Option Investor

Daily Newsletter, Monday, 9/11/2017

Table of Contents

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

Market Wrap


by Thomas Hughes

Click here to email Thomas Hughes


Hurricane now Tropical Storm Irma is doing her best, clean up time starts tomorrow. If you are reading this it means I didn't lose power, yet. Asheville, NC is not directly in the line of fire but definitely close enough to experience strong winds and heavy rains.

Today's trading was dominated by news coming out of Florida and Georgia as market watchers try to handicap the damages and their effect on the economy. JP Morgan says Irma is a top 5 costly storm, Moody's says the combined costs of Harvey and Irma will top $200 billion. Oh, and the S&P 500 closed at a new all time high.

In Remembrance of September 11

International markets were also able to move higher. Asian indices moved higher on a stronger dollar and slightly relaxed trading rules for the yuan. The PBC says it is planning on removing requirements for foreign-exchange risk reserves freeing up capital for the system. In Europe indices moved higher on a weaker dollar and no flare-ups on the Korean peninsula as well as support from US market action. Indices in both Asia and Europe gained more than 1%.

Market Statistics

Futures trading was positive all morning as relief over Hurricane Irma began to creep into the market. Yes, there is a lot of damage but its a lot better than it could have been, considering the size, strength and affected area. There was no economic data this morning and no earnings reports to affect sentiment so trading was steady going into the open. At the open the indices posted gains in the range of 0.5% and extended that to more than 1% by early afternoon.

Economic Calendar

The Economy

No data today and not a whole lot this week although a few key releases are scheduled. The most important are probably the PPI and CPI. Both are expected to rise a modest amount, 0.2% and 0.3%, but not enough to alter the FOMC outlook. After that retail sales on Friday may move the market if it provides a substantial surprise.

Moody's weekly Survey of Business Confidence fell a surprising -2.3% to 30.5. This is just off the lowest reads of the year and a bit of a surprise. Mr. Zandi comments that one-off declines like this have happened other times this year with sentiment recovering in the following weeks. He also notes that declines are mostly outside the US and that business is, in general, upbeat. Looking at the chart, to my eye there is a definite down trend in near term sentiment that needs to be watched. A continued decline could signal trouble.

The earnings cycle is about to get started again although we are at least a month away from the next “season”. Based on the latest reports earnings outlook for the 3rd quarter has fallen to a new low while forward and full year outlook have improved. The S&P 500 is now expected to post earnings growth of 4.9% for the third quarter. This is down from near 7.5% at the start of the quarter. Eight of the 11 S&P sectors are expected to show growth although 9 of the 11 have been revised lower over the past month. If the season unfolds according to trend we can expect to see the final rate come in closer to 10%.

Looking forward 4th quarter estimates have risen to 10.4% which helped lift full year outlook to growth of 5.6%. Looking out to next year expectations remain robust with double digit growth expected all year. First quarter estimates is near 10.5%, second quarter near 10.25%.


The Dollar Index

The dollar got a lift on a double dose of good news, albeit sentiment driven and likely short term in effect. On the one hand North Korea did not fire anymore missiles this weekend and on the other damage from Irma is much less than feared. This combination helped lift the dollar versus the Euro and Yen, resulting in a 0.45% gain in the Dollar Index. The index created a medium sized green candle and may continue higher in the near. The risk is that the index is in a marked down trend and facing not one but two reads on inflation that could further weaken rate hike expectations. The index faces resistance at $92 and $92.50 that could turn into bearish entry points.

The Gold Index

The price of gold fell in tandem with the dollar's rise, shedding more than -1.20% by settlement time. Today's move is a fall from resistance at $1,250 but resistance is likely tested again. Sentiment has a lot to do with the decline and will likely (could easily) shift again in the coming days. For one thing North Korean didn't just give up their missile testing fun, they'll be back. For another the PPI/CPI is not expected to support the dollar which will in turn help support gold.

The Gold Miners ETF GDX fell -2.5% on the fall in gold, roughly halving the distance between Friday's close and the short term moving average. The ETF appears to have peaked near the top of the long term trading range with a chance of moving lower. Today's action is supported by the indicators which are consistent with the top of the range. A move down to the short term moving average, near $23.75, would equal a -10% correction in the ETF following a near 20% increase. The risk is that CPI and PPI data could alter this outlook, also that North Korea will launch another missile.

