The Dow declined -666 on Friday and -1,095 (-4.1%) for the week. That is the biggest decline in two years. The market was severely overbought as I have pointed out for the last couple of weeks. The depth and velocity of the decline suggests there could be a quick rebound. Historically, there have been 17 declines of 500 points or more and almost always there was an immediate rebound.
Attention: Newsletter changes starting this week.
Most readers are aware that we publish multiple newsletters with stock picks. The number of positions that must be researched, analyzed and recommended is sometimes overpowering. This means I have to come up with 700-850 new positions every year and then research the news and post updates on each for every newsletter. Obviously there are not 700-850 stocks that are worthy of investment every year.
Option Investor 200-250, average 4-5 per week.
Premier Investor 200-250, average 4-5 per week.
Ultimate Investor 50, average 1 per week.
LEAPS Investor 50, average 1 per week.
Option Writer 150-200, average 3-4 per week.
OilSlick, 50, average 1 per week.
Because Option Investor and Premier Investor are daily, it is very easy to fall into the trap of forcing a new position every day because it is a newsletter day. I have tried to fight that but it has been a problem for years regardless of who was writing the plays.
I am stopping that process this week. We had a writer change last week that means I will be writing market wraps on Tue/Thr/Sat and Tommy will do Mon/Wed.
Market wrap research and preparation is a 6-8 hour process. We don't just sit down and spew out 3500-4000 words of comprehensive research and analysis over a couple hours. There is a lot of research that never makes it to the commentary because of time and space but we have to do it to determine what events are relative and which are not.
Starting this week, I will only be doing play updates on Wednesday and Saturday. Not having to read all the news for every active position and post a daily update will save a lot of time. I will update the daily portfolio graphic and post an update on any closed positions.
I am also going to stop the process of new daily plays. I do not just draw symbols out of a hat. A lot of research goes into each recommendation. The 2-3 hours a day per newsletter that are spent scanning charts, checking earnings dates, looking at option montages and reading hundreds of news headlines makes the play picking process frantic on days I have to write the commentary plus another newsletter.
I believe if I cut the number of new plays down to 2-3 per week on Wednesday and Saturday, 100-150 per year, we will have better quality choices without a lot of forced positions just because it is a newsletter day. The point of investing is to make money not to just trade. Having fewer quality positions will make them easier to manage for both readers and myself.
I am explaining this in depth because I want readers to understand the process and that we do care about the end result, which is making money for readers.
I am going to send out a survey next week with detailed questions about the newsletters. