Option Investor
Newsletter

Daily Newsletter, Saturday, 7/27/2019

Table of Contents

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

Market Wrap

Earnings, Growth, And Rate Cuts

by Thomas Hughes

Click here to email Thomas Hughes

Please read the important notice at the bottom of this commentary.


Earnings season is in full swing. The general run of S&P 500 companies are doing better than expected but it's not all roses and champagne. The strength in earnings is firmly centered on domestic-focused business and the outlook for growth is still deteriorating. Last week a little more than 25% of the S&P 500 reported, next week another 168 companies or 33.6% of the index is set to deliver their results. This will bring the total to 80% and just about seal the deal in terms of what we can expect this reporting cycle.


With 44% of the S&P 500 reports in the bag, 77% are beating EPS consensus and 61% are beating revenue consensus. That's the good news, the bad news is that the blended rate of earnings growth fell over the last week. The reason for the decline in earnings growth is mostly due to a change in reporting from Boeing but it also reflects a bifurcation among S&P 500 companies. On the one hand, there are those companies who do most of their business in the U.S., on the other, there are those who don't. Those companies who do most of the business in the U.S. are reporting a 3.2% increase in EPS growth while those who don't are posting double-digit declines.


The worst part perhaps is that the outlook for future growth continues to decline. The consensus estimates for three of the next four quarters fell by an average -0.3%. Consensus for 3rd quarter growth is near -2.0% and may reach -4.0% at the rate it is falling. The consensus for the 4th quarter is now below 5.0% and will likely drop into the low single-digits before too long. This brings the 2019 blended rate down to 1.7% but there is a ray of light. The declines in 2019 estimates are helping to prop up 2020 estimates.


Last week's data was good. The data still shows slowing from last year's levels but it is at least holding steady in expansionary territory and some even accelerated. The housing data was spotty, existing home sales fell but new home sales rose, but this is consistent with trends and conditions. New homes are too expensive for a lot of homeowners in need of upgrading so they choose to stay where they are or, like me and my family, add on. This situation is likely to weigh on existing home sales over the next year or more.


The jobless claims data shows the labor market is still rocking along. Both initial and continuing claims dropped in the last week and are heading toward their long-term lows. Over the past year, the trend in these figures has changed from declining to sideways. There is no sign yet of a break down in the labor market, I think this is a sign there is no more slackness in the market. The total claims figures are the same, total claims did not fall as much as expected this spring but I don't think they are about to affect reversal. At worst, I think the total number of people getting unemployment benefits will track to the side this year and next.


The star report last week was the 1st estimate for the 2nd quarter GDP. The estimate is 2.1%, subject to two revisions, but better than expected. Positive contributions from Personal Consumption Expenditures and government spending were offset by weakness in investment activity and exports. Imports, which are a subtraction from GDP, rose further impacting the decline. Notable, the PCE price index jumped to 2.3% from 0.4% in the 1st quarter and is up 1.8% at the core. This is not high enough to raise concern at the Fed but neither is it low enough to force their hand with a cut.


Next week's economic calendar is the busiest I've seen in quite a few months. On top of the FOMC meeting, it is the turn of the month which means important macro data. It's hard to say which will be the most important, not counting the FOMC meeting. The PCE Price Index, the monthly and most current version, is due out on Tuesday before the Fed meeting. The data bundle including ADP, Challenger, the employment components within the ISM reports, and the NFP, is mostly due out after the meeting.


What we're looking for is positive job growth and upward pressure on wages, if we have that I'm still optimistic the economy will weather the trade-war storm. The risk is in the PCE data, the employment data is still steady and stable if not strengthening, so the Fed will be more focused on inflation I think. The PCE Price index has been tracking around 1.6% headline and core the last few months, a deviation from that is a possible market mover in terms of FOMC outlook.

The FOMC will be meeting Tuesday and Wednesday this week. The market is still pricing in a 100% chance of 25 bps cut if not a little more. With the data the way it is, I still think the expectation of rate cut is too high. The FOMC might cut rates but if they did it would be a preemptive move and the committee is not one to act hastily. An uptick in PCE prices on Monday might be enough to stay their hand, allow them time to be patient, and see if the economy slows any further. This meeting comes with a press conference so Mr. Powell will have plenty of opportunities to explain the decision whatever it may be. The FedWatch Tool is still showing a high chance, greater than 50%, of three cuts by December. After this meeting, I expect we'll see this change dramatically.

The cause for economic slowing is the trade war and that is not going to end soon. White House officials are expected in China early next week for several days of discussions but Mnuchin says they have serious differences to work out. Larry Kudlow went on the record saying no great deal should be expected and I think that is right on. Hedge fund manager Kyle Bass said this week it's possible no deal can be reached, the gaps are too wide in some areas, and I don't think he'll be the last to chime in on that theme. The reality is China and the West don't do things the same way and China is in no hurry to change.

Brexit reemerged as a threat to the global order this week. Euro-skeptic Boris Johnson was ushered in as the UK's next prime minister and already making moves toward a no-deal Brexit. Johnson has long been an advocate of leaving with or without a deal and won his position on that platform. He's already reached out to the EU and gotten the expected response, the deal with May is the only deal the EU wants, which sets the stage for the UK to exit the EU this October.

Four-fifths of FAANG has reported and so far the results are mixed. Netflix disappointed investors two week's ago, this week it was Amazon's turn. Amazon fell short of EPS estimates and provided a weaker than expected forward cashflow outlook sending shares down about -2.0% on Thursday. This is not what an earnings-growth hungry market is looking for despite the near -20% increase in YOY revenue. Bezos and Amazon continue to reinvest capital into future growth and that is what is hurting EPS, once the market gets over that shares of AMZN will pop back up to hit new highs.



Facebook reported better than expected EPS and revenue. The company showed sharp gains in ad revenues despite the repeated scandal over user privacy. EPS would have been much stronger if not for the $2 billion FTC settlement. Revenue rose 28%, mobile ad revenue rose nearly 100%. Daily and monthly active users each rose 8.0%, total cash on hand rose to $48 billion. RBC reiterated its outperform rating after the release. RBC says FB could be in a period of re-rating as the worst fears (regarding scandal etc) were not realized.


Appl reports on Monday. Apple is expected to report quarter to quarter and YOY declines in both revenue and earnings.


Goodyear Tire & Rubber reported a miss on revenue and earnings. The company cites lower volumes and the impact of currency conversion as the leading causes. Tire unit volume fell 4% and OE unit volume is down 11% as slowing production of vehicles impacts demand. Segment sales showed the least weakness in the U.S with most centered in Europe, Emerging Markets, and Asia-Pacific. Margins also slipped across all categories helping the stock to move lower by nearly -10%.


McDonald's moved higher after it reported strength in global markets. The iconic hamburger chain says comps are up more than 6.5% globally led by strength in the U.S. The company CEO says he is energized by the success of the Velocity Growth Plan and expects to build on that success this year. The move to fresh beef, value-added deals, and strength in some emerging McMarkets all contributed.


AbbVie reported revenue was slightly lower from last year and shares moved up 2.0% anyway. The company was able to grow EPS 13% despite the revenue headwind and falling sales of Humira. Strength in the hematological oncology segment and a new drug called Skyrizi offset other weaknesses. The company was able to raise its full-year guidance because of the strengths and that is what has the stock moving. Shares are trading near the long-term low set earlier this year but appear to be forming a bottom.


Nestle reported 3.6% organic sales growth for the quarter and sent its shares up 3.0%. Net profit fell though due to the divestiture of U.S. business last year. That said, the U.S. market was the strongest performing segment. The company CEO says sales should continue at this pace in the second half of the year and EPS will improve, margins are widening and expected to accelerate by the end of the year.


Twitter reported a mixed bag that included better than expected revenue but weaker than expected revenue. The market-moving number within the report was daily active users which came in well above expectations. Total ad engagements were up 20% YOY and are the real driver of revenue. Shares jumped more than 10% on the news and set a one-year high.


The Boston Beer Company reported revenue up more than 16% YOY and a substantial EPS beat. The company says EPS is $2.36 and that beat consensus by $0.39 or 20%. Strength in results was driven by demand, shipments, and depletions which allowed for improved guidance. The company now expects full-year EPS in a range of $8.30 to $9.30, $0.30 higher than previous. Shares of the stock advanced more than 3.0% to set a new all-time high.


The Indices

Index action this week was mixed. Where one index is hitting a new all-time high another is still wrestling with resistance, where one index formed a strong bullish candle another formed an indecisive one. What this means is the market is still out synch, not all sectors are moving in tandem, rotation is the name of the game. The tech-heavy NASDAQ Composite made the biggest advance, just over 2.26%, and formed the strongest candle. The index formed a strong green candle that hit and closed at a new all-time high so it looks like the rally will continue. The caveat is that the indicators continue to tease at correction, divergences in MACD and stochastic do not confirm higher prices.


The broad market S&P 500 posted the second-largest weekly advance at 1.65% and an equally bullish-looking candle. The index set a new all-time high midweek and again on Friday but the move looks extended and ready to correct. The indicators are divergent from the new high and suggest underlying weakness that may lead to a deep correction. The caveat is that the market could continue to drift higher with the absence of active sellers. Until the selling starts we're still in an uptrend.


