Option Investor

Daily Newsletter, Saturday, 7/20/2019

Table of Contents

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

Market Wrap

Uncertainty Is The Only Certainty

by Thomas Hughes

Click here to email Thomas Hughes

Iran Sparked A Sell-Off

The indices ended the week on a sour note. Iran sparked a sell-off that left the broad market down by -0.60% at the end of the day Friday and down -1.3% for the week. While Friday's move was sparked by Iran's seizing a UK-flagged tanker the move for the week is driven by mounting uncertainty. The only thing to be certain of is the uncertainty and that is a bad bad thing for a market trading at all-time highs.

Hope has driven the S&P to its current levels if reality doesn't meet up to the expectation I fear a deep, deep correction will come. The top of the list this week is the FOMC. The market has built up an expectation for deep FOMC rate cuts and there is absolutely no guarantee one will come. While Jerome Powell's testimony to Congress and John William's off-the-cuff comments suggest the FOMC is going to cut rates aggressively the data just doesn't support it.

This week's data isn't robust but neither is it poor. On balance, the data is still solid and points to a steadily growing U.S. economy. The retail sales figures were strong and confirm consumer expectations arising from the last NFP report; strong job and wage gains = a healthy consumer. Consumer Sentiment data was also good. Consumer Sentiment missed expectations but still posted an increase over the last month.

The NAHB Home Builders index was also solid. There is still some weakness in traffic but the traffic that's there is converting to sales. All three sub-indices gained in the last month, sales and outlook for sales are both above 70 and at what I will call robust levels. Housing starts were also good but offset by weak permits. Permits are an indication of future starts so this is a potential red-flag.

Jobless claims were also good, initial and continuing claims are trending near their 5-decade lows and edged lower over the last week. There is still some volatility in the data but it seems to be quieting down. The total claims data persists in its signal as well, the total claims did not retreat as much as expected this season and suggests an end to market tightening. Because the slack is gone, there is no need for the Fed to do anything about rates because of labor.

The Philly Fed's MBOS was fantastic. The MBOS rebounded 21.5 points from last month's tepid 0.3 to 21.8. The rebound is driven by an increase in new orders, shipments, demand, employment, future expectations, and prices. Employment rose 15 points to 30, its highest level since December 2017. Prices, inflation, rose as well. Current prices received rose 9 points to 9.5 while the Prices diffusion index gained 3 to hit 16.1. Based on this the Fed doesn't need to act aggressively or swiftly to prop up manufacturing, looks pretty good to me.

The only negative in terms of the data and the FOMC outlook was the import/export price indices. Both fell, export prices more than forecast, and that does suggest the FOMC might want to lower rates. Even so, this data is offset by the MBOS and does not suggest the Fed need to act aggressively if it does choose to act.

The Beige Book confirms economic activity continued to expand at a modest pace from mid-May through early July, with little change from the prior period. The outlook is generally positive for the coming months, with expectations of continued modest growth, despite widespread concerns about the possible negative impact of trade-related uncertainty.

The Beige Book also indicates the rate of price inflation was stable to down slightly from the prior reporting period. Districts generally saw some increases in input costs, stemming from higher tariffs and rising labor costs. While the inflation data is weakening it has by no means reached the point where the Fed has to act. A preemptive move might be necessary, it would absolutely play into Trump's hands and I don't think Powell is keen to do that regardless what the FedWatch Tool is indicating.

The FedWatch Tool is still predicting a 100% chance for a 25 BPS cut in July and I think that is too high. The odds for a 50 bps point rate cut are close to 20% but down from near 40% just after William's remarks Thursday. The odds for 75 bps by December is near 70% now and that is way too high. With the data already firming a single cut is likely all the economy will need, if that. We may get a cut this month but I think the outlook for future cuts is going to fall short of expectations.

