84 cents that missed estimates for $1.16 by a mile. Revenue of $2.32 billion also missed estimates for $2.36 billion. While that seems extremely negative there were some bright spots. Revenue rose 10.9%, gross bookings ros 14% and room nights rose 15%. Revenue at the core brands rose 18% at Trivago, 16% at HomeAway and 18% at Egencia.

The drop in earnings was driven by a significant increase in market costs. The new CEO Mark Okerstrom said "We are now operating with a clear focus on our highest priority markets, making concentrated investments across the platform and changing the pace of adding new properties to our marketplace. These efforts should give us 6% to 11% EBITDA growth in 2018." The travel industry is a $1.6 trillion industry on an annual basis. There is plenty of room for growth.

Expedia plans to double the properties on the core OTA (Online Travel Agencies) portfolio from the current 590,000 including 150,000 HomeAway listings.

They reported earnings on Feb 7th just as the market was crashing. Shares were crushed for a $25 loss to $100. They have rebounded to $106 and multiple analysts have called it a buying opportunity because the increased expenses will lead to increased revenue.

Position 2/26/18:
Long April $110 call @ $3.10, see portfolio graphic for stop loss.

GRUB - GrubHub - Company Profile


Former Amazon and ClassPass executive Sam Hall joined GrubHub as chief product officer. He will be responsible for growing the company's product offerings. He was chief product and technology officer at ClassPass after working 10 years at Amazon as VP of consumable customer experience and VP of mobile development. Shares spiked nearly $3.

Original Trade Description: March 3rd.

GrubHub Inc., together with its subsidiaries, provides an online and mobile platform for restaurant pick-up and delivery orders in the United States. The company connects approximately 50,000 local restaurants with diners in approximately 1,100 cities. It offers GrubHub and Seamless mobile applications and mobile Websites for iPhone, Android, iPad, Apple Watch, and Apple TV devices; and operates GrubHub and Seamless Websites through grubhub.com and seamless.com. The company also provides Corporate program that helps businesses address inefficiencies in food ordering and associated billing; and delivery services for restaurants on its platform. In addition, it offers Allmenus.com and MenuPages.com, which provide an aggregated database of approximately 415,000 menus from restaurants in 50 states; Grubhub for Restaurants that allows it to monitor orders through the takeout process; and Website design and hosting services for restaurants. The company was formerly known as GrubHub Seamless Inc. and changed its name to GrubHub Inc. in February 2014. GrubHub Inc. was founded in 1999 and is headquartered in Chicago, Illinois. Company description from FinViz.com.

Expected earnings May 10th.

GrubHub reported earnings of 37 cents that beat estimates for 31 cents. Revenue rose $68 million to $205.1 million and beat estimates for $301.7 million. Active diners rose from 8.2 million to 14.5 million. They guided for Q1 revenue og $224-$232 million and analysts were expecting $226.7 million. They have grown the number of active restaurants from 40,000 to 80,000.

GrubHub announced a partnership with Yum Brands for their KFC and Taco Bell stores. YUM will buy $200 million in GrubHub shares. That will give GRUB cash to expand their network even further. They also have a partnership with Yelp and FourSquare.

Keybanc Capital Markets raised the target price from $105 to $115. The analyst said "the largest direct benefit of the YUM partnership is the incremental gross food sales opportunity, which we estimate could be worth billions of dollars over time."

Shares spiked from $70 to $94 on the earnings and YUM news. They inched up to $97 where they have held for two weeks during a really ugly market. A breakout appears to be imminent.

Position 3/5/18:
Long June $105 call @ $7.17, see portfolio graphic for stop loss.
Optional: Short June $120 call @ $2.47, see portfolio graphic for stop loss.
Net debit $4.70.

HD - Home Depot - Company Profile


No specific news. HD shares were down with the Dow.