The Oil Index

Oil prices rose more than 1.20% in today's session as clean up from the two hurricanes gets underway and OPEC begins talking up prices again. The latest news is that three top OPEC producers are talking about extending the production caps. Whether or not they go through with it, it is likely this talk will help support the market. Up to and until an extension happens or WTI is trading at resistance levels. WTI is now trading at $48 with resistance target near $50. Longer term fundamentals remain skewed toward the supply side.

The Oil Index gained a little more than 0.75% to create a medium sized green candle. This candle is moving up from support levels above the short term moving average and supported by the indicators. The index appears to be consolidating above resistance turned support with an eye on testing resistance at the long term moving average. A break above this level, near 1,140, would be bullish and possibly indicate the reversal I've been anticipation is in process. Next target for resistance is near 1,160, support is 1,120 near term.

In The News, Story Stocks and Earnings

Insurers across the property and casualty space rose in response to Irma's passing. The major catalyst was a downgrade of damage estimates from $200 billion to only $50 billion by a major disaster modeling firm. According to their statement the damage could be far less even than $50 billion. Universal Insurance has the largest exposure to Florida and posted the largest gain in today's trading, more than 16%. The move did not close the gap formed last week with Irma's approach.

Home Depot and Lowes gave up some of their pre-Irma gains but are still up on expected revenue gains driven by the storm and Hurricane Harvey. Home Depot shed about -1% in a move that confirms near term support as well as long term resistance. Long term resistance is at the all time high, near term support is just below that near $158. The indicators are bullish and showing some strength so I would expect to see the stock test the all time high again, at least.

The VIX fell more than -10% to approach potential support at the $10 level. Today's candle is medium and red with a visible lower shadow suggesting that there is some support present at or near $10. The indicators are mixed at best and indicative of directionless trading and range bound markets. A move to $10 looks likely, beyond that is dependent on news. Considering it is still several weeks before earnings or the next round of macro data, and that there is an FOMC meeting between now and then, the VIX may remain elevated in the near term.

The Indices

Today's trading is brought to you by the number 1, as in the market moved higher by 1%. Action was light in volume but broad in nature with advancers outnumbering decliners by roughly 4 to 1. The days leader is the Dow Jones Industrial Average with a gain near 1.15%. The blue chips created a medium sized green bodied candle moving up off the short term moving average and crossing above the long term up trend line. The indicators are still a bit mixed but consistent with support at this level and in the early stages of a strong trend following signal. MACD is making a zero line crossover today, stochastic is set up to confirm but has yet to do so. Upside target is in new all time high territory, near 22,250 and 22,500.

The NASDAQ Composite made the 2nd largest gain, 1.13%, and came within spitting distance of a new all time high. The tech heavy index created a medium size green candle moving up from support near the short term moving average and looks like it will test the all time high. The indicators are a little mixed but set up and rolling into a trend following signal. The risk at this time is resistance at the all time high. A break above that level would be bullish with upside target near 6,600 in the near term.

The S&P 500 closed with the largest gain today, 1.08%, and set a new all time closing high. The indicators are mixed but like with the Dow and NASDAQ set up for a strong trend following entry signal. Today's resistance is the current all time intraday high, a break above which would be bullish.

The Dow Jones Transportation Average closed with a gain of 1.06%. The transports created a medium sized green candle extending the break above resistance and bounce from the short term moving average. The indicators are both bullish and moving higher, and both showing some strength; MACD is on the rise and hitting a new peak today, stochastic is moving higher and crossing above the upper signal line. There may be resistance at 9,500, a break above there would be bullish at the current all time high.

When I was organizing my thoughts to write tonight's conclusion I had one that ran like this. I'm a market watcher, I've been watching the market a long time, I watch for a very specific signal and that signal is here. . . If I'm not bullish now what am I doing?

This is what I am seeing in the charts. The indices suffered a small correction in the past month that resulted in a test of support. This support is, in most cases, a combination of short and long term moving averages and trend lines that combine to form strong and what could be called key support. The indices have consolidated along those support levels and begun to move higher. The indicators have confirmed these moves with not one, but multiple trend following entry signal and are now setting up to confirm again. I could be wrong but it would be more wrong not to follow the signal as I see it. I am bullish.