The next FOMC meeting is in eleven days, the risk for traders in that time is the data. Next week's calendar is not full by any means but there are some potentially market-moving events. On Monday the Chicago National Activity Index will be watched for confirmation of economic rebound over the past month. On Tuesday Existing Home Sales are expected to hold steady or fall slightly. On Wednesday we'll get flash readings on PMI, services, and manufacturing, along with New Home Sales which are expected to rise by 2.2%. Thursday is jobless claims as usual but the big economic news of the week will come Friday.

Friday is the first estimate for the 2nd quarter GDP. The 2nd quarter GDP is expected to fall to 2.1% from 3.1% in the first quarter. It may turn out to be a dud but I think a miss or beat on this figure will have a big impact on the market. A miss will reinforce hopes for aggressive rate cuts and fears of global economic slowing; a beat will reduce hopes for aggressive Fed action and the stability of U.S. Fundamentals despite the trade war.

As if the FOMC isn't enough for the market to worry about there is still the trade war. The way it stands now, the best the market can hope for is Trump and Xi can maintain the status quo. While Mnuchin says the two sides are getting close to holding face to face talks again the sticking points remain and Huawei is at the center of it. And there is still the as-yet unratified USMCA, a slowly escalating trade-situation with the EU, the Brexit, issues between Japan and South Korea, general political instability within the EU, escalating tensions in the Middle East, and their effects on earnings growth to worry about.

Earnings Season Scorecard

The earnings cycle is well underway although it is still early in the season. So far 16% of the S&P 500 have reported and the results are good. The blended rate for growth has risen to -1.9% from last week's -3.0% which is great. At this rate, earnings growth is likely to turn positive by the end of the reporting season. Six of the eleven sectors are beating consensus with an average per-company beat of 7%. If this rate keeps up we should see earnings growth top 3% by the end of the cycle but I'm not holding my breath. There are still a lot of companies to report, next week there are 144 on the list including 1/3 of the Dow Jones Industrial Average.

Despite the strength in this quarter's earnings the outlook for future earnings continues to decline. The outlook for all four of the following quarters fell an average -0.75% which is a big blow to expectations. The way things are going I expect the outlook earnings will sour over the course of the season. At the current rates of decline, the outlook for EPS growth in the 3rd quarter will be mid-single digits and the 4th's will be low single digits. The good news is that growth is still in the forecast. Although those estimates are falling as well, growth should re-accelerate next year.

Microsoft reported last week and beat on the top and bottom lines. The company says revenue grew 12% YOY driven by a 64% increase in Azure revenue growth. Cloud computing has been driving Microsoft's strength in recent years so analyst were sure to point out Azure growth decelerated from last quarter's 73%. Regardless, the company posted solid gains in all segments and spent less on CAPEX than expected. Microsoft guided earnings outlook higher after the report and that helped shared rise by more than 2.0%. The bad news is the analysts were expecting more and the highs weren't sustained. Company guidance is a range with consensus in the middle which is OK but not great. The analysts at BMO, Raymond James, and Canaccord Genuity raised their price targets to an average $159.30 in response to the news, an 11.70% to Friday's close. The caveat is the candle, Friday's candle is not pretty and may lead to a better buying opportunity.

American Express also reported better than expected earnings and failed to impress investors with guidance. The company says weakness in consumer was offset by strength in commercial segments for a net increase in merchant services income. The company only reaffirmed its guidance despite the strength, no increases, and the stock fell on the news. Investors were hoping for a better indication of the future and they didn't get it. The $124 level may be a good entry point, but it may also be a good selling point. The indicators are bearish and suggest support is going to be retested; if the $124 level breaks down a move to $120 could come forthwith.

Schlumberger reported revenue is slightly above expectation with EPS inline with consensus. The company says North American weakness is offset by International strength and that is expected to continue in the foreseeable future. Spending in the International segment is expected to increase 7-8% while that in the U.S. is expected to fall -10.0%. The news sparked some volatility in the stock, shares fell hard on the news but found support at $38. At these levels, the 5.20% dividend rate is attractive although there is some risk of a distribution cut.

