Option Investor

Daily Newsletter, Tuesday, 9/12/2017

Table of Contents

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

Market Wrap

September to Remember

by Jim Brown

Click here to email Jim Brown

Most Septembers are remembered because of their bearish volatility.

Market Statistics

This September may be remembered for its record highs. All the major indexes closed at new highs with the exception of the Russell 2000. The Dow only squeezed out a 0.44-point win but it was still a new high. Apple was a big driver intraday with gains of more than $2 but the sell the news move appeared right on schedule.

McDonalds was the biggest drag and kept the index from higher highs. The burger chain fell $5 and erased 35 Dow points after an analyst warned same store sales could be light in Q3.

Data tracking firm M Science warned that McDonalds U.S. revenues and same store sales would miss estimates because of the two hurricanes. McDonalds has more than 2,000 stores in those two states but obviously not all of them were in the flood zones. The company also warned that higher gas prices would result in lower fast food sales for all chains. This is just an opinion by M Science and McDonalds has 36,899 stores. McDonalds did not respond to analyst calls.

The stock had broken out to a new high at $161.53 on Monday.

The economic reports did nothing for the market today. The NFIB Small Business Survey for August gained only a tenth of a point to 105.3. The internal components were relatively flat. The job-opening component declined from 35 to 31 and the earnings trends declined even further from -10 to -11. Those respondents expecting the economy to expand over the next six months were flat at 37%. The report was ignored.

The Job Openings and Labor Turnover Survey (JOLTS) for July was flat with June at a 4% job openings rate. Job openings rose only slightly from 6.116 million to 6.170 million. Hires also rose only slightly from 5.432 million to 5.501 million. Quits rose from 3.130 million to 3.164 million. Layoffs fell slightly from 1.806 million to 1.783 million. The report confirmed that employment was stable and employment was rising slowly and steadily. Since we already have the August data from ADP and the Nonfarm Payrolls, this report was also ignored.

The API Inventory report after the close showed a build of 6.181 million barrels of crude oil. However, gasoline inventories declined by 7.896 million barrels and the largest one week decline on record. Obviously, this was due to the refinery outages over the prior two weeks. Consumers were still burning gas but 31% of our refinery capacity was out at the peak.

The calendar for the rest of the week is led by the price indexes on Wed/Thr. The Fed will be hoping for signs of inflation other than the sharp rise in fuel prices. The Fed is not expected to hike rates at the September 20th meeting. There is a zero percent chance according to the fed funds futures.

This is a quadruple witching option expiration and volume will be higher over the next three days. With the strong gains over the last couple of days, many option holders have probably already cashed out of their positions. This could limit volatility from expiration pressures for the rest of the week.

The big news today was obviously the Apple product announcement. As expected, they announced the iPhone 8, 8+ and the iPhone X, which is called the iPhone 10 with X the Roman numeral for ten. CEO Tim Cook said it was the biggest leap forward in innovation since the release of the original phone 10 years ago. The X has a superfast 6-core processor. The phone does not have fingerprint ID and instead relies on facial recognition technology to unlock the phone. During the on stage demo, the recognition failed and the presenter had to switch to another phone to continue the demo. That is going to be a worry for buyers. What if my phone suddenly forgets my face and I cannot get the phone to open?

They announced Apple TV 4K, which is an update of their set top box that can stream 4K movies. They also confirmed it will come with an Amazon Prime app so Prime members can stream their Amazon shows in 4K on the Apple TV device.

Probably the most talked about device was the new Apple Series 3 Watch. It comes in two models cellular and non-cellular. The cellular version can make and receive calls, send messages and do almost everything the iPhone can do. Somewhere Dick Tracy is smiling. Apple said they guarantee at least 18 hours of battery life even though it is an LTE speed cellular phone. The cellular version is $399 and the standard version is $349. Apple said they are now the largest watch manufacturer in the world, watch sales rose 50% over the last year and the watch now has a 97% customer approval rating. This new cellular watch is getting a lot of buzz and it could catapult watch sales significantly into a major revenue center.

The iPhone 8 starts at $699 and the 8+ at $799. They have significantly faster processors and Apple claims they have longer battery life. The iPhone X starts at $999 with 64gb of memory and has the option for 256gb of memory. All three phones offer wireless charging where you just lay the phone down on a charging pad. They are using the standard Qi standard and that appears to put to rest the worry they were going to require Apple licensed charging products with some kind of change to the Qi parameters.