The Dow Jones Transportation Average advanced 1.63% by the end of the week but it did not set a new all-time high, far from it. The Transports are still about 7.5% below the previous all-time high and don't look like they will set a new one soon. The index is struggling with resistance at the 10,500 level that appears strong. The indicators are consistent with sideways, range-bound trading so I don't expect much if a move higher does come. The next target for resistance at 11,000 is also well below the all-time high and potentially strong.


The Dow Jones Industrial Average posted the weakest numbers this week, only 0.14%. The blue chips formed a medium-sized spinning top doji as market participants try to decide what to do next. The indicators are bullish and suggest upward drift of prices is possible but they are also both divergent from the recent high. The 27,000 level is the first target for support and so far it is holding. A fall below this level would be bearish and may take the Dow down to 26,000 real quick.


The market has been moving up on hopes and expectations for some time. The indices are trading at all-time highs and looking a little extended. I see a correction brewing and once again we're at a juncture at which one could form. Next week is important for at least four reasons, any one of which could spur the animal forces into action. It is possible that the FOMC is the most important event on the list but its hard to say, earnings, the data, and trade talks in China could are all potential market-movers.

The market has climbed a wall of worry and is nearing the top. The worries are all rooted in the trade war and the worst has not come to pass. The expectation for aggressive FOMC rate-cutting was fueled by an expectation for economic slowing due to the trade war that has not materialized. The FOMC expectation was driven to extremes by comments by Powell and Williams in regards to the possible need for stimulus but what they said was hypothetical, the Fed remains patient and data-driven. Sentiment has since pulled back from those extremes but hopes for easing are still too aggressive.

The Q2 GDP shows slowing activity but not as much as feared, data since then shows economic stabilization and hints of reacceleration. That may be confirmed in the data this week and therein lay the problem for the Fed, do they act without knowing? Except for the PCE, the key reports all come out after they make their decision. A single 25 bps cut would reverse the December hike and put policy back where it should have been all along, more than that is a risk in itself. They won't want to do too much in case the economy is stabilizing, if not they can always do more next time. So, while one cut is a possibility, even likely, but two are not and that carries true for me out to the end of the year. I think one is all we'll get.

Until then, remember the trend!

Thomas Hughes



End of an Era

It is with great sadness that I write these comments. After more than 20,000 commentaries, articles and newsletters over the last 22 years, I am ceasing publication of the Option Investor family of newsletters. Health issues are preventing me from continuing. I have tried for a year to find someone competent to take over as editor. However, I have been unable to find anyone I thought was capable and that I would be willing to trust to continue the publications.

This has been a labor of love for the last 22 years. I have had fantastically loyal readers, some for 20 years or more, and I appreciate your support. I always joked I would probably die in my chair while writing a market wrap. I am 72 and now closer to that possibility than I care to think about. Ceasing publication rather than passing the baton to someone else is traumatic for me but things do not always work out as we wish.

Thank you again for your past support! Enter passively and exit aggressively!

Jim Brown


Index Wrap

Nine Days

by Jim Brown

Click here to email Jim Brown
The S&P and Nasdaq made new highs but it has been 9 days since the Dow high. The thin 30 stocks composition of the Dow means that large moves in only a couple stocks can overpower the index and cause divergence with the broader market. The Dow closed at a new high of 27,359 on July 15th and has not returned to that level because of big declines in several Dow stocks. We are also reaching the point where many Dow stocks have reported and are going into their post earnings depression phase. This is where investors close positions because the uncertainty is gone and the potential for a large move higher has passed. They move on to other stocks that have not yet reported. This is not a mass selloff in those Dow stocks but rather just a negative bias or a depression period.

This post earnings depression period ahead of the summer doldrums is weighing on sentiment. The weekly AAII Sentiment Survey showed a 4.2% decline in bullish sentiment and a 3.4% rise in bearish sentiment. Despite the impending Fed rate cut, investors are losing their bullish tendencies. All the good news, (rate cut) and the bad news (expected Q2 earnings of only 0.5%) is priced into the market. There is no excitement. We may see a bounce early in the week ahead of the Fed but there is a better chance of a decline in the days that follow the event.


The broad market A/D line for the S&P was choppy early in the week but improved as the week progressed. This is more than likely buying ahead of the normal "Fed drift" where the market normally rises on the Tuesday before a Fed decision regardless of the expectations. Investors are buying the rumor and will sell after the news.


The A/D line on the Dow has flatlined since the high on July 15th. Excitement has faded ahead of August, which is historically the worst month of the year.


On the positive side the small caps saw a sudden reversal of fortune. After more than two weeks of negative bias the sector suddenly ramped higher and the A/D line is at a three-month high.