Until then, remember the trend!

Thomas Hughes

New Plays

Not a Small Cap

by Jim Brown

Click here to email Jim Brown
Editor's Note

GE is not a small cap stock but with the nearly daily downgrades the price should be in the teens soon.


No New Bullish Plays


GE - General Electric - Company Profile

General Electric Company operates as an infrastructure and technology company worldwide. Its Power segment offers gas and steam power systems; maintenance, service, and upgrade solutions; distributed power gas engines; water treatment, wastewater treatment, and process system solutions; and nuclear reactors, fuels, and support services. The company's Renewable Energy segment provides wind turbine platforms, and hardware and software; onshore and offshore wind turbines; and solutions, products, and services to hydropower industry. Its Oil & Gas segment offers surface and subsea drilling and production systems, and equipment for floating production platforms; and compressors, turbines, turboexpanders, reactors, industrial power generation, and auxiliary equipment. The company's Aviation segment designs and produces commercial and military aircraft engines, integrated digital components, and electric power and mechanical aircraft systems; and provides aftermarket services. Its Healthcare segment offers diagnostic imaging and clinical systems; products for drug discovery, biopharmaceutical manufacturing, and cellular technologies; and medical technologies, software, analytics, cloud solutions, and implementation services. The company's Transportation segment provides freight and passenger locomotives, and rail and support advisory services; and parts, integrated software solutions and data analytics, software-enabled solutions, mining equipment and services, and marine diesel and stationary power diesel engines and motors, as well as overhaul, repair and upgrade, and wreck repair services. Its Energy Connections & Lighting segment offers industrial, grid, power conversion, automation and control, lighting, and current solutions. The company's Capital segment provides industrial and energy financial services; and commercial aircraft leasing, financing, and consulting services. Company description from FinViz.com.

GE has been struggling for the last several years. They manufacture hundreds of products from $10 items to $10 million items. After the financial crisis they did everything possible to exit their financial divisions and escape the "too big too fail" SIFI designation. They accomplished that in 2016.

Their biggest problem today is negative cash flow. It is a great company and is in no danger of failing but they are not generating enough cash to cover operating expenses, a 4% dividend and a whopping $21.1 billion stock buyback authorization through 2018.

They have been downgraded by almost everyone and JP Morgan said last week the stock needs to fall to the mid to high teens before it will be investible again. Shares closed at $23.72 today. With the stock nearing a three-year low, the odds are good, once that happens, we will see a continued drop into the teens.

JP Morgan suggested they would be forced to A) cut the dividend, which is not going to happen, B) sell something to raise cash, C) stop the $21.1 billion remaining on their stock buyback. Shares closed negative on Monday with the Dow up +259.

Earnings Oct 20th.

Sell short GE shares, currently $23.72, initial stop loss $25.05.
Alternate position: Buy Dec $23 put, currently 77 cents, no initial stop loss.

Entry disclaimer: To avoid an unfavorable entry point, we will not launch a new play if the stock gaps more than $1.00 at the market open.

In Play Updates and Reviews


by Jim Brown

Click here to email Jim Brown

Editors Note:

A monster short squeeze blew out short positions on the major indexes. This is September and North Korea was expected to test another ICBM on Saturday. When that did not happen a relief rally appeared and the S&P futures were up 15 points at the open. That created a huge short squeeze that lifted the S&P to a new high by 8 points and the Nasdaq to within 3 points of a new high. The Dow fell 62 points short.

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

HIMX - Himax Technologies
The long position was entered at the open.

SABR - Sabre Systems
The long position was stopped at $18.10.

If you are looking for a different type of trading strategy, try these newsletters:

Short term Calls and Puts on equities = Option Investor Newsletter

Credit spreads and naked puts = OptionWriter

Long term option investments = LEAPS Investor

3-6 month Option Trades = Ultimate Investor

Iron Condors = Couch Potato Trader

BULLISH Play Updates

CIEN - Ciena Corporation - Company Profile


No specific news. Shares spiked at the open but faded into the close to end up negative for the day. If Ciena cannot rally on a day like today, there may be greater forces at play. I am recommending we close the long stock position but continue to hold the long call position. That way our risk is limited.

