Option Investor

Daily Newsletter, Monday, 2/13/2017

Table of Contents

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

Market Wrap

Another New High

by Thomas Hughes

Click here to email Thomas Hughes


The indices set new all time highs, this time confirmed by the Dow Jones Transportation Average. There just isn't any other way to say it than that. This time the new highs came on Monday, driven by a surge in retail trading, as geo-political tensions ease. Today's trading was aided by a noticeable lack of news; there were no earnings reports of note, no economic data, no Tweets and no controversial executive orders to sway sentiment. The big event was Trump's meeting with the Canadian Prime Minister and Janet Yellen's testimony before congress, scheduled for later this week.

International markets were lifted by warming relations between the US and China and reaffirmed friendship with Japan. Markets around the region were able to make gains in the range of 0.5% despite the North Korean missile test. Both China and Japan were buoyed by economic data. In Japan, 4th quarter GDP came in at a rate of 1%, the fourth straight quarter of growth, while in China trade data suggests a pick up in exports and manufacturing that was forecast by PMI earlier in the month. European indices were not immune to the positive vibe. Indices in this region gained roughly 1% on average despite a downward revision to 2017 Eurozone GDP. The European Commission lowered its GDP forecast by a tenth of a percent due to economic headwinds including Brexit, Trump economic policy and political uncertainty in France and Germany.

Market Statistics

Futures trading indicated a positive open for the US indices all morning. The indication was not strong but began the day with the SPX about +3 and slowly, steadily gaining ground into the open. The open saw a quick surge, the SPX gapped up about 5 points to open at a new all time high, and then quickly added another 5. At 9:45 there was a brief pull back to test for support followed by a bounce that sent the indices drifting higher into the early afternoon. By 2PM the index was up more than 0.6% but gains were capped there. Profit taking set in at that point and slowly chipped away at the days gains leaving the index up 0.52% at the close.

Economic Calendar

The Economy

No economic data other than Moody's Survey of Business Confidence. Tomorrow and Wednesday we'll get PPI and CPI. Also on Wednesday is Retail Sales and Empire Manufacturing. Thursday is jobless claims, housing starts/permits and Philly Fed. Friday wraps the week with Leading Indicators.

Moody's Survey of Business Confidence jumped 1.5% to hit 33.1. This is just off the recently set 9 month high. Mr. Zandi remains upbeat in his summary, stating that global business sentiment is steadfast and strong and that business owners are positive in their outlook for current and future conditions.

Earnings season is more than 2/3 over. To date, 71% of the S&P 500 has reported and the results are generally good. 67% of those reporting have beaten EPS estimates, slightly below average but consistent with trends, while 52% have beaten revenue estimates, in line with averages. The blended rate of earnings continues to rise, gaining another 0.4% in the last week to hit 5%. Based on the averages we can expect this to continue rising into the end of the season, topping out in the range of 6% to 8%. On a sector by sector basis 8 of the 11 sectors are outperforming expectations which has led to an increase in full year earnings growth as well, up 0.3% in the last week to 0.5% Another 54 companies are expected to report this week.

Looking forward expanding growth remains in the forecast although those estimates are falling. Full year 2017 earnings growth estimate has now fallen to 10.3% for the S&P 500, down from nearly 14% late last year but still robust and double digit. The first half is expected to see growth in the range of 9.5%, 9.9% in the 1st quarter and 9.1% in the 2nd, with that expanding to over 10.5% in the 2nd half. In terms of outlook tax policy is the #1 thing on the minds of CEO's, mentioned in 85% of earnings statements/conference calls to date, followed by trade policy at 63%.

The Dollar Index

The Dollar Index continues to rebound from recent lows as sentiment firms and the market begins to accept the idea of a March rate hike. The CME's FedWatch tool is still showing only an 18% chance of March hike but the chatter has begun, economic data and Fedspeak over the next few weeks will help or hinder that outlook, further out June is showing a 70% chance. The Dollar Index gained a little more than 0.15%, not a big move, and created a small white bodied candle with visible shadows. The lower shadow is longer and shows a test of support at the heavily contested $100.50 level. Today's action extended a move above support at $100.50 and the short term moving average, confirmed the indicators. Both MACD and stochastic are showing bullish entry signals, in line with the short term trend, and suggest higher prices ahead. Upside target is near $102.50.

The Gold Index

Gold prices remain under pressure as the dollar strengthens. Spot prices fell more than -1.5% intraday, closing with a loss near -0.75%, and set a new one week low below $1,230. Prices hit resistance when the dollar hit bottom, last week, on Trump's announced tax reform plan. The details are still not known but we can still expect to see them in the next couple of weeks, probably timed perfectly to help the administration in some way. Until then, data and FedSpeak could weigh on prices and push them down to support. Support target is near $1,200, a break below that would be bearish.

The Gold Miners fell in today's session but not significantly. The Gold Miners ETF GDX lost nearly -1% and created a small doji candle pulling back from resistance. Resistance is at $25.50 and confirmed by both indicators. Both MACD and stochastic are showing divergences in the short term and weakness in the near term that suggests lower prices are on the way. A fall from this level may find support at $23.50, a break below there could go to $21.50.

The Oil Index

Oil prices fell more than -1.75% but remain within the near term range. Today's move was driven by concerns of overproduction as rising rig counts overshadow OPEC's estimated 90% production cut compliance. Last Friday Baker Hughes reported that rig counts rose globally. US rig count gained 12 to hit 741 and is up 200 from this time last year. Canadian rig count gained 9 to hit 352, up 130 YOY, and global rig count grew by 4. The global count is down -112 YOY, possibly due to OPEC's cut, mostly due to supply disruptions, but not enough to offset ramping North American production. With this development in mind it looks like oil prices could test support at $50, maybe lower. $45 is the magic number when it comes to shale oil and rising/declining rig counts.

The energy sector took a hit on lower oil prices but it wasn't too bad, the Oil Index itself falling only -0.35%. The index created a small spinning top candle just below resistance at the short term moving average but looks like a test of resistance is likely. Both indicators are consistent with a bullish entry, in line with the short term trend. Stochastic is looking the most promising, forming a double bottom at the lower signal line and now indicating a buy. Resistance is in the range of 1,235 to 1,250, a break above here would be bullish. The risk right now is oil prices and their impact on forward earnings. So long as forward outlook is positive, as it is, I'd expect to see the sector move higher in the short to long term.

In The News, Story Stocks and Earnings

Restaurant Brands, owner of iconic names like Burger King, reported full year earnings before the bell and then made headlines again later in the day. The company beat top and bottom line expectations driven by an increase in store counts and a rise in comp sales. Comps rose more than 2% across brands, store counts more than 4.5%. This news sent the stock soaring in pre-market action, caused it to gap up at the open and move higher. Later in the day news that a bid for chicken franchise Popeye's helped to keep it up and close with gains near 4.5%.

Cognizant Technology reported before the bell and matched EPS, revenue and guidance estimates. Revenue is up a little more than 7% YOY, 0.3% sequentially, with GAAP EPS flat. Adjusted EPS is up nearly 10%, excluding acquisition costs and currency impact. Shares of the stock trade flat on the day, just shy of a 5 month high.

The VIX rose in today's session but does not appear as if it will spike. The index gained a little more than 4% at the open, gapping up, but sold off throughout the day to close near the low of the session. Today's candle is just below the short term moving average which has been providing resistance and the indicators confirm it. Both MACD and stochastic are consistent with a test of resistance within a downtrend are rolling over in line with a trend following sell. Downside potential is limited, historic lows are just below today's closing level, but it doesn't matter. At these levels the index is indicating a period of calm within the market and the likelihood of higher equity prices.

The Indices

The market rallied today and right out of the gate. All the indices, including the Dow Jones Transportation Average, set new all time highs. The transports have been lagging but have now confirmed the rally, almost, by setting a new all time closing high but not a new all time intraday high. Today's move is a medium sized white candle, the fourth of four moving up from the short term moving average, capped at resistance. Resistance is the current all time intraday closing high, about 30 points above today's close, near 9,500. The indicators are showing a weak buy, trend following but weak because stochastic %D is still flat while rolling over, suggesting that resistance will tested. A break above resistance would be bullish and trend following with upside targets near 9,750 and 10,000.

The Dow Jones Industrial Average made the 2nd largest move today, 0.70%, and set a new all time intraday and closing high. Today's candle is medium sized, the third of 3 moving up since last weeks test of 20,000, and confirmed by the indicators. Both MACD and stochastic are confirming with trend following signals and both have plenty of room to move higher. Upside target is 20,500 in the near term but could go as high as 21,000 in the short to long.

The NASDAQ Composite and S&P 500 made identical moves of 0.52%, the tech heavy index opening at my near term target of 5,750 and moving up from there. This index is in obvious and protracted uptrend and confirmed by the indicators. Both MACD and stochastic are showing trend following buy signals and are on the rise. Stochastic is overbought in the very near term but otherwise there is still room to move higher, MACD has plenty of room to move higher. The caveat is that both indicators are also showing divergences that do not necessarily indicate reversal but suggest some caution is due as the index moves higher. Upside target is now 6,000 in the near to short term.

The S&P 500 created a small white bodied candle with visible upper shadow. The index is moving higher but the upper shadow indicates some resistance to higher prices, likely profit taking at this point. Today's action set a new all time closing high and is confirmed by the indicators. Both MACD and stochastic are firing trend following entries, both are on the rise and both have lots of room to move higher. Upside target is 2,350 in the near term, 2,500 in the short.

Trump's rhetoric; it's cooled down, fall-out from the immigration ban has largely blown over, foreign relations are warming and the outlook is just as positive as it was before. This means that GDP growth is on tap, earnings growth is on tap and both are still expected to receive a boost from infrastructure spending, tax reform and deregulation. This means that next years S&P 500 earnings outlook/estimates are likely to be low, possibly very low, and that is driving the market. It is possible we're in a buy-the-rumor-sell-the-reality but until the reality is here, or outlook dims, it's the buying part that is the operative portion of that adage right now. I'm still cautious because I hate to get burned by the market but I am bullish, optimistic and looking forward to the next few months.

Until then, remember the trend!

Thomas Hughes

New Plays

Sleeper Stock

by Jim Brown

Click here to email Jim Brown
Editor's Note

This stocks rarely makes headlines but their expected growth for 2017 is 105%. Brooks Automation was just ranked a strong buy after they blew away earnings and raised guidance.


BRKS - Brooks Automation - Company Profile

Brooks Automation, Inc. provides automation and cryogenic solutions for various applications and markets. It operates through two segments, Brooks Semiconductor Solutions Group and Brooks Life Science Systems. The Brooks Semiconductor Solutions Group segment offers critical automated transport, vacuum, and contamination controls solutions and services. This segment's products include atmospheric and vacuum robots, robotic modules, and tool automation systems that provide precision handling and clean wafer environments; automated cleaning and inspection systems for wafer carriers, as well as reticle pod cleaners and stockers; and vacuum pumping and thermal management solutions for use in critical process vacuum applications. This segment also provides support services, including repair, diagnostic, and installation, as well as spare parts and productivity enhancement upgrades. The Brooks Life Science Systems segment provides automated cold storage systems; consumables, including various formats of racks, tubes, caps, plates and foils; and instruments used for labeling, bar coding, capping, decapping, auditing, sealing, peeling, and piercing tubes and plates. This segment also provides sample management services, such as on-site and off-site sample storage, cold chain logistics, sample relocation, bio-processing solutions, disaster recovery, and business continuity, as well as project management and consulting. In addition, this segment offers sample intelligence software solutions and customer technology integration; and laboratory work flow scheduling for life science tools and instrument work cells, sample inventory and logistics, environmental and temperature monitoring, and clinical trial and consent management, as well as planning, data management, virtualization, and visualization services. The company sells its products and services in approximately 50 countries. Company description from FinViz.com.