T-Mobile offered a $300 trade-in for any iPhone 6 or newer. Sprint CEO Marcelo Claure said if you can find a better price anywhere, Sprint would match it.

The iPhone 8 models can be ordered on Sept 15th and be available on Sept 22nd. The iPhone X cannot be ordered until Oct 22nd and will be available on November 3rd. This caused an immediate sell the news drop in the stock. Apple was expected to sell 84 million phones in Q4 and not having the X until a month into the quarter and probably in lower quantities, could really put a crimp in Apple's sales forecasts. However, late in the afternoon they affirmed their current guidance saying they had planned for these dates in their original Q4 guidance.

The late ship on the X confirms all the rumors over the past months about low yields and multiple manufacturing issues. The big question now is whether they can get those issues fixed in time to produce a sufficient quantity in Q4. They also risk consumers holding off on buying the model 8 versions and waiting on the model X, which may or not be available in Q4. That could derail the normal iPhone upgrade process. There is also the price at $1,000 that could sour buyers on having to spend that much money on a phone regardless of how cool it is. Apple has some hurdles to overcome over the next four months. Shares rallied to $164 during the presentation but declined to $158.77 after the delivery delay was announced. Since Apple shares typically decline in the 3-4 weeks after a normal announcement, they could decline even more this year because of the uncertainty. The October 160 puts had volume of 10,255 contracts and the 155 puts traded 12,154 contracts. A lot of traders are betting on that decline.

With no earnings to report, it was a slow news day except for the Apple product announcement. Nordstrom (JWN) spiked 10% after the close after a report the Nordstrom family was close to choosing private-equity firm Leonard Green & Partners to help fund about $1 billion in a buyout to take the company private. Reportedly, the Nordstrom family has been talking to banks to line up an $8 billion loan to finance the deal. Family members own just over 30% of the stock. At the close the company had a $7 billion market cap.

Also after the close, Reuters warned that Harvey and Irma would hit apparel retailers harder than restaurants and other retailers. Analysts cut same store sales estimates from a +0.6% rise to +0.1% because of the storms. Dunkin Donuts could lose $17 million in sales if their stores were closed for a week and that would be 10% of their quarterly estimates. Bojangles (BOJA) could be hit the worst because the southern cooking stores are located in the South. Canaccord said more than 80% of their stores are in the storm-hit areas.

A Gordon Hasket analyst said Wal-Mart and dollar stores would only see a modest decline because the stocking up on supplies ahead of the storms and then replenishing items after the storms would offset the days the stores were closed. They said home improvement stores like Home Depot were much better positioned and same store sales could rise 3.5% to 4.0% in Q3/Q4.

Foursquare, a location data tracking company, said foot traffic at Whole Foods rose 25% in the week after Amazon completed the acquisition. Everyone wanted to see what was different and how much prices had changed. Amazon cut prices on some items by as much as 43%. The key will be the prices a month from now.

Reportedly, Amazon had more than 2,000 Whole Foods branded items on its website during the first week. One Click Retail said Amazon sold more than $500,000 of Whole Foods items sold through Amazon Fresh, Prime Pantry and Prime Now websites. Another report said Amazon sold out of the majority of the top 400 Whole Food branded items.

Disney (DIS) said it was delaying the release of "Star Wars: Episode IX" by 7 months until December 2019. The delay came after the studio said it had hired J.J. Abrams to direct and co-write the ninth film in the Star Wars series. Abrams directed "The Force Awakens" and created more than $2 billion in box office revenues. He had previously said that would be his only film. Apparently, large sums of money changed his mind. Disney shares gained 80 cents but they are a long way from recovering the loss from their profit warning last week.

The lithium miners have been on a tear this week after China said it was going to ban gasoline powered cars in the years ahead. China is not alone. At least 8 other countries are considering gasoline bans. Those include Britain with a 2040 date, France 2040, India 2030 and Norway 2025. Germany, Austria, Denmark, Ireland, Japan, the Netherlands, Portugal, Korea and Spain are still determining target dates for a ban on sales. OPEC are you listening?

Albemarle (ALB) and Sociedad Quimica Minera De Chile (SQM) shares are soaring on the news. The Lithium ETF (LIT) is also on fire.