Original Trade Description: Sept 2nd

Ciena Corporation provides equipment, software, and services that support the transport, switching, aggregation, service delivery, and management of voice, video, and data traffic on communications networks worldwide. The company's Networking Platforms segment offers hardware networking solutions optimized for the convergence of coherent optical transport, optical transport network switching, and packet switching. Its products include 6500 Packet-Optical Platform and the 5430 Reconfigurable Switching System, Waveserver stackable interconnect system, CoreDirector Multiservice Optical Switches, and OTN configuration for the 5410 Reconfigurable Switching System, as well as Z-Series Packet-Optical Platform; 3000 family of service delivery switches and service aggregation switches, and the 5000 family of service aggregation switches, as well as 8700 Packetwave Platform and the Ethernet packet configuration for the 5410 Service Aggregation Switch; and 4200 Advanced Services Platform, Corestream 5100/5200 Advanced Services Platform, Common Photonic Layer, and 6100 Multiservice Optical Platform. This segment also sells operating system software and enhanced software features embedded in each of these products. The company's Software and Software-Related Services segment offers network management solutions, including the OneControl Unified Management System, ON-Center Network & Service Management Suite, Ethernet Services Manager, Optical Suite Release, and Planet Operate; and Blue Planet network virtualization, service orchestration, and network management software platform, as well as related installation, support, and consulting services. Its Global Services segment provides consulting and network design, installation and deployment, maintenance support, and training services. Company description from FinViz.com.

Ciena reported earnings of 51 cents that beat estimates of 49 cents. Revenue rose 9% to $728.7 million and beat estimates for $726.9 million. Gross margins were 45% with an 11.3% operating margin. They ended the quarter with $854.1 million in cash and generated free cash flow of more than $50 million. Shares were knocked for a 15% loss on the news.

They guided for Q3 revenue of $720-$750 million and a record quarter. Analysts were expecting $766 million.

The CEO talked to a Barron's analyst after the earnings call and was very upbeat. He said we are still in bullish mode with 7% annual growth and 5% growth in North America. Compound growth over the last five years is 9%. The Q3 guidance takes into account two factors. Government spending overall has slowed. That means less spent on networking equipment. Secondly, Tier One telecom operators get a lot of government business and the slowing government spend has affected them as well. There has been a lot of regional M&A that is being digested. This impacts the entire networking market not just Ciena. We are still predicting 7% growth and a record quarter despite the temporary government slowdown.

Piper Jaffray reiterated an overweight rating saying they understood the government and regional provider problem and Ciena had a lot of positive signs despite this government slowdown. Ciena is executing well, new product acceptance is good. We believe Ciena is the best positioned system supplier for the two hottest segments of the optical market.

Citi upgraded from neutral to buy. Doughtery reiterated a buy and $27 price target.

Earnings Nov 30th.

Shares declined after earnings to support at $21.50 and rebounded 2% on Friday.

Update 9/7/17: Good article in Barron's on what Wall Street is missing about the Ciena outlook. Full Article

Position 9/5/17:

Long CIEN shares @ $21.89, see portfolio graphic for stop loss.
Alternate position: Long Nov $23 call @ 93 cents, see portfolio graphic for stop loss.

HIMX - Himax - Company Profile


No specific news. Shares popped 11% in the market short squeeze. Apparently a lot of traders had shorted the gains over the prior week.

Original Trade Description: Sept 9nd

Himax Technologies, Inc., a fabless semiconductor company, provides display imaging processing technologies to consumer electronics worldwide. The company operates through Driver IC and Non-Driver Products segments. It offers display driver integrated circuits (ICs) and timing controllers used in televisions (TVs), laptops, monitors, mobile phones, tablets, digital cameras, car navigation, and other consumer electronics devices. The company also designs and provides controllers for touch sensor displays, liquid crystal on silicon micro-displays used in palm-size projectors and head-mounted displays, light-emitting diode driver ICs, power management ICs, scaler products for monitors and projectors, tailor-made video processing IC solutions, and silicon IPs. In addition, it offers digital camera solutions, including complementary metal oxide semiconductor image sensors and wafer level optics, which are used in various applications, such as mobile phone, tablet, laptop, TV, PC camera, automobile, security, and medical devices. The company markets its products to panel manufacturers, agents or distributors, module manufacturers, and assembly houses; and camera module manufacturers, optical engine manufacturers, and television system manufacturers. Company description from FinViz.com.