Brooks reported earnings of 25 cents that beat estimates for 20 cents. Revenue of $160 million also squeezed by estimates for $159.7 million. For the current quarter they guided to earnings of 24 to 27 cents and revenue from $165 to $170 million.

The company provides automation and cryogenic solutions for various markets. Their expected growth rate for 2017 is 105% compared to the industry rate of 19.5%. Consensus estimates for the current year rose from 82 cents to 96 cents over the last 30 days. Estimates for the current quarter rose from 21 to 24 cents and the company guided for 24 to 27 cents.

Shares spiked from $17.50 to $21.00 on the earnings beat on February 1st. After three days of consolidation and profit taking, shares have started to rise again. They closed at a new high on Monday. I know this chart is over extended but the strong earnings, guidance and expected growth rate suggests they can continue climbing, market permitting.

Earnings May 3rd.

Buy BRKS shares, currently $21.50, initial stop loss $20.25

No options recommended because of wide spreads.


No New Bearish Plays

In Play Updates and Reviews

Three Factors

by Jim Brown

Click here to email Jim Brown

Editors Note:

There are three factors that are likely to determine market direction on Tuesday. Those factors are Janet Yellen, the Nasdaq and the Russell 2000. Yellen will give the first of two days of testimony to the House/Senate on Tuesday. What she says could easily tank the market or kick it into high gear.

The Nasdaq indexes have moved into very overbought territory and we should be due for some profit taking or at least a pause to consolidate very soon. The Russell 2000 spiked nearly 12 points at the open this morning and then fell back to only a 3-point gain. The Russell remains the weakest index and today's intraday decline suggests there could be more selling to come. The big caps are pulling the Russell higher but it is a fight. If the Nasdaq big caps were to rest, the Russell could easily move lower.

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

CONN - Conn's Inc
The short position was stopped out at $10.55.

FEYE - FireEye Inc
The long stock position was entered at the open.

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BULLISH Play Updates

AKS - AK Steel - Company Profile


No specific news. Morgan Stanley downgraded from overweight to equal weight. Shares still gained 4.4%.

Original Trade Description: February 4th

AK Steel Holding Corporation, through its subsidiary, AK Steel Corporation, produces flat-rolled carbon, stainless and electrical steel, and tubular products in the United States and internationally. It produces flat-rolled value-added carbon steels, including coated, cold-rolled, and hot-rolled carbon steel products; and specialty stainless and electrical steels in sheet and strip forms. The company also produces carbon and stainless steel that is finished into welded steel tubing, which is used in the automotive, large truck, industrial, and construction markets; buys and sells steel and steel products, and other materials; and produces metallurgical coal from reserves in Pennsylvania. It sells its flat-rolled carbon steel products primarily to automotive manufacturers and to customers in the infrastructure and manufacturing markets, including electrical transmission, heating, ventilation and air conditioning equipment, and appliances; and coated, cold-rolled, and hot-rolled carbon steel products to distributors, service centers, and converters. The company sells its stainless steel products to manufacturers and their suppliers in the automotive industry; manufacturers of food handling, chemical processing, pollution control, and medical and health equipment; and distributors and service centers. It also sells electrical steel products to manufacturers of power transmission and distribution transformers, as well as for use in the manufacture of electrical motors and generators. Company description from FinViz.com.

Shares spiked from $5 to $11 after the election on hopes for a surge in infrastructure projects, lower regulations and a growing economy. AK shares peaked early and traded sideways for a month. The week before earnings they began to decline as analyst said the market gains were overdone.

The reported earnings of 25 cents on January 24th that beat estimates for 7 cents. Revenue of $1.42 billion was slightly lower than estimates for $1.43 billion. Shares spiked on the earnings news and collapsed on guidance that shipments to automakers had declined in Q4. The next day a spokesman clarified that saying the "decline in shipments compared to 2015 was primarily the result of a 41% decline in shipments to the distributor and converters market as the company intentionally reduced sales of commodity products." In other words, AK wanted to focus its efforts on the higher margin products and reduce exposure to low margin products.

