The Dow gapped open +107 points despite the NO vote in Italy but faded to give back more than 60 points at the close. The S&P futures opened down -12 on Sunday night and spent most of the night deeply in the red. Early Monday morning the futures reversed strongly and the markets gapped higher instead of lower. Reportedly there were a lot of shorts fearing the worst and they were squeezed at the open.
However, The Dow has moved into a pattern of big intraday gains that fade into the close. That is not healthy because it suggests the buyers have no conviction and the sellers are still waiting for any rebound they can sell. We need for the pattern to reverse where the markets open weak and close strong. That shows investors are buying the dips rather than selling the rips.
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.
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
NVDA - Nvidia Corp
The long call position was entered at the open.
VXX - Volatility ETF
Enter the position at the open on Tuesday using the new option strike.
FFIV - F5 Networks
The long call position remain unopened until a trade at $142.25.
If you are looking for a different type of option strategy, try these newsletters:
Credit spreads and naked puts = OptionWriter
Long term option investments = LEAPS Investor
3-6 month Option Trades = Ultimate Investor
Iron Condors = Couch Potato Trader
Long and short equity trades = Premier Investor
BULLISH Play Updates
FFIV - F5Networks - Company Profile
Nice rebound but not quite enough to trigger the entry into the position. No specific news.
The position remains unopened until a trade at $142.25.
Original Trade Description: November 21st.
F5 Networks, Inc. develops, markets, and sells application delivery networking products that optimize the security, performance, and availability of network applications, servers, and storage systems. It offers Local Traffic Manager, which provides intelligent load-balancing, traffic management, and application health checking; BIG-IP DNS that automatically directs users to the closest or best-performing physical, virtual, or cloud environment; Link Controller, which monitors the health and availability of each connection in organizations with more than one Internet service provider; Advanced Firewall Manager, a network firewall; and Application Security Manager, an Web application firewall that provides comprehensive, proactive, and application-layer protection against generalized and targeted attacks. The company also provides Access Policy Manager, which provides secure, granular, and context-aware access to networks and applications; Carrier-Grade Network Address Translation, which offers a set of tools that enables service providers to migrate to IPv6 while continuing to support and interoperate with existing IPv4 devices and content; and Policy Enforcement Manager that offers traffic classification capabilities to identify the specific applications and services to service providers. In addition, it offers cloud-based and other subscription services; BIG-IP appliances; VIPRION chassis-based systems; and Traffix Signaling Delivery Controller for diameter signaling and routing. Company description from FinViz.com.
The big attack on the Internet several weeks ago was driven by malware that had been placed on IoT devices including security cameras, cable boxes, burglar alarms and dozens of other device types. These devices are typically delivered without any material malware defenses. It is up to each manufacturer to overcome this in the future with some kind of defense.
However, FFIV provides software and hardware to prevent denial of service attacks from these devices as well as the more robust attacks from computers and servers. With more and more servers in the cloud it is harder to protect them from attack like you would dedicated physical servers in a dedicated data center. This is where FFIV excels.
The company's Silverline service places a sophisticated cloud based filter around critical infrastructure that stops attacks instantly. Aided by hardware based firewalls in dedicated data centers they protect data and equipment from all outside attacks.
For Q3 they reported earnings of $2.11 compared to estimates for $1.94. revenue ot $525 million beat estimates for $520 million.
Earnings Jan 21st.
FFIV shares spiked on earnings in late October and have been moving steadily higher. They are about to break over resistance at $144 and we could see another leg higher when that happens.
With a FFIV trade at $142.25
Buy Jan $145 call, currently $3.15, initial stop loss $137.25.
FLOW - SPX Flow Inc - Company Profile
No specific news. Decent rebound and still holding over prior resistance.
Original Trade Description: November 30th.
SPX FLOW, Inc. provides various engineered solutions worldwide. The company engineers, designs, manufactures, and markets products and solutions used to process, blend, filter, dry, meter, and transport fluids with a focus on original equipment installation, including turn-key systems, modular systems, and components, as well as aftermarket components and support services. It operates through three segments: Food and Beverage, Power and Energy, and Industrial. The Food and Beverage segment offers mixing, drying, evaporation, and separation systems and components, as well as heat exchangers, and reciprocating and centrifugal pump technologies primarily under the Anhydro, APV, Bran+Luebbe, Gerstenberg Schroeder, LIGHTNIN, Seital, and Waukesha Cherry-Burrell brands. The Power and Energy segment provides pumps, valves, and related accessories, principally for use in oil extraction, production, and transportation at wells, as well as for pipeline applications under the APV, Bran+Luebbe, ClydeUnion Pumps, Copes-Vulcan, Dollinger Filtration, LIGHTNIN, M&J Valve, Plenty, and Vokes brands. This segment primarily serves customers in the oil and gas industry, as well as in nuclear and other conventional power industries. The Industrial segment offers air dryers, filtration equipment, mixers, pumps, hydraulic technologies, and heat exchangers under the Airpel, APV, Bolting Systems, Delair, Deltech, Hankison, Jemaco, Johnson Pump, LIGHTNIN, Power Team, and Stone brands. This segment principally serves customers in the chemical, air treatment, mining, pharmaceutical, marine, shipbuilding, infrastructure construction, and general industrial and water treatment industries. Company description from FinViz.com.