Original Trade Description: February 5th

The Home Depot, Inc. operates as a home improvement retailer. It operates The Home Depot stores that sell various building materials, home improvement products, and lawn and garden products, as well as provide installation, home maintenance, and professional service programs to do-it-yourself, do-it-for-me (DIFM), and professional customers. The company offers installation programs that include flooring, cabinets, countertops, water heaters, and sheds; and professional installation in various categories sold through its in-home sales programs, such as roofing, siding, windows, cabinet refacing, furnaces, and central air systems, as well as acts as a contractor to provide installation services to its DIFM customers through third-party installers. It primarily serves home owners; and professional renovators/remodelers, general contractors, handymen, property managers, building service contractors, and specialty tradesmen, such as installers. The company also sells its products through online. It operates through approximately 2,278 stores, including 1,977 in the United States, including the Commonwealth of Puerto Rico, and the territories of the U.S. Virgin Islands and Guam; 182 in Canada; and 119 in Mexico. The Home Depot, Inc. was founded in 1978 and is based in Atlanta, Georgia. Company description from FinViz.com.

2/5/18: Buy the market dip tactical trade: This Dow stock has been rock solid up until last week. Home Depot and Boeing have the most buy recommendations of any other Dow stock. Support at $181 should hold.

Update 2/21/18: On Tuesday, Home Depot reported earnings of $1.69 that beat estimates for $1.61. Revenue of $23.88 billion rose 7.5% and beat estimates for $23.66 billion. The company took a charge of $127 million due to tax reform. They also took a charge of 17 cents a share for the onetime bonus payment to hourly associates as a result of the tax reform law. Same store sales rose 7.2% and beat estimates for 6.5%. Customer transactions increased by 2% and the average check rose by 5.5%. They guided for the full year for earnings of $9.31-$9.73 and for revenue to rise 6.5%. They will repurchase $4 billion in shares, have a tax rate of about 26% and spend about $2.5 billion in capex. They will open three new stores. Home Depot put their store expansion program on hold in 2017 to focus that money on improving existing stores and upgrading their infrastructure. Apparently, that move was successful.

Position 2/6/18:
Long $190 Call @ $5.80, see portfolio graphic for stop loss.

INTC - Intel - Company Profile


No specific news. Continued rebound to a new high.

Original Trade Description: February 5th

Intel Corporation designs, manufactures, and sells computer, networking, and communications platforms worldwide. The company operates through Client Computing Group, Data Center Group, Internet of Things Group, Non-Volatile Memory Solutions Group, Intel Security Group, Programmable Solutions Group, and All Other segments. Its platforms are used in notebooks, 2 in 1 systems, desktops, servers, tablets, smartphones, wireless and wired connectivity products, and mobile communication components; enterprise, cloud, and communication infrastructure; and retail, transportation, industrial, video, buildings, and other market segments. The company offers microprocessors that processes system data and controls other devices in the system; chipsets, which send data between the microprocessor and input, display, and storage devices, such as keyboard, mouse, monitor, hard drive or solid-state drive, and optical disc drives; and system-on-chip and multichip packaging products that integrate its central processing units with other system components onto a single chip. It also offers NAND flash memory products primarily used in solid-state drives; security software products that secure computers, mobile devices, and networks; programmable semiconductors and related products for communications, data center, industrial, military, and automotive market segments. In addition, the company develops computer vision and machine learning-based sensing products, mapping and driving policy technology solutions for advanced driver assistance systems, and autonomous driving technologies. It serves original equipment manufacturers, original design manufacturers, cloud and communications service providers, and industrial, communications, and automotive equipment manufacturers. The company was founded in 1968 and is based in Santa Clara, California. Company description from FinViz.com.

Update 2/5/18: Buy the market dip tactical trade: Intel soared to a new high after earnings but has retraced -10% in the weak market. Their outlook is good and support at $43 should hold on any further market weakness.

Update 2/17/18: Intel has been hit with 32 class action lawsuits over the recently discovered security flaw in their chips. The security problems named Meltdown and Specter have resulted in numerous patches to operating systems. However, those patches sometimes degrade the system by as much as 25%. Intel said it has no estimate of the potential loss from the multiple suits. It could be a large number since they did not report the bugs for several months after they were initially discovered and the system degradation could be a real problem. For large companies with millions of dollars of computers, a decline in performance of 25% is a real factor.

Update 2/21/18: Israeli Economic Minister Eli Cohen said Intel was going to invest $5 billion in Israel to upgrade a chip facility from 22 nanometer to 10 nanometer. The smaller the numbers, the faster the chips. Intel received a state grant worth 5% of the total and received a lower tax rate of 5% for the next ten years. Intel expects to receive another 10% grant. Intel exported $3.6 billion in chips from Israel in 2017 and employs more than 10,000 workers, most of which are in research and development.