Shares quit declining after the clarification and bottomed just under $8. Friday's close was right on the verge of a 7-day high. One more positive day and we could see a rebound begin.

Earnings April 25th.

The optional option position is for a longer-term holder with a June expiration. Very limited risk in terms of dollars invested and could be a decent winner if AKS returns to the $11.25 highs or higher on infrastructure stimulus headlines.

Position 2/6/17:

Long AKS shares @ $8.18, see portfolio graphic for stop loss.

Optional long-term option:

Long June $10 call @ 59 cents. No stop loss.

BOX - Box Inc - Company Profile


No specific news. New 52-week high close.

Original Trade Description: January 21st.

Box, Inc. provides cloud-based mobile optimized enterprise content collaboration platform that enables organizations of various sizes to manage their enterprise content from anywhere. The company's platform enables users to collaborate on content internally and with external parties, automate content-driven business processes, develop custom applications, and implement data protection, security, and compliance features. Box, Inc. offers its solution in 22 languages. It serves healthcare and life sciences, financial services, legal services, media and entertainment, retail, education, energy, and government industries. Company description from FinViz.com.

Box is rapidly growing its customer for document management for companies with a global workforce. They are competing with other companies for cloud collaboration and access. More than 69,000 companies worldwide now use Box. They have broken into the media sector and now many production companies use Box for storing and distributing their production content. This has given Box a new niche in the market. Box has partnered with Salesforce.com, IBM and Microsoft in the cloud space. Their goal is to partner and grow with them rather than compete with those giants.

The company reported a smaller than expected loss for Q3 and expect to post an even narrower loss for Q4. Their guidance for Q4 is a loss of 13 cents on revenue of $109 million. That is better than the 26 cents loss in Q4-2015.

Earnings March 1st.

Shares broke out to a new 52-week high on January 12th before pulling back slightly with the market. They closed 5 cents below a new 52-week high on Friday.

Position 1/23/17 with a BOX trade at $17.10

Long BOX shares @ $17.10, see portfolio graphic for stop loss.

FEYE - FireEye - Company Profile


No specific news. Shares gapped open to give us a bad fill but the stock did hold its gains.

Original Trade Description: February 11th

FireEye, Inc. provides cybersecurity solutions for detecting, preventing, analyzing, and resolving cyber-attacks. The company offers vector-specific appliance solutions that provide threat protection from network to endpoint for inbound and outbound network traffic that may contain sensitive information. It also offers Central Management System that provides cross-enterprise threat data correlation to identify and block attacks across multiple attack vectors; and Threat Analytics Platform to identify and respond to cyber threats by correlating enterprise-generated security event data from any security product with real-time threat intelligence, as well as Malware Analysis System to manually execute and inspect advanced malware, zero-day, and other advanced cyber-attacks embedded in files, email attachments, and Web objects. In addition, the company offers Network Forensics Platform that helps in detecting threats and view specific packets and sessions before, during, and after the attack to confirm what may have triggered a malware download or callback; Investigation Analysis System, a centralized analytical interface to the Network Forensics Platform; and Mandiant Intelligent Response that enables remote investigation of endpoints and allows security teams to collect targeted forensic data to identify attacker behavior, tools, and techniques. Further, it provides cloud-based subscription services; Security-as-a-Service; and incident response, compromise assessments, and related consulting, as well as training and professional, and customer support and maintenance services. Company description from FinViz.com.

FireEye is transitioning from a firewall appliance vendor to a cloud service and as always happens when companies go this route, the revenue slows temporarily. They reported Q4 results of a loss of 3 cents. Analysts were expecting a loss of 16 cents. This compares to a loss of 55 cents in the year ago quarter. Revenue of $184.7 missed estimates for $191.1 million.

For the current quarter the company guided to earnings of 26 to 28 cents and revenue of $160-$166 million. Analysts were expecting $177.5 million.

The company said several large deals had been expected to close in Q4 and they were pushed into Q1 versus being "lost."

They added 330 net new customers during the quarter. They closed 34 deals for more than $1 million each, including one of their largest SaaS deals ever. They announced a new product called Helix and more than 250 customers have already signed up to get the product as soon as it is released.