Sketchers jumped more than 9.0% after it reported strong numbers and raised its guidance. The global shoe company says sales are up 10.9% with high single-digit comps at its U.S. stores. International wholesale is the strongest performing sector surprisingly enough and up 18%. Direct to consumer is up strongly at 14.4% but U.S. wholesale saw a small decline. Regardless of the breakdown, the brand's organic strength and expansion plans are driving revenue and EPS gains and that is what counts.

Results were mixed among the transportation companies that reported last week. Union Pacific and CSX both missed on the revenue side and CSX at least provided weak guidance. Trucking/Intermodal operator JBHT reported revenue in line with consensus and a small EPS miss. Comments from JBHT and UNP during the conference calls settled some market fears, those stocks were able to hold steady or rally, CSX tanked on its results and closed the week with a loss near -12.5%.

Netflix reported revenue in line with consensus and EPS was slightly ahead of expectations. Then it shocked the market saying subscriber growth was only 2.7 million, about half the expected and last year's gain. The news was not taken well and sent shares down more than -10% despite a net annual subscriber gain of 21.9%. One reason for the decline is content, Netflix lost some key content over the last year and that is dragging on subscriptions. Looking forward, NFLX is expecting Q3 gains to make up the loss as new shows come online. The rest of FAANG will report over the next ten days.

The Indices

The indices do not look good. All three majors hit new all-time highs last week and all three saw those highs rejected. The Dow Jones Transportation is not at an all-time and yet it too saw its price move rejected. The transports formed a fairly large doji candle and it is showing resistance and uncertainty at what could be a crucial level for the index. If the index moves higher great, if not it will be forming a Head & Shoulders and confirming previously strong resistance. Resistance is just above 10,750 and the near the December 2018 highs. The fact the Transports are not at new highs while the Industrials are is one red flag, the fact the transports are showing resistance at such a critical level is a second.

The Dow Jones Industrials posted the smallest loss last week but the candle is no less bearish. The index is hanging at a new all-time high showing a bearish candle pattern, not quite a Piercing Pattern, with overbought conditions and divergent MACD. The MACD isn't just a little bit divergent either, it is highly divergent and highlighting weakness in the market. The blue chips may not fall from this level but it certainly doesn't look like a time to buy.

The tech-heavy NASDAQ Composite posted a weekly loss of 1.18%. The candle is forming a Bearish Piercing Pattern and suggest a small correction at least is on the way. The indicators are set up in such a way to make me think the correction could be large when it does come. The MACD is already divergent from the new all-time high and shows a definite weakness in the market. the stochastic is still moving higher so may not diverge but, if the index falls, will confirm divergence.Once the selling starts the initials declines could be big and those big enough to trigger follow-on selling.

The S&P 500 shed -1.20% last week. The candle formed is a Dark Cloud Cover. The indicators are consistent with a peak in prices and set up for a strong downdraft once the selling starts. The MACD here is also divergent and showing a serious lack of substance in the recent rally. Stochastic is still moving higher but set up to show a major divergence if the index were to fall from this level. The 2940 level is the first and most obvious level of potential support, the previous all-time high, and may be strong enough to hold the market up. If it fails a move to 2,750 is possible.

The indices may not correct but that is not something I can trade on. There is too much uncertainty in the market and that uncertainty is shining through in the charts. The indices have been drifting higher on hopes and allowed to hit new highs because of a "wait and see" mentality, now it's time to face reality. Earnings are being reported, new data is coming in, and the FOMC is about to meet so there is a lot of reality to face.

The earnings, at least, are better than expected and that is good, fingers crossed the season continues on that way. What I'm worried about is the FOMC. The market has a lot of expectation baked into that cake and I think it is going to be deeply disappointed in how it turns out. The next FOMC meeting is in 10 days.

Until then, remember the trend!

Thomas Hughes

Index Wrap

Sentiment Topping

by Jim Brown

Click here to email Jim Brown
When markets reach new highs one of two things happens. When the fundamentals are bullish is sparks the fear of missing out (FOMO) rally that takes us higher. When fundamentals are lackluster and the market gains are based on external factors like potential rate cuts, the new high excitement can fade quickly.