Postion 2/6/18:
Long $47 Call @ $1.54, see portfolio graphic for stop loss.

JPM - JP Morgan - Company Profile


No specific news. However, because of their past relationship JPM probably has a lead in the move by Amazon to establish hybrid checking accounts with the Amazon brand. The company sent out requests for proposals earlier this year but JPM probably has a head start since they have already partnered with Amazon on the health care project.

Original Trade Description: February 17th

JPMorgan Chase & Co. operates as a financial services company worldwide. It operates through Consumer & Community Banking, Corporate & Investment Bank, Commercial Banking, and Asset & Wealth Management segments. The Consumer & Community Banking segment offers deposit and investment products and services to consumers; lending, deposit, and cash management and payment solutions to small businesses; residential mortgages and home equity loans; and credit cards, payment services, payment processing services, auto loans and leases, and student loans. The Corporate & Investment Bank segment provides investment banking products and services, including advising on corporate strategy and structure, and capital-raising in equity and debt markets, as well as loan origination and syndication; treasury services, such as cash management and liquidity solutions; and cash securities and derivative instruments, risk management solutions, prime brokerage, and research services. It also offers securities services, including custody, fund accounting and administration, and securities lending products for asset managers, insurance companies, and public and private investment funds. The Commercial Banking segment offers financial solutions, including lending, treasury, investment banking, and asset management to corporations, municipalities, financial institutions, and nonprofit entities, as well as financing to real estate investors and owners. The Asset & Wealth Management segment provides investment and wealth management services across various asset classes, such as equities, fixed income, alternatives, and money market funds; multi-asset investment management services; retirement services; and brokerage and banking services comprising trusts, estates, loans, mortgages, and deposits. JPMorgan Chase & Co. was founded in 1799 and is headquartered in New York, New York. Company description from FinViz.com.

Banks make money by acquiring deposits and paying minimum interest rates while lending the money out at higher rates. When interest rates rise the rates on the loans match the jump in rates but the interest paid on deposits creeps up at a slower rate. For a bank like JP Morgan or Citigroup, each quarter point rise in rates is worth hundreds of millions of dollars in interest. The Fed is expected to hike rates at least 3 times in 2018 and possibly 4 times for a full 1% increase. This is a goldmine for JP Morgan.

In the past the Fed has always believed that the ideal interest rate is 2% above the core rate of inflation. With the core rate approaching 2% that means a 4% Fed funds rate, which equates to a lending rate for banks at about 6%. Since the banks are coming off a Fed rate of less than 1% and doing well at those levels, a jump to 2.25% by the end of 2018 would double their interest income.

None of this is really important for a short term option trade but investors buy stocks for the future. JPM has a fortress balance sheet and They stand to make billions from the Fed rate hike cycle. That means JPM is a buy today and we are going to jump in before they make a new high.

With Jay Powell providing testimony to the House on Feb 28th, the focus for the next week will be on what he might say about raising rates. Those expectations should cause bank stocks to rise. The next Fed meeting is March 20/21st and they are widely expected to hike at that meeting. That expectation should lift bank stocks ahead of that meeting.

Expected earnings April 13th.

I considered using the April options. However, with the potential for market volatility, it would be better to use the June strikes because they will hold their value longer. We will exit this position before earnings. We are buying time but we are not going to use it.

Update 2/28/18: On Tuesday, the CFO raised the outlook on earnings saying pretax profits could rise by 17.5% annually over the next several years. He said pretax net income could rise to a range of $44-$47 billion over three years, up from $24 billion in 2017.

Position 2/20/18:
Long June $120 call @ $3.17, see portfolio graphic for stop loss.

MSFT - Microsoft - Company Profile


No specific news. The company's new chief diversity officer settled a suit with IBM over after Microsoft hired her from IBM. Big blue sued the employee claiming the employee violated a 1-year non-compete agreement. The resolution will allow the person to start work at Microsoft on July 1st.