Other onetime negatives from the earnings release was news the CFO was leaving to pursue another opportunity and Chairman David Dewalt resigned from the board.

Earnings May 4th.

Cisco (CSCO) recently acquired AppDynamics and that is expected to start a flurry of acquisitions in the cybersecurity space. The space is fragmented today and highly competitive with each player commanding its own niche. The quickest way to expand your product offerings is to acquire somebody else that is a leader in their niche. FireEye is a leader in intrusion detection and tracking. Their recent fall from grace should make them an attractive target with only a $2 billion market cap.

Regardless of whether an acquisition cycle has begun, the stock decline to support is a buying opportunity.

Position 2/13/17:

Long FEYE shares @ $11.75, see portfolio graphic for stop loss.

No options recommended because of price.

BEARISH Play Updates

CONN - Conn's Inc - Company Profile


No specific news. Shares gapped up in the bullish market and stopped us out for a 5 cent loss.

Original Trade Description: January 26th

Conn's, Inc. operates as a specialty retailer of durable consumer goods and related services in the United States. It operates through Retail and Credit segments. The company's stores provide home appliances comprising refrigerators, freezers, washers, dryers, dishwashers, and ranges; furniture and mattress, including furniture and related accessories for the living room, dining room, and bedroom, as well as traditional and specialty mattresses; and home office products consisting of computers, tablets, printers, and accessories. Its stores also offer consumer electronics, such as LED, OLED, Ultra HD, and Internet-ready televisions; and Blu-ray players, and home theater and portable audio equipment. Conn's, Inc. also provides repair service agreements, installment credit plans, and various credit insurance products. As of March 29, 2016, the company operated approximately 100 retail locations in Arizona, Colorado, Georgia, Louisiana, Mississippi, Nevada, New Mexico, North Carolina, Oklahoma, South Carolina, Tennessee, and Texas. Company description from FinViz.com.

In the Q3 earnings cycle, Conn's reported a smaller than expected loss of 12 cents. Analysts were looking for -19 cents. Revenue of $308.4 million and below the $395.23 million in the year ago quarter. They guided for Q4 same store sales to decline -10%. At the end of Q3 analysts were expecting a profit of 13 cents and revenue of $453.44 million. The odds of them beating this forecast are slim. Zacks said the analyst estimates have declined significantly to a loss of 52 cents for Q4. They have dropped 11 cents in just the last 30 days.

Conn's sells electronics along with appliances and furniture. Electronics sales are being dominated by Amazon and Best Buy. The furniture sector has been slow and appliances are hit and miss. With appliance prices rising sharply it has cut down on buyers that can afford the big ticket items.

Earnings March 7th.

I believe Conn's will continue lower. Shares broke to a two month low on Thursday when support at $10.75 failed.

Position 1/27/17:

Closed 2/13/17: Short CONN shares @ $10.50, exit $10.55, -.05 loss.

GNC - GNC Holdings - Company Profile


No specific news. The company has earnings on Thursday and we have to decide over the next two days if we are going to exit or hold over the event. The earnings outlook is negative because of recent marketing changes that will have reduced sales significantly. I will decide on Tuesday evening what I am going to recommend. The earnings are Thursday before the open so we have to exit on Wednesday if we are going to exit.

Original Trade Description: January 28th

GNC Holdings, Inc., together with its subsidiaries, operates as a specialty retailer of health, wellness, and performance products. The company operates through three segments: Retail, Franchise, and Manufacturing/Wholesale. Its products include vitamins, minerals, and herbal supplement products; and sports nutrition products, diet products, and other wellness products. The company sells its products under the GNC proprietary brands, including Mega Men, Ultra Mega, Total Lean, Pro Performance, Pro Performance AMP, Beyond Raw, GNC Puredge, GNC GenetixHD, and Herbal Plus, as well as under third-party brands. It operates a network of approximately 9,000 locations under the GNC brand worldwide. The company sells its products through company-owned retail stores; Websites, including GNC.com and LuckyVitamin.com, as well as Drugstore.com; domestic and international franchise activities; third-party contract manufacturing; and e-commerce and corporate partnerships. Company description from FinViz.com.