The AAII Sentiment Survey bullish sentiment has risen for four consecutive weeks and closed at 35.9% on Wednesday. While that is good, the rate of gain is slowing and it still means 64% of investors are either neutral or bearish. That means two thirds of investors are not excited about the new highs.

AAII Investment Survey

Over the last 12 months Bank of America says more than $300 billion went into fixed income bond funds and $150 billion flowed out of the equity market. Only 54% of investors are holding equities.

Given those numbers it is unbelievable that the market hit new highs last week. However, it was a narrow breadth big cap rally. The 2,000 small and midcaps stocks are declining.

The reason the market is losing traction is that the big caps are rolling over. We reached new highs on Monday and it has been all downhill the rest of the week. The A/D line is clearly in trouble having stalled and coming very close to a two-week low close.

The small cap A/D line peaked three weeks ago and is in danger of a sharp decline. There have been multiple lower highs over the last two weeks. The Russell 2000 closed at a three-week low.

The relative comparison chart between the Dow and the Russell paints a very clear picture of who is leading the market. The small caps are falling despite the new highs on the three big cap indexes.

The major indicators on the Russell have turned bearish and the index has not tested downtrend resistance since July 1st. The trend is definitely headed lower. I do not see any impending headline that could reverse the decline on the small caps. They did not move higher on the impending rate cut and are not likely to move higher when it actually happens. We are heading into the summer doldrum period and August is the worst month of the year for small caps.

The Nasdaq is also in trouble. The FAANG stocks are ALL headed south, and Netflix has imploded. This has poisoned sentiment on the rest of the pack and when you include Microsoft they account for more than 30% of the weighting on the Nasdaq 100. The Netflix disaster makes investors worried there may be another disaster coming in future tech earnings.

On the flip side the chip sector has held up relatively well. This is helping to prevent a tech crash. When Broadcom backed out of the Symantec acquisition and shares rebounded this lifted other chip stocks in the group even though they were not linked to the transaction.

On the Nasdaq, prior resistance at 8,070 and 8,109 should now be support. Next week's earnings are tech heavy and that could be a blessing or a curse depending on the results.

The VIX rebounded slightly from the prior week lows near 12. If the big caps continue their post earnings swoon the VIX will continue to rise. Note that while August is normally the worst month of the year, we did see the VIX hit 10 last August when the market spiked unexpectedly. Market cycles tend to repeat but there are never any guarantees.

I would refrain from entering new long positions until after the FOMC meeting. While it is almost guaranteed they will cut rates by 25%, more than 24% of investors are expecting a 50-point cut. Those 24% are going to be disappointed and will likely sell positions they have developed ahead of the meeting.

Enter passively and exit aggressively!

Jim Brown

Send Jim an email

New Option Plays

Direction Change

by Jim Brown

Click here to email Jim Brown

Editors Note:

Market sentiment is starting to fade ahead of the Fed. Once the excitement of new highs wore off, investors begin to take some profits. While rate cuts trump bad earnings, they are now priced into the market.


No New Bullish Plays


SPY - S&P SPDR ETF - ETF Profile

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 "Index")

The S&P 500 Index is a diversified large cap U.S. index that holds companies across all eleven GICS sectors.

Launched in January 1993, SPY was the very first exchange traded fund listed in the United States.

The market is struggling at the new highs. The Fed rate cut is already priced in and may actually be overpriced since the odds are better for a 25-point cut rather than the hopes for a 50 point cut that stimulated the market over the prior two weeks. With lackluster earnings and the potential for a Fed disappointment, investors are having second thoughts about buying the current highs.

The SPY has short term support at $296 and could decline sharply to $290 if the earnings continue to provide more disappointments than positive surprises.

I am recommending a short term put spread to capture any decline into August.

Buy long Sept $295 put, currently $5.54, no stop loss.
Sell short Sept $285 put, currently $3.27, no stop loss.
Net debit $2.27.