Himax produces video drivers for 4K TVs and that accounted for 36% of total revenue in Q2. However, the big news comes from the 3D sensing chips. They are expecting a 90% increase in revenue from this technology in Q3. There are rumors that Himax is going to supply the 3D sensing technology for the new iPhones. Since several companies are rumored to have been selected, somebody is riding the rumor wave.

Since Himax guided for a 90% increase in revenue in Q3 from those sensors, it would suggest there is a surprise in store for the chip community.

They also provide chips for vehicle display panels and they recently guided for demand to jump from 135 million units in 2016 to 200 million by 2022.

On August 30th, Qualcomm and Himax jointly announced a new high resolution, low power, active 3D depth sensing camera system to enable conputer vision capabilities such as biometric face authentication, 3D reconstruction and scene perception for mobile, IoT, surveillance, automotive and AR/VR. They specifically said it would enable Android smartphones to have unparalleled 3D experiences. They called it "game changing technology for smartphones." This technology is the culmination of 4 years of research and development by these two firms.

Shares rallied on the announcements but then faded last week. The company issued a press release suggesting an Oppenheimer analyst had become too excited about the prospects and they reaffirmed their recent guidance. The fading excitement erased $1.50 in gains but support appeared at $10 and the overall uptrend should resume.

Expected earnings November 7th.

Position 9/11/17:

Long HIMX shares @ $10.31, see portfolio graphic for stop loss.
Alternate position: Long Dec $11 call @ $1.20, see portfolio graphic for stop loss.

KTOS - Kratos Defense - Company Profile


The secondary offering at $12.25 is expected to close on Tuesday. That will remove the cloud over the shares. The stock has been hovering at that price for two days in anticipation of the closing.

The company announced it had successfully completed a required number of missions with their jet powered unmanned drone system. The missions are part of the performance demonstrations prior to delivery of ten drones over the next six months. The customer was not announced for security reasons. However, a program they announced with the Navy several months ago called for delivery of 10 drones in 2017 with the potential for multiple follow on orders in 2018. This could be part of that project.

Original Trade Description: August 14th.

Kratos Defense & Security Solutions, Inc. provides mission critical products, solutions, and services in the United States. The company operates through three segments: Kratos Government Solutions, Unmanned Systems, and Public Safety & Security. The Kratos Government Solutions segment offers microwave electronic products; satellite communications; technical and training solutions; modular systems; and defense and rocket support services. The Unmanned Systems segment provides unmanned aerial, ground, and seaborne, as well as command, control, and communications systems. The Public Safety & Security segment designs, engineers, deploys, operates, integrates, maintains, and operates security and surveillance solutions for homeland security, public safety, critical infrastructure, government, and commercial customers. The company serves national security related agencies, the department of defense, intelligence agencies, and classified agencies, as well as international government agencies and domestic and international commercial customers; and critical infrastructure, power generation, power transport, nuclear energy, financial, IT, healthcare, education, transportation, and petro-chemical industries, as well as government and military customers. Kratos Defense & Security Solutions, Inc. was founded in 1994 and is headquartered in San Diego, California. Company description from FinViz.com.

Kratos builds drones for target practice for the U.S. military. They are also building drones for combat for air to air and air to land. They also provide communication systems for missiles, satellites and various other platforms.

China and Russia are rapidly militarizing space and Kratos is working with the U.S. military to improve satellite communication to defend against attacks. The DoD is currently spending a lot of money to prepare for war in space. Kratos owns and operates a global satellite demonitoring business with revenues rising 61% in Q1.

Kratos has so many new programs in operation it would be impossible to list them here and several of them are secret programs for unnamed clients.

Kratos guided for a return to profitability in Q2 and sharply rising revenue for the full year. Shares spiked 30% in the four weeks after Q1 earnings. Their next report is August 3rd. I am recommending we buy an option and hold over the report. If the earnings are as positive as they teased in the Q1 report we could see another sharp reaction. This company is in all the right places for the increase in defense department spending.