SPX Flow was spun off from SPX Corp (SPXC) in September 2013. Shares sold off from the $40+ opening to $15 over the next six months. After a quick rebound to $31 in May the stock has moved sideways for the rest of the year.
They reported earnings of 34 cents that beat estimates for 33 cents. Revenue of $466.8 million narrowly missed estimates for $467.7 million. They guided for full year earnings of $1.27-$1.47 with revenue of $2.0 billion.
The CEO said the company had made good progress in its restructuring efforts post split. Revenue was light in Q3 because of a delay in shipping some orders in the energy sector. They are looking forward to a rebound in the energy sector and manufacturing in general.
Earnings Feb 1st.
Shares closed right at 52-week resistance at $31.50 and are poised for a breakout, market permitting. The stock gained $1 today in a weak market.
Long March $35 call @ $1.51, see portfolio graphic for stop loss.
NVDA - Nvidia Corp - Company Profile
No specific news. Excellent rebound that started after the open so we actually got a decent entry instead of stuck buying a $3.50 gap higher.
Original Trade Description: December 3rd.
NVIDIA Corporation operates as a visual computing company worldwide. It operates in two segments, GPU and Tegra Processor. The GPU segment offers processors, which include GeForce for PC gaming; Quadro for design professionals working in computer-aided design, video editing, special effects, and other creative applications; Tesla for deep learning, accelerated computing, and general purpose computing; and GRID for cloud-based streaming on gaming devices. The Tegra Processor segment provides processors that integrate a computer onto a single chip under the Tegra brand name; DRIVE automotive computers, which offer supercomputing capabilities; and tablet and portable devices for mobile gaming under the SHIELD name. The company's products are used in gaming, professional visualization, datacenter, and automotive markets. It sells its products primarily to original equipment manufacturers, original design manufacturers, system builders, motherboard manufacturers, add-in board manufacturers, and retailers/distributors. Company description from FinViz.com.
Nvidia is taking market share from every chipmaker in the market. Their graphics cards are the hottest things going and every model sells out and are resold for higher prices in the secondary market. Their GPU products are the fastest processors available for extreme computing environments, monster applications, data mining, machine learning and artificial intelligence. One recent benchmark showed an Intel server would take over 2,000 hours to process one massive computation program. A Nvidia GPU server only took 30 hours. Amazon and other cloud providers are buying 1000s of GPU equipped servers to handle massive cloud applications.
They are also moving into a stronger position in the self driving vehicle sector with superfast visual and logic chipsets that can 1000s of inputs in a second to help the car navigate and avoid collisions.
Every time Nvidia announces a new product they are years ahead of the competition.
Earnings Feb 9th.
Shares are up +165% in 2016 alone but they are far from done. They spiked 10% after earnings in early November and held the highs for two weeks despite market volatility in tech stocks. On Thursday, Nvidia shares finally cracked when the Nasdaq fell -77 points for the second consecutive decline of more than 1%. On Friday, shares posted a gain and showed no signs of further weakness. Over the last two weeks, MKM Partners upgraded them to a $106 price target and Needham raised their target to $100. The problem is that most analysts do not understand the technological revolution underway at Nvidia.
Options are not cheap but you sometimes get what you pay for. You can spread it to reduce the cost but I am not going to recommend that today. As the stock moves higher we can spread later once the distant strikes become more valuable.
Long Feb $95 call @ $5.03, see portfolio graphic for stop loss.
SMG - Scotts Miracle Grow - Company Profile
No specific news. Nice intraday rise but faded at the close.
Original Trade Description: November 12th.
The Scotts Miracle-Gro Company manufactures, markets, and sells consumer lawn and garden products worldwide.
Nine states had legalization of marijuana on the ballot in some form and eight approved the measures. California, Massachusetts, Maine and Nevada approved it for recreational use. Arkansas, Florida and North Dakota approved it for medical use, which is a first step towards eventual recreational use. Montana approved a measure for commercial growing and distribution. Arizona was the only state where a recreational use measure failed.