In Play Updates and Reviews

Rough Week

by Jim Brown

Click here to email Jim Brown

Editors Note:

The high for the week was Monday and it was all downhill from there. The opening print on Monday made a new high on the S&P but sellers appeared almost immediately. There were declines on Tue and Wednesday and only a minor rebound on Thursday before collapsing back to close at the low for the week. I had warned that we should worry as August approaches but I did expect to post some gains in late July despite the potential for profit taking from the big rally. I am far less confident today and the FOMC meeting may be the only light at the end of the tunnel ahead of August.

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

DELL - Dell Technologies
The long position was entered at the open on Monday.

AJRD - Aerojet Rockeydyne
The long position was stopped on Wednesday.

BULLISH Play Updates

ADSK - Autodesk - Company Profile


No specific news. Shares are struggling at resistance in a weak market.

Original Trade Description: July 6th

Autodesk, Inc. operates as a design software and services company worldwide. The company offers AutoCAD, a professional design, drafting, detailing, and visualization software; AutoCAD Civil 3D, a surveying, design, analysis, and documentation solution for civil engineering, including land development, transportation, and environmental projects; AutoCAD LT, a professional drafting and detailing software; BIM 360, a construction management cloud-based software; computer-aided manufacturing (CAM) software for computer numeric control machining, inspection, and modelling for manufacturing; Fusion 360, a 3D CAD, CAM, and computer-aided engineering tool; and Industry Collections software products for professionals in architecture, engineering and construction, product design and manufacturing, and media and entertainment industries. It also provides Inventor tools for 3D mechanical design, simulation, analysis, tooling, visualization, and documentation; Maya and 3ds Max software products that offer 3D modeling, animation, effects, rendering, and compositing solutions; and PlanGrid, a cloud-based field collaboration software, which provides general contractors, subcontractors, owners, and architects access to construction information in real-time. In addition, the company offers Revit software for building information modeling; and Shotgun, a cloud-based software for review and production tracking in the media and entertainment industry. Autodesk, Inc. sells its products and services to customers directly, as well as through distributors and resellers. The company was founded in 1982 and is headquartered in San Rafael, California. Company description from FinViz.com.

Autodesk reported adjusted earnings of 45 cents, up from 6 cents in the year ago quarter. Revenue rose 31% to $735 million. Analysts were expecting a GAAP profit of 12 cents and they posted a GAAP loss of 11 cents. Shares collapsed on the news.

However, think about it. They increased adjusted profit 700% and revenue 31% and analysts were not happy. This is another case of analysts getting ahead of themselves with their forecasts.

ADSK shares are rebounding sharply and could easily make a new high in a couple weeks. I recommend we buy performance!

Earnings August 22nd.

Position 7/8:
Long Aug $180 call @ $2.70, see portfolio graphic for stop loss.

AJRD - Aerojet Rocketdyne - Company Profile


No specific news. Shares finally lost traction to roll over and stop us out.

Original Trade Description: May 31st.

Aerojet Rocketdyne Holdings, Inc. designs, develops, manufactures, and sells aerospace and defense products and systems in the United States. The company operates through two segments, Aerospace and Defense, and Real Estate. The Aerospace and Defense segment offers aerospace and defense products and systems for the United States government, including the Department of Defense, the National Aeronautics and Space Administration, and aerospace and defense prime contractors. This segment provides propulsion systems, such as liquid, solid, air-breathing, and electric propulsion systems for space, defense, civil, and commercial applications; and armament systems. The Real Estate segment engages in the re-zoning, entitlement, sale, and leasing of the company's excess real estate assets. It owns 11,451 acres of land adjacent to the United States Highway 50 between Rancho Cordova and Folsom, California east of Sacramento. The company was formerly known as GenCorp Inc. and changed its name to Aerojet Rocketdyne Holdings, Inc. in April 2015. Aerojet Rocketdyne Holdings, Inc. was founded in 1915 and is headquartered in El Segundo, California. Company description from FinViz.com.

Earnings July 30th.