Kratos unveiled its newest high performance class of military unmanned aerial system technology at the Paris Air Show. The XQ-222 Valkyrie and UTAP-22 Mako drones provide fighter like performance and are designed to function as wingmen to manned aircraft in contested airspace. The Valkyrie can carry various weapons and intelligence systems and has a range of 3,000 miles. The Mako is designed to carry sensors and stealthily infiltrate hostile airspace to gather intelligence. Both are designed to operate with or without manned flights. The Air Force recently pitched the functions of the Valkyrie saying a F-35 with a group of fighter/bomber drones could maximize control of airspace and ground attack operations. The F-35 can select targets and pass information to specific drones while maintaining situational awareness from a stealthy and relatively safe position.

Just over the last couple weeks Kratos announced a $2.9 million order for an airborne communications system, a $10 million order for a ballistic missile defense system, $23 million for a military radar system and $8 million for a GPS Satellite protection system. Analysts are expecting a record $800 million in revenue for 2018. They expect to do $150 million in unmanned revenues in 2018.

Kratos posted earnings of 1 cent and a $10.4% increase in revenue to $186 million. They guided to be free cash flow positive by $25 million in 2017.

Expected earnings Oct 26th.

With the daily new contract awards shares have risen $1.50 in the last week and closed at a 5-week high on Monday. They are very close to breaking out to a new high.

Update 9/5/17: New high in a weak market. Unfortunately, after the close they announced a secondary offering of 12.5 million shares that will increase the float by 14%. If I recommended we sell at the open on Wednesday, we are going to get hit with the normal "sell the news" decline. If we retain the position, stocks normally rise after a secondary is completed. We can either take a loss on Wednesday or hang on for a bigger gain later. I am recommending we hold the position. I am removing the stop loss to avoid being knocked out of the position for a loss. Shares declined to $12.80 in afterhours, a drop of $1. If that is all the decline we get, I would be very happy.

Update 9/6/17: KTOS announced a $46 million contract with the Saudi Royal Navy to assist in increasing military communications and preparedness. They also announced the QWK Integrated Solutions LLC, a partnership of multiple defense firms had won a $3.038 billion five year contract. The partnership will provide for rapid development and integration of space, missile defense, cyber, directed energy and related technologies to support SMDC/ARSTRAT and the warfighter.

Position 8/15/17:

Long KTOS shares @ $12.78, see portfolio graphic for stop loss.
Alternate position: Long Nov $15 call @ 65 cents, see portfolio graphic for stop loss.

With shares just crossing the $12.50 strike price, we had to reach out to $15 and a distant month.

MRVL - Marvel Technology - Company Profile


No specific news. Only a minor gain in a bullish market. Not sure what to think about its future.

Original Trade Description: August 30th.

Marvell Technology Group Ltd. designs, develops, and markets analog, mixed-signal, digital signal processing, and embedded and standalone integrated circuits. It offers a range of storage products, such as hard disk drive (HDD) and solid-state drive controllers, as well as HDD components, such as HDD preamps components; and develops software enabled silicon solutions consisting of serial advanced technology attachment port multipliers, bridges, serial attached SCSI, and non-volatile memory express redundant array of independent disks controllers and converged storage processors for enterprise, data centers, and cloud computing businesses. The company also provides networking products comprising Ethernet solutions comprising Ethernet switches, Ethernet physical-layer transceivers, and single-chip network interface devices; and embedded communication processors. In addition, it offers a portfolio of connectivity solutions, including Wi-Fi, and Wi-Fi/Bluetooth integrated system-on-a-chip products, which are integrated into a variety of end devices, such as enterprise access points, home gateways, multimedia devices, gaming products, printers, automotive infotainment and telematics units, and smart industrial devices. Further, the company provides printer-specific standard products, as well as full-custom application-specific integrated circuits; and communications and applications processors. Company description from FinViz.com.

Marvel reported earnings of 30 cents that beat estimates for 28 cents. Revenue of $605 million beat estimates for $601 million. Free cash flow more than doubled from $38 million to $89 million. Core revenues rose 6%, storage controller revenues rose 13%. SSD chips rose from 20% to 25% or revenue. The new SSD products are rapidly gaining market share and remain a high profit item. Gross margin was 60.4%. They guided for Q3 for revenue of $595-$625 million with earnings of 30-34 cents per share.