Original Trade Description: February 5th

Microsoft Corporation develops, licenses, and supports software products, services, and devices worldwide. The company's Productivity and Business Processes segment offers Office 365 commercial products and services for businesses, including Office, Exchange, SharePoint, Skype for Business, and related Client Access Licenses (CALs); Office 365 consumer services, such as Skype, Outlook.com, and OneDrive; Dynamics business solutions, such as financial management, enterprise resource planning, customer relationship management, supply chain management, and analytics applications for small and mid-size businesses, large organizations, and divisions of enterprises; and LinkedIn online professional network. Its Intelligent Cloud segment licenses server products and cloud services, such as Microsoft SQL Server, Windows Server, Visual Studio, System Center, and related CALs, as well as Azure, a cloud platform; and enterprise services, such as Premier Support and Microsoft Consulting that assist in developing, deploying, and managing Microsoft server and desktop solutions, as well as provide training and certification to developers and IT professionals on Microsoft products. The company's More Personal Computing segment comprises Windows OEM, volume, and other non-volume licensing of the Windows operating system; patent licensing, Windows Internet of Things, MSN display advertising, and Windows Phone licensing system; devices, including Microsoft Surface, phones, and PC accessories; and search advertising, including Bing and Bing Ads. This segment also provides gaming platforms, including Xbox hardware, Xbox Live, video games, and third-party video games. The company markets and distributes its products through original equipment manufacturers, distributors, and resellers, as well as through online and Microsoft retail stores. Microsoft Corporation has a strategic partnership with CNH Industrial N.V. The company was founded in 1975 and is headquartered in Redmond, Washington. Company description from FinViz.com.

2/5/18: Buy the market dip tactical trade: Microsoft has declined nearly 10% from its strong earnings and the stock normally respects the support of the 50-day average. Microsoft will sell significantly more windows software as users upgrade to get away from the Meltdown and Specter hacks in the older processors. Expect a surge in software sales for Q1.

Position 2/6/18:
Long $90 Call @ $3.05, see portfolio graphic for stop loss.

NKE - Nike Inc - Company Profile


No specific news. Shares still suffering from a weak Dow and the Foot Locker earnings.

Original Trade Description: February 3rd

NIKE, Inc., together with its subsidiaries, designs, develops, markets, and sells athletic footwear, apparel, equipment, and accessories worldwide. It offers NIKE brand products in nine categories: running, NIKE basketball, the Jordan brand, football, men's training, women's training, action sports, sportswear, and golf. The company also markets products designed for kids, as well as for other athletic and recreational uses, such as cricket, lacrosse, tennis, volleyball, wrestling, walking, and outdoor activities. In addition, it sells sports apparel; and markets apparel with licensed college and professional team and league logos. Further, the company sells a line of performance equipment, including bags, socks, sport balls, eyewear, timepieces, digital devices, bats, gloves, protective equipment, and other equipment under the NIKE brand for sports activities; various plastic products to other manufacturers; athletic and casual footwear, apparel, and accessories under the Jumpman trademark; action sports and youth lifestyle apparel and accessories under the Hurley trademark; and casual sneakers, apparel, and accessories under the Converse, Chuck Taylor, All Star, One Star, Star Chevron, and Jack Purcell trademarks. Additionally, it licenses agreements that permit unaffiliated parties to manufacture and sell apparel, digital devices, and applications and other equipment for sports activities under NIKE-owned trademarks. The company sells its products to footwear stores, sporting goods stores, athletic specialty stores, department stores, skate, tennis and golf shops, and other retail accounts through NIKE-owned retail stores and Internet Websites, mobile applications, independent distributors, and licensees. The company was formerly known as Blue Ribbon Sports, Inc. and changed its name to NIKE, Inc. in 1971. NIKE, Inc. was founded in 1964 and is headquartered in Beaverton, Oregon. Company description from FinViz.com.

Expected earnings March 22nd.

Nike has defied gravity recently after being severely depressed back in October. There are multiple reasons. They have received upgrades based on their decisions to reduce their SKUs, limit their number of distributors and require retailers to merchandise more effectively. It did not hurt that Bill Ackman took a minority position and is recommending changes. Lastly, all the Olympic athletes, except for the North Koreans, will be wearing Nike clothes and sports gear. Nike will get a big advertising boost from the games.