Aerojet reported earnings of 44 cents that beat estimates for 27 cents. Revenue of $491.7 million also beat estimates for $478.2 million. Revenue was flat year over year because of the phase out of the AJ60 solid rocket motor. However, the uptick in Patriot missile components offset that end of life product. Order backlogs were $3.8 billion.

I am sure everyone has noticed the increase in launches by dozens of companies and everyone needs rocket motors. SpaceX, Blue Origin, NASA and other countries all around the world are adding to the 4,091 satellites in orbit. Every satellite requires a rocket. In addition, Aerojet has numerous contracts with the government to supply defense contracts. With the defense sector seeing increased orders from around the globe, the outlook for Aerojet is strong.

Shares rose over prior resistance at $38 on the strength of their earnings. New high resistance is $40 and only $1.50 away.

Update 6/23: Aerojet said it has delivered the jettison motor to NASA for the upcoming test of the Orion crew capsule on the Artemis 1 launch. The company also announced upcoming tests of a non-toxic rocket fuel in its Green propellant propulsion system. The future test will provide propulsion for a 13-month test flight of a new satellite. The launch will be on June 24th. Shares hit a new high on Thursday.

Update 6/29: Aerojet said it has delivered four RS-25 engines to NASA for integration into the first Space Launch System (SLS) rocket core stage. Aerojet engines have powered every astronaut that has launched from the USA. The SLS will eventually power flights to the moon and Mars. Shares spiked nearly 4% on the news.

Position 6/3:
Closed 7/17: Long August $40 Call @ $2.00, exit $5.60, +$3.60 gain.

DELL - Dell Technologies - Company Profile


No specific news. Nice rebound right to resistance at $60 before losing traction on Friday.

Original Trade Description: July 6th

Dell Technologies Inc. designs, develops, manufactures, markets, sells, and supports information technology (IT) products and services worldwide. It operates through three segments: Infrastructure Solutions Group (ISG), Client Solutions Group (CSG), and VMware. The ISG segment provides traditional and next-generation storage solutions; and rack, blade, tower, and hyperscale servers. It also offers networking products and services that help its business customers to transform and modernize their infrastructure, mobilize and enrich end-user experiences, and accelerate business applications and processes; and attached software, and peripherals, as well as support and deployment, configuration, and extended warranty services. The CSG segment offers desktops, notebooks, and workstations; displays and projectors; third-party software and peripherals; and support and deployment, configuration, and extended warranty services. The VMware segment offers compute, cloud management, and networking, as well as security storage, availability, and other end-user computing offerings that provides a flexible digital foundation to enable the digital transformation. The company also offers cloud-native platform that makes software development and IT operations a strategic advantage for customers; information security and cybersecurity solutions; cloud software and infrastructure-as-a-service solutions that enable customers to migrate, run, and manage mission-critical applications in cloud-based IT environments; cloud-based integration services; and financial services. It has a collaboration with Microsoft to deliver a joint Internet of Things (IoT) solution. The company was formerly known as Denali Holding Inc. and changed its name to Dell Technologies Inc. in August 2016. Dell Technologies Inc. was founded in 1984 and is headquartered in Round Rock, Texas. Company description from FinViz.com.

Dell shares crashed at the end of May when they reported weak revenue as a result of the trade war with China. Shares fell from $70 to $50.50 over about three weeks. We have seen multiple tests of that support level and shares are trying to rebound.

While the trade war with China is continuing, the back to school sales which occur in Q2 for Dell should be positive. They do not report earnings until September 5th so we can use an August option to capture about four weeks of market movement.

Dell will react positively to new Nasdaq highs. The options are cheap, so we have decent potential for a rebound and minimal risk.

Position 7/15:
Long Aug $55 call @ $1.95, see portfolio graphic for stop loss.

PAYX - PayChex - Company Profile


No specific news. Shares stalled at $85.85 for the week and gave back $1 on Friday.