Scotts has already said the legalization of pot was good for their business since growers want to grow it fast and grow it indoors. Over the last two years, Scotts has acquired two hydroponic acquisitions. One of them was a marijuana nutrient and growing products maker. They are branching out into the equipment and lighting required for indoor plant cultivation with the acquisition of Gavita, a grow light and hardware producer. They recognize pot as an "emerging high-growth opportunity" under their Hawthorne Gardening Company brand. They want to invest $500 million in the marijuana industry.
Scotts recently spun off its Scotts LawnService yard fertilizer business into a partnership with TruGreen so that low margin business is gone. The partnership pays distributions back to Scotts.
In the last quarter, sales rose 7% with consumer purchases rising 10%. This compares to the full year revenue growth of 2%. This shows how fast the business is growing with the new focus. They are projecting 6% to 7% revenue growth in 2017 and adjusted earnings of $4.10-$4.30. They called those numbers conservative.
Earnings Feb 2nd.
Long March $90 call @ $3.90, see portfolio graphic for stop loss.
WDC - Western Digital - Company Profile
No specific news. Shares declined ahead of their analyst day on Tuesday as cautious investors took profits. Susquehanna reiterated a buy rating with a price target at $88. Shares closed at $62. Tuesday will be their first analyst day in four years.
I removed the stop loss for Tuesday to avoid any post meeting volatility.
Original Trade Description: November 12th
Western Digital Corporation, together with its subsidiaries, engages in the development, manufacture, sale, and provision of data storage solutions that enable consumers, businesses, governments, and other organizations to create, manage, experience, and preserve digital content worldwide. The company's product portfolio includes hard disk drives (HDDs), solid-state drives (SSDs), direct attached storage solutions, personal cloud network attached storage solutions, and public and private cloud data center storage solutions. It provides HDDs and solid-state drives for performance enterprise and capacity enterprise markets desktop, and notebook personal computers (PCs).
Western Digital bought flash memory maker SanDisk in October 2015 and this is going to supercharge their product offerings. They have already raised guidance after a couple quarters of integration. Revenue in Q3 rose 38% to $4.7 billion.
Last week WDC announced a 50-cent quarterly dividend payable Jan 17th to holders on Dec 30th.
The consensus rating of 27 analysts is a buy with a price target of $69.64. Shares closed at $58.89 on Friday.
They reported earnings on Oct 27th and spiked to $62. Post earnings depression saw them fade back to $55 and now they are moving up again. I believe they will exceed that $62 earnings high. They traded at $115 in 2015.
Earnings Jan 25th.
Long Jan $62.50 call @ $2.20, see portfolio graphic for stop loss.
BEARISH Play Updates (Alpha by Symbol)
VXX - VIX Futures ETF - Company Profile
That $30 entry trigger did not work out. We saw a $29+ high on Thr/Fri and I thought we might get a spike to $30 this morning on the Italian vote. The market gapped higher instead and the VXX fell nearly $2. Now that $30 target is out of range. With only 19 trading days left in 2016 and fund managers prohibited from selling because they cannot afford to miss any year-end move, the VXX is likely to continue lower. I am changing the recommendation to buy the March $24 put at the open on Tuesday.
Original Trade Description: September 21st.
The VXX is a short-term volatility product based on the VIX futures. As a futures product it has the rollover curse. Every time they roll to a new futures contract they have to pay a premium and that lowers the price of the ETF. It is a flawed product with a perpetual decline built in from the monthly roll over in the futures contracts.
As evidence of this flaw, they have now down four 1:4 reverse stock splits. The last four reverse splits occurred at $13.11 (11/2010), $8.77 (10/2012), $12.84 (11/2013), $9.52 (8/8/16). The prospectus says it can reverse split anytime it trades under $25 for a prolonged period and the splits will always be 1:4.
After the August split the ETF moved sideways for four weeks at $36. The volatility event on Sept 9th with the Dow falling -2.5% spiked the VXX from $33 to $42 in three days. That bounce has faded and it is almost back at $33. You are probably thinking, the $40 level would have been a good entry point and you are right in hindsight. However, with the market in danger of breaking down if the Fed had hiked rates, it was better to wait. Now there is nothing on the horizon to cause a spike other than normal market movement.
This is going to be a long-term position. I am not putting a stop loss on the position because long term the VXX always goes down. If we get another volatility spike we will buy another position at a higher level and then ride them both back down.
Buy March $24 put, currently $2.36, no stop loss.
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