Nike shares did not decline materially last week when the Dow was imploding. This suggests they should rise again in a positive market. I am picking an inexpensive option and we will not use a stop loss over the first several days just in case the market volatility continues.

This is a risky position because of the market instability. Do not enter this position if you cannot afford to risk the $2.

Update 2/16: Nike is getting ready to explode according to Stifel. For the 8-week period starting in early February there are more than 200 scheduled sneaker releases with 150 from the Nike and Jordan brands. The releases are scheduled to coincide with the March Madness event in basketball and the hype around the NBA All-Star game on Feb-18th. Stifel said the success of these launches could propel the company for the next year. The analyst raised his price target from $74 to $80 and shares closed at $68 on Friday.

Position 2/5/18:
Long April $70 call @ $1.94, see portfolio graphic for stop loss.

PYPL - PayPal - Company Profile


Paypal filed a patent for "expedited virtual currency transactions." Most transactions now take 10 min or longer and that is too long for daily use.

Original Trade Description: February 3rd

PayPal Holdings, Inc. operates as a technology platform company that enables digital and mobile payments on behalf of consumers and merchants worldwide. It enables businesses of various sizes to accept payments from merchant Websites, mobile devices, and applications, as well as at offline retail locations through a range of payment solutions, including PayPal, PayPal Credit, Braintree, Venmo, Xoom, and Paydiant products. The company's platform allows consumers to shop by sending payments, withdraw funds to their bank accounts, and hold balances in their PayPal accounts in various currencies. PayPal Holdings, Inc. was founded in 1998 and is headquartered in San Jose, California. Company description from FinViz.com.

Paypal shares were crushed last week after Ebay said they were going to phase out the payment processor by 2023. Ebay is going to become the merchant of record (MOR) and handle payments through Dutch payment processor Adyen after 2020. Paypal sold off hard despite the long term transfer.

This is 2018. Nothing is changing for the next two years. In 2021 Ebay will be the "default" payment processor but Paypal will remain an option in the checkout process. Customers with Paypal accounts will more than likely continue to process their payments through Paypal. For Ebay the conversion process is going to take years. Paypal is guaranteed to remain an option on checkout through 2023 or 5 years from now. In reality they will probably always be a payment option on Ebay.

Paypal has more than 200 million users and 18 million retailers that accept Paypal. Ebay cannot just turn them off or purchasers on Ebay would revolt.

The Paypal CEO put it this way. Ebay is 13% of our total payment volume (TPV) and growing at 4% per year. The other 87% of our TPV is growing at 23% per year.

On the positive side once the agreement with Ebay expires in 2020, Paypal can then become the MOR for any number of other retailers. They are currently prohibited from doing that now. The CEO said there are at least 10 top global marketplaces that process tens of billions of TPV per year where Paypal could become the primary MOR. These would be far more valuable than the slow growing Ebay revenue at 4% per year.

The CEO said retailers could now begin to see Paypal take on a more aggressive posture now that the split with Ebay is finally winding down.

Paypal guided for 2018 for revenue growth of 15-17% and earnings growth of roughly 25%. There is nothing wrong with Paypal and the stock was punished unfairly.

Position 2/5/18:
Long April $80 call @ $2.52, see portfolio graphic for stop loss.

QQQ - Powershares QQQ - ETF Profile


The Nasdaq is now up four consecutive days. That is remarkable in the current market.

Original Trade Description: February 7th

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

The Nasdaq rebounded sharply from the initial dip but that does not prevent it from a retest. I am recommending we try to buy any dip retest.

Position 2/8/18 with a QQQ trade at $155.50:
Long Apr $160 call @ $3.98, see portfolio graphic for stop loss.

SPY - S&P-500 ETF - ETF Profile


Very minor decline from Tuesday and still holding over the 270 level.

Original Trade Description: February 21st

The SPDR S&P 500 ETF Trust seeks to provide investment results that, before expenses, correspond generally to the price and yield performance of the S&P 500 Index.

The S&P has declined for two days and finished well off its highs on Monday. That high was $275.32 and it closed today at $270.00. There is risk to the 100-day average at $265. I would be surprised if we dipped that low but it is possible.

The S&P futures are down -8 as I type this. If we do get a big drop at the open, I am recommending we buy the dip. This is a risky position because we are trying to predict a market bottom.

