Editors Note:

Despite the Dow's relative weakness there may be some opportunities. I am expecting the Dow to retrace some of its gains. Given the strong gains by individual components, we could see some material declines. This may be an opportunity to add a couple new positions.

New Watch List Entry:

MMM - 3M Co - Company Description

3M Company operates as a diversified technology company worldwide. The company's Industrial segment offers tapes; coated, non-woven, and bonded abrasives; adhesives; advanced ceramics; sealants; specialty materials; separation and purification products; closure systems for personal hygiene products; acoustic systems products; automotive components; and abrasion-resistant films, and paint finishing and detailing products. Its Safety and Graphics Business segment provides personal protection products, traffic safety and security products, commercial graphics systems, commercial cleaning and protection products, floor matting, roofing granules for asphalt shingles, and fall protection products. The company's Health Care segment offers medical and surgical supplies, skin health and infection prevention products, inhalation and transdermal drug delivery systems, dental and orthodontic products, health information systems, and food safety products. Its Electronics and Energy segment provides optical films; packaging and interconnection devices; insulating and splicing solutions; touch screens and touch monitors; renewable energy component solutions; and infrastructure protection products. The company's Consumer segment offers sponges, scouring pads, high-performance cloths, repositionable notes, indexing systems, home improvement and care products, protective materials, and consumer and office tapes and adhesives. The company serves automotive, electronics and energy, appliance, paper and printing, packaging, food and beverage, construction, medical clinics and hospitals, pharmaceuticals, dental and orthodontic practitioners, health information systems, food manufacturing and testing, consumer and office retail, office business to business, home improvement, drug and pharmacy retail, and other markets directly, as well as through wholesalers, retailers, jobbers, distributors, and dealers. The company was founded in 1902 and is headquartered in St. Paul, Minnesota. Company description from FinViz.com.

The company reported Q3 earnings of $2.33 compared to estimates for $2.21. Revenue of $8.17 billion beat estimates for $7.92 billion. 3M raised its full year guidance range from $8.80-$9.05 to $9.00-$9.10. 3M gets 60% of its revenue from overseas and the weak dollar added to its profitability. Obviously, a 12 cent beat and a minor top end hike on guidance does not merit a $17 intraday spike in the stock. This was a monster short squeeze after the stock closed at new highs over the prior three days. I get it that the global economy is growing and this is good for 3M but this is going to be a short magnet over the next couple of weeks until the $13 closing gain is neutralized.

3M set a new closing high at $237.68 on Wednesday. Shares have traded sideways with the broader market mostly positive. With the Dow extremely overbought we could see a significant decline in 3M if the Dow corrects.

Ideally, we would like to buy a dip to the 100-day average but at $210 that does not appear likely in the near future or we would have serious market problems.

With a MMM trade at $227:

Buy Jan 2019 $240 LEAP call, expected premium $9.00, no initial stop loss.
Sell short Jan 2019 $270 call, expected premium $3.00, no initial stop loss.
Expected net debit $6.00.

IBM - IBM - Company Description

International Business Machines Corporation provides information technology (IT) products and services worldwide. Its Cognitive Solutions segment includes Watson, a cognitive computing platform that interacts in natural language, processes big data, and learns from interactions with people and computers. The company's Cognitive Solutions segment also offers data and analytics solutions, including analytics and data management platforms, cloud data services, enterprise social software, talent management solutions, and solutions tailored by industry; and transaction processing software that runs mission-critical systems in banking, airlines, and retail industries. The company's Global Business Services segment offers business consulting services; delivers system integration, application management, maintenance, and support services for packaged software applications; and business process outsourcing services. Its Technology Services & Cloud Platforms segment provides cloud, project-based, outsourcing, and other managed services for enterprise IT infrastructure environments. This segment also offers technical support, and software and solution support; and integration software solutions. The company's Systems segment offers servers for businesses, cloud service providers, and scientific computing organizations; data storage products and solutions; and z/OS, an enterprise operating system for z systems. Its Global Financing segment provides lease, installment payment plans, and loan financing services; short-term inventory and accounts receivable financing to suppliers, distributors, and remarketers; and remanufacturing and remarketing services. It has a strategic collaboration with ABB Ltd to develop industrial artificial intelligence solutions. The company was formerly known as Computing-Tabulating-Recording Co. and changed its name to International Business Machines Corporation in 1924. The company was founded in 1910 and is headquartered in Armonk, New York. Company description from FinViz.com.

IBM surprised investors with positive revenue growth when they reported earnings. Revenues had declined for 20 quarters. They had been beating on earnings for the last 12 quarters but revenue continued to slide. Earnings of $3.30 beat estimates for $2.84. Revenue of $19.15 billion beat estimates for $18.61 billion. They reiterated their full year guidance of $11.95 per share.

Morgan Stanley said the earnings were a clear inflection point for IBM and the multiyear restructuring was finally beginning to produce results. IBM said they had a new mainframe server and orders were strong.

Shares hit $162.50 for the biggest one-day gain since 2008. They have faded back to $153 and I am recommending we enter a position with a trade at $150.

With an IBM trade at $150:

Buy Jan 2019 $160 LEAP calls, expected premium $7.00. No initial stop loss.

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