On January 19th GNC was cut to a sell by Goldman saying the already reduced earnings estimates were still too optimistic. GNC tried to sell itself last year and the deal fizzled. Then they announced a restructuring of the brand and the store format. As part of the relaunch of GNC they slashed prices across half their product line and discontinued many products entirely. The company also ended its Gold Card loyalty, which had been in effect for more than a decade. Six million members were paying $15 a year in exchange for discounted prices.

The GNC CEO said "the new GNC leaves the old, broken model behind" but we know "it will take time for the changes to take hold and translate into improved financial results." That is an implied earnings warning for the next couple quarters.

Earnings Feb 9th.

With earnings in two weeks this will be a short-term position. After looking at the cart I doubt many investors will want to hold the stock into the earnings event and that should cause a further decline next week.

Updare 1/31/17: The NFL rejected GNC's proposed advertisement. The NFL said they had a standing policy not to promote supplements. The NFL said GNC was on a list of prohibited companies because they promote products banned by the league.

FOX has been getting an average of $5 million per 30 seconds of airtime and that is a fee GNC will no longer have to pay but the ad was supposed to be a kickoff of their new marketing campaign.

Position 1/30/17:

Short GNC shares @ $8.77, see portfolio graphic for stop loss.

IWM - Russell 2000 ETF - ETF Profile


This position will expire on Friday. This was a bet on the historical trend for stocks to decline in January. The Trump rally negated that trend and even though the Russell was the weakest index over the last month, it has not declined enough to make a difference. With the market breaking out, the odds of seeing $134 again are very slim.

Original Trade Description: December 10th

The IWM ETF seeks to track the investment results of the Russell 2000 Small cap Index.

The Russell is up +232 points or 20.1% in the last 22 trading days. It is grossly over extended and many small cap Russell stocks are up 30% to 40%. I understand the bullish sentiment that believes the economy will be better in 2017 but it will not be because of President Trump. His proposals will take months to get through the House and Senate and there is likely to be some major battles. Obamacare will not go away until 2018 or longer because it takes a long time to plan and execute a change that big. Lower taxes will not happen until 2018 because it will take months for both houses to vote on an acceptable tax bill. I seriously doubt they will change rates in the middle of the year. Any change will not occur until 2018.

I could go on but you get the picture. Typically, there is a honeymoon phase after a new president is elected. This phase has run its course. There are 14 trading days left in 2016 and any new highs are likely to be made before Christmas. After Christmas, investors may begin to worry and once into January and a new tax year, the selling could be dramatic. Do you remember January 2016? The market was not nearly as overextended as it is today and the Dow fell -2,150 points in just two weeks. Entering into a new tax year allows traders to capture profits and invest that money for another year before paying taxes.

Dow - January 2016

We also have the potential for a really messy inauguration or even a terrorist attack at the event. That potential will give cautious investors another reason to take profits in January.

I am recommending a long put on the Russell ETF. There is no stock vehicle we can use other than the VXX to capitalize on a market sell off. The VXX is flawed and while it may go up, it may not go up enough to make it worthwhile and it is volatile from day to day. I chose the Russell ETF because the premiums are cheap and the volatility should work in our favor. If you cannot use options then I suggest you buy the VXX shares at the first sign of market weakness after Christmas.

There is also another trigger factor to consider. The Dow is approaching 20,000 and that could be a massive sell the news event given the big gains. Since the Dow could hit that level this week I am recommending we initiate our long put position in advance.

Because the market could still rise, I want to follow the IWM higher and enter the position only when the ETF rolls over.

The ETF has short-term support at 137.75 and again at $137.25. I am recommending we enter the position with a dip to $137. If the Russell continues higher, I will continue raising the entry point as needed.

Position 12/12/16 with an IWM trade at $137.00

Long Feb $134 put @ $3.38, see portfolio graphic for stop loss.

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