This is the fourth longest period in history of the markets without a 5% decline and it does not appear we are going to get one in September. However, this is September and market direction can change at any time. The new highs today were encouraging but two days does not make a trend.

The removal of the political hurdles went a long way towards removing some of the clouds over our future. President Trump is preparing a full court press with a full roadshow on tax reform and that will produce market lift in anticipation of an eventual compromise over the next 90 days. Some people do not believe tax reform will happen but the republicans have to do it or there will be a lot fewer republicans after the 2018 elections.

If Janet Yellen produces another dovish Fed statement next Wednesday that would be another weight off the market even though that is a very minor weight today. If they announce a tapering of QE that is a wild card. It has been so telegraphed and expected, it should not move the market but we never know.

The S&P broke out to a new high on Monday and then extended that high today to close at 2,496. Unfortunately, that is only 4 points from 2,500 and what will likely be a selling point for all the algorithmic computers. Several analysts have upgraded their yearend targets well over 2,500 but that is still a large round number where computers are probably going to take profits. If by chance we do blow through 2,500 we could be off to the races. Craig Johnson at Piper Jaffray raised his price target on Monday to 2,575 saying there were more upside than downside catalysts.

The Dow closed over its prior high by a whopping 0.44 of a point. McDonalds and United Health were major drags. Apple could be a major drag over the next several weeks if their normal post announcement depression appears on schedule.

The banks were up today because interest rates were rising. The yield on the ten-year rose to 2.17%, up from a low of 2.034% last week.

The Dow needs to surge through the intraday high at 22,179 and add some gains to avoid forming a double top formation at 22,118.

The Nasdaq closed at a new high and only 6 points from a new intraday high over 6,460. The big cap techs are going to be Apple reactive over the next several days. If Apple fades, I would not be surprised to see the rest of the big caps fade. If the Nasdaq can push through 6,460, the next material resistance would be around 6,600. That is a long sprint and there would probably be several pauses along the way.

The broadest of the market indexes, the Russell 3000, rallied to a new high but came to a dead stop at uptrend resistance at 1,476. This index IS the market. If it can push through that level, the rest of the indexes will follow suit.

At the risk of jinxing the market, there are very few obvious roadblocks in our future. There could always be new ones appear and that could include something like a new missile launch from North Korea even though I think traders would immediately buy the dip.

The problem for me is that when everything starts looking too bullish, I feel like there is something I am missing or there is a Black Swan event just around the corner. However, I am going to remain long until proven wrong.

We had an Irma induced problem with the newsletter on Monday. Thomas is in North Carolina and experienced internet problems because of the remnants of Irma. The newsletter failed to go out on Monday night and the problem was not corrected until late on Tuesday. I apologize for the problem but I have learned after doing this for the last 20 years that sometimes "stuff happens" and we just have to deal with it and go on.

Enter passively, exit aggressively!

Jim Brown

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New Plays

Play it Again Sam

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.

This is a repeat recommendation from the Monday newsletter that failed to go out.


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 $23.91, 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

New Highs

by Jim Brown

Click here to email Jim Brown

Editors Note:

All the major indexes with the exception of the Russell 2000 made new highs. The Dow only squeezed by with a 0.44 point margin but it was still a new high. The S&P extended its gains from Monday and we could be looking at the start of a new leg higher if this continues. The Nasdaq moved to within 6 points of the intraday high of 6,460 back on July 27th. The Russell 2000 posted a decent gain and pushed through resistance at 1,415 but remains about 27 points below its record close at 1,450.

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

No Changes

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

Short term Calls and Puts on equities = Option Investor Newsletter

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BULLISH Play Updates

CIEN - Ciena Corporation - Company Profile


No specific news. On Monday, I recommended closing the stock position. Since the newsletter did not go out, I am still recommending we close the long stock position but continue to hold the long call position. That way our risk is limited. Ciena has failed to rebound but today's move was encouraging.

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 of Apple suppliers were down after the announcement.

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 was expected to close today. That will remove the cloud over the shares. The stock had been hovering at that price for two days in anticipation of the closing. Shares fell sharply today and I hope it was on the closing of the offering.

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.

Update 9/11/17: 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.

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. Decent rebound and hopefully the next test of $18 will be a breakout.

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


No specific news but another $1 gain.

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.

Update 9/11/17: 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.

Position 8/28/17:

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


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