The difference is clearly evident in the comparison between the Dow and Russell. The indexes are still a long way from being correlated or from the Russell leading the broader market. The recent rally was a large cap rally but at least last week the trend has begun to change. In normal markets the Russell is normally the leader


There was a dramatic change in the Semiconductor Index last week. The $SOX exploded higher and that helped lift the Nasdaq to a new high. Strong rebounds in Google and Netflix helped the FAANG stocks even though FB, AMZN and AAPL declined for the week. The gains in NFLX and Google helped support sentiment in the tech sector.



The Nasdaq surged on Wednesday to a new high and although there was a hiccup on Thursday the index managed to tack on another 91 points on Friday to close at another new high. Investors like to follow Nasdaq highs, and this could have a positive impact for next week. However, the Nasdaq is up 26% for the year and that could attract some significant profit taking in August.


The Bullish Percent chart is one I do not show that often. This is the percentage of S&P stocks that have a buy signal on a point and figure chart. Point and figure charts are used by many portfolio managers because the signals are slower and longer term. These charts take a lot of the noise out of the market movement.

For the percentage to decline is a strong indicator of weakening sentiment.


Another sentiment indicator is the percentage of S&P stocks over their 50-day average. The S&P is currently at 78%, down from 85% two weeks ago. This is another sign of weakening sentiment.


The Volatility Index ($VIX) is holding just over 12 and the long-term support lows. The VIX very rarely moves below 12 and this is evidence of complacency and the potential for a volatility event in our near future.


I am concerned about the arrival of August. While the summer rally could continue, all the technical indicators in the market are suggesting a change in direction. We are early in the trend and this could be just a pause to refresh before moving higher. However, the breadth of the indicators suggests investors are tired and the market could be suffering from exhaustion. The China trade negotiations are not going well and the global economy continues to decline. The US economy is losing momentum although still expanding. It is just the pace of the expansion that has slowed.

I would recommend being cautious over the next six weeks. There is always another day to trade if you have preserved your capital.

Enter passively and exit aggressively!

Jim Brown

Send Jim an email


New Option Plays

August is Coming

by Jim Brown

Click here to email Jim Brown

Editors Note:

Beware the summer doldrums after the Q2 earnings cycle. While August is historically the worst month of the year, there are no guarantees. Summer rallies do happen and with the S&P and Nasdaq at new highs we are in one now. The Dow is not cooperating but at least not declining. A couple individual Dow stocks can kill any broader advance. I wrote over the last several weeks that I would be careful entering August once the FOMC meeting is over. That is this week.

Since this is the last Option Investor newsletter I did not add any new positions.



NEW DIRECTIONAL CALL PLAYS

No New Bullish Plays


NEW DIRECTIONAL PUT PLAYS

No New Bearish Plays



In Play Updates and Reviews

New High

by Jim Brown

Click here to email Jim Brown

Editors Note:

The S&P squeezed out a new high on Friday, but it was a choppy week. After opening the week lower the markets turned choppy with a slight upward bias that accelerated on Wednesday. Thursday resumed the chop, but Friday saw a gap higher and a 22-point gain on the S&P. The Russell also contributed for the last two days with a 17-point gain on Friday. We needed the Russell to find some traction if the big cap markets were going to move higher. The Russell does not need to make new highs, just maintain a positive bias.



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


SPY - S&P-500 ETF
The long put position was entered at the open on Monday.

ADSK - Autodesk
The long position was stopped on Thursday.

DELL - Dell Technologies
The long position was stopped on Tuesday.

PAYX - Paychex
The long position was stopped on Tuesday.

WMT - Walmart
The long position was stopped on Monday.


BULLISH Play Updates

ADSK - Autodesk - Company Profile

Comments:

No specific news. Shares finally failed at resistance after several tech companies disappointed on earnings. We were stopped on Thursday.

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:
Closed 7/25: Long Aug $180 call @ $2.70, exit .75, -1.95 loss.


DELL - Dell Technologies - Company Profile

Comments:

No specific news. Shares continued to fade in a weak market after the resistance test the prior week. We were stopped on Tuesday.

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:
Closed 7/23: Long Aug $55 call @ $1.95, exit $2.05, +.10 gain.


PAYX - PayChex - Company Profile

Comments:

No specific news. Shares dipped to exactly our stop loss on Tuesday before rebounding to close at the high for the week.

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:
Closed 7/23: Long September $87.50 call @ $1.55, exit .61, -.94 loss.


WMT - Walmart - Company Profile

Comments:

No specific news. Shares declined as the earnings cycle continued and some companies disappointed. We were stopped out on Monday.

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

SPY - S&P SPDR ETF - ETF Profile

Comments:

The markets were choppy early in the week but a sharp rebound in the Russell late in the week helped to lift the big cap averages.

Original Trade Description: July 22nd

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.

Position 7/22:
Long Sept $295 put @ $5.18, see portfolio graphic for stop loss.
Short Sept $285 put @ $2.80, see portfolio graphic for stop loss.
Net debit $2.38.