I am recommending we buy the April $275 call. If the futures really drop over night and we get one of those -10 point S&P drops at the open, I would buy the $270 call. That means if the SPY opens at $265 or below, buy the $270 call otherwise buy the $275 call.

Position 2/22/18:
Long April $275 call @ $4.00, see portfolio graphic for stop loss.

TGT - Target - Company Profile


Target reported earnings on Tuesday and it was not pretty. They reported $1.37 and that only missed estimates by a penny but the shares were crushed. The miss was due to a $1 billion investment into boosting sales and speeding up online delivery. They plan to invest $7 billion through 2020. Revenue rose 10% to $22.77 billion and beat estimates for $22.53 billion. Online sales rose 29% in Q4 and rose 25% for the full year. That is a very respectable number and the shares hould not have sold off as badly as they did.

Original Trade Description: February 10th

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 October 19, 2017, the company operated 1,828 stores in the United States. Company description from FinViz.com.

Earnings March 6th.

Target is increasing its competition against Walmart and Amazon by acquiring same day delivery company Shipt for $550 million. Instead of just folding the company into Target's structure, they are going to leave Shipt as a separate entity and allow them to continue delivering for the rest of their corporate customers. This additional scale will improve the network and increase the benefits to the 1,400 target stores that will be available under the Shipt service.

Shipt has more than 20,000 "shoppers" that go to the stores and pickup your merchandise for same day delivery. In many cases, such as food, they have your shopping list and they actually go and pickup the items you want and deliver them to you. For Target, the items will be prepackaged and ready at the delivery desk. Shipt customers pay an annual $99 fee for same day delivery and that covers all the retailers in your area that use the Shipt service. Target customers will get an initial 50% discount.

Target also launched Target Restock for next day grocery delivery. Customers go to the Target Restock website and choose from over 15,000 daily use items like cleaning supplies, paper products, baby products, etc. You can load up your "box" with about 45 pounds of products and if you order by 2:PM it will be delivered the next day for $4.99.

Target also launched a "Drive Up" service where you can place your order with the Target App and Target will message you when it is ready. You hit the "I am on my way" button and when you pull into a designated parking spot an associate will deliver your items to your car.

Target is not going to just plod along and let Amazon and Walmart steal market share. They are fighting to make it easy and quick to buy almost anything and get it the same day or next day. Target has more than 10 brands that do over $1 billion in annual sales each. Their Market Pantry brand has more than 2,000 products. Target averages 1.5 million customer visits per day.

Update 2/21/18: Target declined after the Walmart earnings on Tuesday but did not decline further today. This shows good relative strength. On Tuesday Target rolled out a new 1,300 plus item collection of decor for the home called Opalhouse. Target called the brand "eclectic" featuring "bold colors, optimistic prints and tons of texture."

Position 2/12/18:
Long March $75 call @ $2.55, see portfolio graphic for stop loss.

V - Visa - Company Profile


No specific news. Shares are following the Dow's moves.

Original Trade Description: February 8th

Visa Inc. operates as a payments technology company worldwide. The company facilitates commerce through the transfer of value and information among consumers, merchants, financial institutions, businesses, strategic partners, and government entities. It operates VisaNet, a processing network that enables authorization, clearing, and settlement of payment transactions; and offers fraud protection for account holders and assured payment for merchants. The company also offers gateway services for merchants to accept, process, and reconcile payments; manage fraud; and safeguard payment security online, as well as processing services for participating issuers of visa debit, prepaid, and ATM payment products. In addition, it provides digital products, including Visa Checkout that offers consumers an expedited, and secure payment experience for online transactions; and Visa Direct, a push payment product platform, that allows businesses, governments, and consumers to use the Visa network to transfer funds from an originating account to another via a debit, prepaid, or credit card number, as well as Visa token service that replaces the card account numbers from the transaction with a token. Further the company offers corporate (travel) and purchasing card products, as well as value-added services. It provides its services under the Visa, Visa Electron, Interlink, V PAY, and PLUS brands. Visa Inc. was incorporated in 2007 and is headquartered in San Francisco, California. Company description from FinViz.com.

Position 2/9/18 with a Visa trade at $112.50:
Long June $120 Call @ $4.15, see portfolio graphic for stop loss.

