Option Investor

Daily Newsletter, Thursday, 9/14/2017

Table of Contents

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

Market Wrap

Inflation Up, Market Holds Steady

by Thomas Hughes

Click here to email Thomas Hughes


CPI was hotter than expected; expectations for the next interest rate hike have been stepped up. Based on the CME's Fed Watch Tool there is now slightly greater than 50% chance for the next interest rate hike to come before the end of this year. Looking further out odds increase to 62.5% by March and to near 75% by June, up significantly from the 50% June probability predicted only a week ago. The news did not have much affect on the market other than to reinforce the idea of economic expansion, and the need to pay close attention to the FOMC next week.

International market were mostly lower although losses were minimal. In Asia trading was influenced by weaker than expected data out of China. The industrial production, fixed asset investment and retail sales figures were all about 0.5% below expectations but still quite strong at 6.5%, 7.8% and 10.5% respectively. In Europe traders had their eye on the BOE which held rates steady with no significant changes to their statement. Indices their held close to break even with most posting small gains, the FTSE led decliners with an anomalous -1.14%.

Market Statistics

Futures trading was steady and stable near break even for the better part of the morning. There was a dip between 8AM and 9AM on rumor North Korea was readying for another missile launch but I couldn't find much info about that. The dip bottomed shortly after the CPI data was released and prices moved back toward break even going into the open. The open was a bit hectic. Sellers stepped in on the bell and drove prices down to the low of the day within the first 10 minutes. Bottom on the SPX was hit just before 9:40AM, roughly -0.25%, at which time selling pressure let up and the index was able to return to break even. The rest of the day saw it trend within a narrow range at break even levels and closing near the highs of the day.

Economic Calendar

The Economy

Jobless claims data continues to be impacted by the Hurricanes but has yet to show truly significant damage to labor markets. Initial claims fell by -14,000 to 284,000 from last week's not revised figures. The four week moving average of claims rose 13,000 to 263,250. On a not adjusted basis claims fell -14.6% versus an expected -10.5% but remain up YOY by nearly 10%. From the hurricane perspective; it looks like the affects of Harvey have started to wane while those from Irma have yet to be felt. With this in mind we can expect to see another big jump in claims next week. The bigger picture; long term trends remain intact for now. Looking forward the rise in claims from the storms is much less important than where the figure settles once things get back to "normal".

Continuing claims fell by -7,000 this week and have yet to see the impact from Harvey much less Irma. Those affects should begin to show in the data next week. The previous week was revised up by 11,000, the four week moving average fell by -2,500. Looking at these figures it is easy to see that labor market turnover was low, steady and stable going into the stormy period.

The total number of Americans receiving benefits fell -28,887, in line with seasonal and long term economic trends. It will be at least one more week before we see affects from the storm enter this data. That being said the total claims remains well within trend, in line with healthy labor markets and down -8.3% from last year.

The CPI was hotter than expected. The headline month over month figure is +0.4%, a tenth more than the 0.3% predicted by economists. The rise is due primarily to energy and more specifically gasoline but also includes an increase in the cost of shelter. On a year over year basis headline CPI is up 1.9%, up 0.2% from July and the second month of gains. The energy index rose 2.8% for the month with the gasoline sub-index rising 6.3%. The shelter index rose a more modest 0.5%. On a core basis ex-food&energy CPI rose only 0.2% for the month and 1.7% for the past 12. It has held steady at this level for 4 months.

The Dollar Index

The CPI does not suggest a rate hike is coming real soon. What it does do is suggest that declines in forward FOMC rate hike expectations have come to a halt, setting the stage for a dollar rally should the FOMC sound hawkish next week, or other data begins to come in stronger than expected. There is little in the way of FOMC moving data between now and next Wednesday but there is plenty of other data points that could sway forward economic outlook. The Dollar Index strengthened immediately following the news but resistance was met and the gains were given up. The index remains near the long term low and could remain there into the near term.

The Gold Index

Gold prices held firm even in the face of rising inflation and steadying FOMC outlook. Spot gold gained about $3 to trade in a very tight range near $1,230. The metal is sitting on potential support levels that may keep it range bound in the near term. On the bull side; gold prices are up on a weakened dollar and geopolitical risk that has yet to abate. On the bear side; inflation data suggests a firming in the rate hike timeline that is lending strength to the dollar. A bounce from here will face resistance at $1,350, a fall may find support near $1,320 or $1,300.