Expected earnings Nov 23rd.

The company is in the midst of a restructuring process while they are changing their product mix for the better. Apparently it is working.

Shares spiked from $15.75 to $17.25 after earnings then pulled back slightly on post earnings depression. They rebounded today to a new 2-month high and very close to a new high.

Position 8/31:

Long MRVL shares @ $17.79, see portfolio graphic for stop loss.
Alternate position: Long Oct $18 call @ 64 cents, see portfolio graphic for stop loss.

SYMC - Symantec - Company Profile


Shares of Symantec continue to soar after Google reported that searches for "LifeLock" had exploded and surged even higher than after the Anthem hack in 2015. Symantec's LifeLock monitors the credit bureaus and notifies you if anyone tries to open an account in your name. It carries a $25,000 reimbursement for stolen funds and retails for $9.95 a month. This is going to be a boost to Q3 earnings.

Original Trade Description: August 26th.

Symantec Corporation, together with its subsidiaries, provides cybersecurity solutions worldwide. It operates through two segments, Consumer Digital Safety and Enterprise Security. The Consumer Digital Safety segment provides Norton-branded services that provide multi-layer security services across desktop and mobile operating systems, public Wi-Fi connections, and home networks to defend against online threats to individuals, families, and small businesses. This segment also offers LifeLock-branded identity protection services, such as identifying and notifying users of identity-related and other events, and assisting users in remediating their impact; and digital safety platform designed to protect information across devices, customer identities, and the connected homes and families. The Enterprise Security segment provides endpoint protection products, endpoint management, messaging protection products, information protection products, cyber security services, Website security, and advanced Web and cloud security offerings. Its enterprise endpoint, network security, and management offerings supports evolving endpoints and networks, as well as provides an integrated cyber defense platform. This segment delivers its solutions through various methods, such as software, appliance, software-as-a-service, and managed services. The company serves individuals, households, and small businesses; small, medium, and large enterprises; and government and public sector customers. Company description from FinViz.com.

Symantec is the largest provider of security products for retail buyers. They have an excellent suite of firewalls and antivirus programs. I have used everyone in the market at one time or another and Symantec has always been the best for me.

Last week they announced something different. They announced a secure router that handles everything in your house. It has special security for smartphones, tablets, PCs, IoT devices, etc. It has a handy user friendly interface and you can set at the router level, individual passwords for everyone in the family with individual settings by password. Say you have a 12 year old boy in the house. You can set different parental exclusions for him than you would for an 8 year old in the same house. You are in charge of everyone's access regardless of what device they are using.

The secure router blocks attacks before they get to your PC and before Windows has to deal with them. The router is not cheap but compared to what it does, it is cheap for the number of functions. How much does it cost to have your PC compromised? The router is $300 and comes with a year of service. After the year is up it goes to $10 a month. That is an entirely new revenue stream for Symantec. Obviously, it will not show up in their earnings for several quarters but the stock is rising on the news.

You can read the full press release HERE.

Expected earnings Nov 1st.

The stock is at the upper end of the range that I recommend in Premier Investor. With the potential for volatility in September, I am not recommending we go long the shares. This will be an option only position so we can try and ride out some of the volatility with minimum risk.

Update 8/28: Symantec said over the weekend they have identified a sustained cyber spying campaign, likely state sponsored, against Indian and Pakistani entities. The espionage effort began in October. India, China and Pakistan have raised military readiness over the last several weeks.

Update 9/6/27: Symantec said the US and EU power grid had been hacked by state actors and they had gained access to core systems that would have allowed them to be shutdown. The hacks were loosely tied to a recently dormant group called Dragonfly with links to Energetic Bear or Kola, widely believed to be sponsored by Russia.

Position 8/28/17:

Long Oct $31 call @ 48 cents, see portfolio graphic for stop loss.


BEARISH Play Updates

SABR - Sabre Corp - Company Profile


No specific news. Shares spiked at the open to $18.10 and that was our stop loss. We exited the position with a minor gain.

Original Trade Description: August 5th.