WMT - Walmart - Company Profile


Walmart shares continued to slide and there is no hope they will recover by April expiration without a major rebound in the market. I am recommending we drop this position. At 7 cents I would not close it just in case lightning strikes and the market begins to surge to new highs before the Q1 earnings.

Original Trade Description: February 5th

Wal-Mart Stores, Inc. operates retail stores in various formats worldwide. It operates through three segments: Walmart U.S., Walmart International, and Sam's Club. The company operates discount stores, supermarkets, supercenters, hypermarkets, warehouse clubs, cash and carry stores, home improvement stores, specialty electronics stores, apparel stores, drug stores, convenience stores, and membership-only warehouse clubs; and retail Websites, such as walmart.com and samsclub.com, as well as mobile commerce applications. It offers grocery products, including meat, produce, natural and organics, deli and bakery, dairy, frozen foods, alcoholic and nonalcoholic beverages, floral and dry grocery, as well as consumables, such as health and beauty aids, baby products, household chemicals, paper goods, and pet supplies; and health and wellness products, which include pharmacy, optical services, clinical services, over-the-counter drugs, and other medical products. The company also provides electronics, cameras and supplies, photo processing services, cellular phones, cellular service plan contracts and prepaid service, movies, music, video games, and books; stationery, automotive, hardware and paint, sporting goods, and outdoor living and horticulture, as well as fabrics, crafts, and seasonal merchandise; apparel for women, girls, men, boys, and infants, as well as shoes, jewelry, and accessories; and home furnishings, housewares and small appliances, bedding, home decor, and toys. In addition, it offers fuel and financial services and related products, including money orders, prepaid cards, wire transfers, money transfers, check cashing, and bill payment. In addition, it offers brand name merchandise, including hardgoods, softgoods, and selected private-label items, such as Member's Mark. It operates 11,593 stores under 63 banners in 28 countries and e-commerce Websites in 11 countries. Wal-Mart Stores, Inc. was founded in 1945 and is headquartered in Bentonville, Arkansas. Company description from FinViz.com.

2/5/18: Buy the market dip tactical trade: Walmart declined to rest on the support of the 50-day average at $100. Until today the stock was showing great relative strength.

2/17/18: Walmart could acquire as much as 40% of India's online retailer Flipkart, up from 20% when the story first broke a couple weeks ago. There was no price mentioned but Softbank bought 20% last year for $2.5 billion. Given the growth and passage of time, Walmart could be looking at spending $6-$9 billion. This would give Flipkart a big boost in the fight against Amazon and it would give Walmart a huge retail outlet in India, the second most populated country. Flipkart has committed to investing up to $5 billion in India to expand its online grocery deliveries. Flipkart already controls 40% of India's online retail sales and has the fashion portals Myntra and Jabong. Morgan Stanley estimates online retail sales in India will be a $200 billion business within 10 years. Walmart already has a $28 million stake in bricks and mortar retailer Shoppers Stop Ltd in India. Flipkart was founded in 2007 by two former Amazon employees.

Update 2/21/18: Walmart (WMT) reported earnings of $1.33 that missed estimates for $1.37. That was a significant surprise. Revenue of $136.3 billion did beat estimates for $134.91 billion. Same store sales rose 2.6% and beat estimates for 2.2% and store traffic rose 1.6%. However, ecommerce sales rose 23% and well below the 50% rise in Q3 and that is a material decline since it covered the holiday shopping quarter. I reported several times in the past that Walmart raised their prices online and they actually point it out on the product page. This item is $15.95 but it is $13.85 in our stores. That is a sale killer for sure. Management guided for full year earnings of $4.75-$5.00 and analysts were expecting $4.91. The company increased its annual cash dividend by 2% to $2.08 or 52 cents per quarter.

Shares fell sharply on Tuesday and then declined another 3% on Wednesday. Telsey Advisory Group reiterated an outperform with a $110 price target. Stifel reiterated a hold with a $99 price target. Several analysts have been calling this a buying opportunity. Shares held at the $92 level most of the day but dropped 50 cents on the closing bell.

Position 2/6/18:
Dropping 3/7: Long Apr $105 Call @ $2.50, currently .07, -.2.43.

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