The Gold Miners ETF moved lower in early trading as CPI data strengthened the dollar. Those losses were recouped later in the day as the dollar gave up its gains and gold prices steadied. Today's action created a small green candle just above support targets at $24. The visible lower shadow confirms the presence of support at these levels but not its strength. The indicators have both rolled over into bearish signals within a trading range suggesting that support will likely be tested. Support target is further confirmed by the short term moving average, a break below which would be bearish in the near term with downside target at the long term moving average. A bounce from this level would be trend following in the near term but face resistance at the top of the long term trading range near $25.50.

The Oil Index

Oil prices rose to a 6 week high on post-hurricane demand. WTI gained 0.75% to trade above $49.50 an looks like it is heading up. First resistance is near $50 and the top of the near term trading range, next target is near $55 should the $50 level break.

The Oil Index gained a little more than a half percent to test support at the 1,160 level. The index has broken its down trend and entered a new sideways trading range but not yet confirmed reversal. The top of the range is 1,160, a break above which would be bullish. The indicators are bullish and have shown some strength with the caveat they are now rolling over and consistent with the top of a range. First target for support on a pull back is near 1,140 and the short term moving average. Next target below that is near 1,120 and the long term moving average. Longer term I am bullish on this sector and will look to buy on dips and tests of support within the range. Near term I am cautious with an eye on the top of the trading range.

In The News, Story Stocks and Earnings

Whole Food's made the news today as analyst Brian Nowak estimates the newly acquired branch of Amazon can more than double its customer base within the next 2.5 years. The news adds to malaise within the grocery sector as retailers struggle to compete. Kroger for example has quietly launched a new restaurant concept designed to enhance customer appeal. Shares of that stock fell more than -2% on the news and are trading just above a 3 year low. Support is near $20.50, a break below there could take it down to $15 with a quickness.

Oracle reported after the bell and beat estimates of $0.60 by $0.02. This is significant in two respects, first being a positive for Oracle and the second as an indication of the onset of 3rd quarter earnings. Oracle reports midway between cycles and is my signal the season is approaching fast. The results were driven by cloud computing with segment revenues up more than 50% YOY. Total revenues were up 7%. CEO Larry Ellison also announced the unveiling of new cloud based service that is expected to further boost revenues. Shares of the stock rose in after hours trading.

The VIX fell a little more than -0.50% to come to rest on the 10.25 support line. The index has subsided from recent highs and looks like it may dip below support to retest recent lows. The VIX trending at current low levels is consistent with bull market conditions, a dip below support would be consistent with rally.

The Indices

The indices were a bit mixed today but in general held steady at and near current all time highs. The day's leader is the Dow Jones Industrial Average with a gain of 0.20%. The blue chips created a small green bodied candle drifting up from the long term up trend line and set a new all time high. The index is supported by the indicators which are both bullish and rising. Stochastic is showing strength with a strong trend following entry signal and suggests further upside is on the way. Upside target is near 22,600 to 22,800 in the near term.

The NASDAQ Composite is the day's biggest loser with a decline of -0.48%. The tech heavy index created a small red bodied candle just below the current all time and may have hit a near term peak. The indicators are bullish but show near term weakness consistent with consolidation and near term resistance. Resistance is the all time high, a break above which would be bullish. If the index declines support targets are 6,400 and the short term moving average near 6,350.

The Dow Jones Transportation Average posted the 2nd largest decline, 0.22%. The transports created a small doji like candle just below the current high and sideways from the past 2 candles. The indicators remain bullish but do show a slight weakening in the near term consistent with consolidation within an up trend. Near term resistance is at the current level, a move above which would be bullish with upside target at the current all time high.

The S&P 500 made the smallest decline today, only -0.11%. The broad market index created a small doji candle just below the current all time high and appears to be in a near term consolidation. The indicators are bullish and moving higher, consistent with higher prices, and showing some strength. MACD is the weaker of the two but rising to a 6 month high while stochastic makes a bullish crossover of the upper signal line. A break to new highs would be bullish with near term upside targets at 2,540 and 2,580.