Sabre Corporation, through its subsidiary, Sabre Holdings Corporation, provides technology solutions to the travel and tourism industry worldwide. It operates through two segments, Travel Network, and Airline and Hospitality Solutions. The Travel Network segment operates as a business-to-business travel marketplace that offers travel content, such as inventory, prices, and availability from a range of travel suppliers, including airlines, hotels, car rental brands, rail carriers, cruise lines, and tour operators with a network of travel buyers comprising online and offline travel agencies, travel management companies, and corporate travel departments. The Airline and Hospitality Solutions segment provides a portfolio of software technology products and solutions through software-as-a-service and hosted delivery models to airlines, hoteliers, and other travel suppliers. This segment offers SabreSonic Customer Sales & Service, a reservation system that provides capabilities around managing sales and customer service across an airline's diverse touch points; Sabre AirVision Marketing & Planning, a set of airline commercial planning solutions; and Sabre AirCentre Enterprise Operations, a set of solutions for planning and management of airline, airport, and customer operations. The Airline and Hospitality Solutions segment also provides software and solutions to hoteliers through SynXis, a central reservation system; SynXis Property Manager Solution for property management; and marketing, professional, and revenue management services. Company description from FinViz.com.

American Airlines founded the company in 1960 and spun it off in 2000. Texas Pacific Group and Silver Lake Partners acquired it in 2007. They listed on the Nasdaq in 2014. Sabre is the largest global distributions systems provider for air bookings in North America.

Sabre closed its first week of trading at $16.50 in April 2014. The odds are good we are going to see that level again soon. They recently reported earnings of 35 cents that matched estimates. Revenue rose 6.6% to $900.7 million and beat estimates for $895 million.

The company announced a new "cost reduction and business alignment program" with the goal of saving $110 million a year in expenses. They are going to reduce global headcount by 9%. They reiterated their full year guidance of $3.54-$3.62 billion and earnings of $1.31-$1.45. However, they said earnings would likely come in at the lower half of guidance. Think about that for a minute. We are going to affirm our guidance but earnings will be at the low end of that guidance. Did they actually affirm guidance of lower guidance?

They said the poor results were related to multiple factors. They halted work on the implementation of their new SabreSonic reservation system, no reason given but clearly it was not going well. They said they were seeing higher stability, security and technology costs related to a "security incident" in their Sabre Hospitality central reservation system during the quarter. Were they hacked? They did not say. Lastly, they said they were dealing with accounting changes for revenue collected from customer Alitalia, which is going through a bankruptcy process. Typically that means you get pennies on the dollar for receivables. The guidance was not good. Shares crashed from $22 to $19.50.

There was a dead cat bounce over the next couple days and now they are heading lower again. I do not see any reason why anyone would want to own Sabre when there are much better companies like Priceline, Tripadvisor, Trivago, Expedia, etc.

Expected earnings Oct 31st.

Shares closed at a two-year low on Friday at $19.73 and could be headed for a retest of the post IPO low at $15.

In addition to the short on the shares we have two ways to play the option. We can buy the October $17.50 put for 10 cents and forget about it. It will expire before earnings so it will have to be in the money at some point in the future to make any money. It is $2 OTM now and October has 75 days until expiration. If we want to roll the dice, the January $17.50 put is only 45 cents. That lets us hold over the October earnings, which should be disappointing. And gives us an extra 90 days to profit. The difference is $35 in cost. The key here is that January is well out of our normal 30-45 day play scenario. I am going to recommend the October option but you should choose the one that best suits your risk reward profile.

Update 8/7/17: Bank of America downgraded the stock from neutral to underperform (sell) and shares fell sharply at the open. It would have been nice if they had waited until after we were in the position. Shares fell about $1 at the open, rebounded slightly and then rolled over again in the afternoon. I think BAC helped us overall since it will put added pressure on the stock.

Update 8/23/17: Shares were up slightly after the company announced the refinancing of their $570 million Term A and $1.89 billion Term B credit facilities and $400 million revolving credit facility. The interest rates were lowered and the due date on the Term A facility was extended 12 months.

Position 8/7/17:

Closed 9/11: Short SABR shares @ $19.02, exit $18.10, +.98 gain.
Closed 9/11: Long Oct $17.50 put @ 40 cents, exit .40, breakeven.

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