Original Trade Description: July 6th

Paychex, Inc. provides payroll, human resource (HR), retirement, and insurance services for small to medium-sized businesses in the United States and Europe. The company offers payroll processing services; payroll tax administration services; employee payment services; and regulatory compliance services, such as new-hire reporting and garnishment processing. It also provides HR outsourcing services, including Paychex HR solutions comprising payroll, employer compliance, HR and employee benefits administration, risk management outsourcing, and the on-site availability of a professionally trained HR representative; and retirement services administration, including plan implementation, ongoing compliance with government regulations, employee and employer reporting, participant and employer online access, electronic funds transfer, and other administrative services. In addition, the company offers insurance services for property and casualty coverage, such as workers' compensation, business-owner policies, and commercial auto, as well as health and benefits coverage, including health, dental, vision, and life; cloud-based HR administration software products for employee benefits management and administration, time and attendance, recruiting, and onboarding solutions; and other HR services and products, such as employee handbooks, management manuals, and personnel and required regulatory forms. Further, it provides various accounting and financial services to small to medium-sized businesses comprising payroll funding and outsourcing services, which include payroll processing, invoicing, and tax preparation; and various services, such as payment processing services, financial fitness programs, and a small-business loan resource center. The company markets its products and services through direct sales force. Paychex, Inc. was founded in 1979 and is headquartered in Rochester, New York. Company description from FinViz.com.

Paychex reported earnings that missed estimates by a penny and guided slightly below analyst estimates for full year earnings. Paychex said earnings would rise 8-9% and analysts were expecting 9.2% growth. Revenue guidance was for 10-11% growth and analysts were expecting 10.5% so inline.

Shares declined sharply because they had risen 50% since December. Investors have a memory and they remember the gains and the trend. Shares are rebounding from the earnings drop.

Position 7/8:
Long September $87.50 call @ $1.55, see portfolio graphic for stop loss.

WMT - Walmart - Company Profile


No specific news. Shares rallied to a high on the Amazon Prime Day buzz because stores like WMT and TGT run comparable ads and do a tremendous amount of business.

Original Trade Description: June 9th

Walmart Inc. engages in the retail and wholesale operations in various formats worldwide. The company operates through three segments: Walmart U.S., Walmart International, and Sam's Club. It operates supercenters, supermarkets, hypermarkets, warehouse clubs, cash and carry stores, discount stores, drugstores, and convenience stores; membership-only warehouse clubs; e-commerce Websites, such as walmart.com, jet.com, shoes.com, and samsclub.com; and mobile commerce applications. The company 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. It also provides electronics, cameras and supplies, photo processing services, wireless, movies, music, video games, and books; stationery, automotive, hardware and paint, sporting goods, and outdoor living and horticulture; 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, toys, fabrics, crafts, and seasonal merchandise, as well as brand name merchandise. In addition, the company offers fuel and financial services and related products, including money orders, prepaid cards, wire and money transfers, check cashing, and bill payment. It operates approximately 11,300 stores and various e-commerce Websites under the 58 banners in 27 countries. The company was formerly known as Wal-Mart Stores, Inc. and changed its name to Walmart Inc. in February 2018. Walmart Inc. was founded in 1945 and is based in Bentonville, Arkansas. Company description from FinViz.com.

Walmart has fought its way back to the prior highs after a 20% decline in Nov/Dec. They are hitting on all cylinders and no longer look like Amazon roadkill. They are fleshing out their online ordering, store pickup and next day delivery and showing no signs of losing market share to Amazon.

This is a technical position. The stock has risen to the prior highs and could be positioned to break out for a new leg higher. Options are cheap and the August option expires one day after earnings so it should hold its value. We will exit before earnings.

Earnings August 15th.

Update 6/23: Walmart said it was paying $282 million to settle a long running six-year probe into bribery of foreign officials in Brazil, China, India and Mexico. The payments were made by third party intermediaries and did Walmart did not know about the payments until after the fact. They blamed delayed accounting and lack of internal controls for third party payments in foreign countries. Bribery is a way of life in those countries.

Position 6/10:
Long August $110 call @ $2.10, see portfolio graphic for stop loss.

BEARISH Play Updates

No Current Puts