Today's action was mixed but still consistent with a rising market. While the Dow Jones Industrials were the only one to make a new all time high the others were still able to hold strong at record levels with indications of underlying strength. With earnings season close at hand, expectations for earnings growth and signs of economic strength we may not need a catalyst to push them to new highs. A crowded market, one eagerly anticipating 6 quarters of double digit earnings growth, could easily move higher on its own. The charts are signaling rally so I am bullish for the near and long term.

Until then, remember the trend!

Thomas Hughes

New Plays

A Week Late

by Jim Brown

Click here to email Jim Brown
Editor's Note

North Korea reportedly launched a new missile over Japan this evening. The details are still unknown but the S&P futures fell -7 on the news. The weekend event risk just increased significantly. The potential for a military response is low but it does exist. There is no reason to enter new positions ahead of this risk and the quadruple witching expiration.


No New Bullish Plays


No New Bearish Plays

In Play Updates and Reviews

Potential Volatility

by Jim Brown

Click here to email Jim Brown

Editors Note:

North Korea has reportedly launched another missile over Japan. Futures crashed -7 on the news but have rebounded slightly while we wait for details. In Thursday's trading the Dow closed at a new high while the Nasdaq declined sharply. This is related to Apple's weakness contaminating the rest of the tech big caps. The S&P closed only slightly negative.

I would expect the missile dip to be bought but this is quadruple expiration Friday and with the missile launch there could be significant weekend event risk.

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

ETSY - Etsy Inc
The long position was entered at the open.

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BULLISH Play Updates

ETSY - Etsy Inc - Company Profile


No specific news. Only a minor 3 cents decline on a weak Nasdaq.

Original Trade Description: Sept 13th.

Etsy, Inc. operates as a commerce platform to make, sell, and buy goods online and offline worldwide. Its platform includes its markets, services, and technology, which enables to engage a community of sellers and buyers. The company offers approximately 45 million items across approximately 50 retail categories to buyers. It also provides various seller services, including direct checkouts, promoted listings, and shipping labels, as well as Pattern by Etsy to create custom Websites; and seller tool and education resources to start, manage, and scale businesses to entrepreneurs primarily through Etsy.com. In addition, the company operates A Little Market, a handmade and supplies market for sellers and buyers. Company description from FinViz.com.

For Q2, the company reported earnings of 10 cents that rose from a 6-cent loss in the year ago quarter. Revenue rose 19.1% to $101.7 million. Active sellers rose 10.9% to 1.83 million. Gross merchandise volume rose 11.7% to $748 million. Sales on mobile devices rose 47%. International sales rose 31% to 32% of gross sales. The number of employees in the workforce declined 23% thanks to an aggressive push by the CEO to expand profitability.

They guided for gross merchandise sales to rise 12% to 14% for the full year, up from prior guidance of 11.7%. Full year revenue is expected to rise 18% to 20% and in line with the 19.1% in Q2.

The company is growing rapidly, especially internationally and they are reducing costs significantly. Over the last several months, they replaced the CEO, CFO and CTO in their push to grow the company and profits quickly.

Expected earnings Nov 2nd.

On Sept 7th a Davidson's analyst, Tim Forte, went all in on ETSY with a glowing forecast. Shares spiked to $17.50 and then faded for a couple days. They have rebounded over the last three days and closed at a new high on Wednesday.

Position 9/14/17:

Long ETSY shares @ $17.79, see portfolio graphic for stop loss.
Alternate position: Long Dec $20 call @ 70 cents, see portfolio graphic for stop loss.

HIMX - Himax - Company Profile


No specific news. Shares of Apple suppliers are still declining but HIMX held its gains even with a weak Nasdaq.

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


No specific news. KTOS is tanking after the secondary was completed. We should have exited on the initial news. Hindsight is 20:20. With strong support at $11, I am going to let it ride. The North Korean missile launch tonight might lift defense stocks on Friday.

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. Excellent gain in a weak market to break out to a new high above resistance at $18.

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. Minor decline after a string of gains to a new high. The halt to US sales of the Kapersky virus suite, made in Russia, is another plus for Symantec.

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.


BEARISH Play Updates

GE - General Electric - Company Profile


No specific news. Shares rallied slightly with the Dow but the trend has not changed.

Original Trade Description: September 11th.

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.

Position 9/13/17:

Short GE shares @ $23.93, see portfolio graphic for stop loss.
Alternate position: Long Dec $23 put @ 58 cents, see portfolio graphic for stop loss.

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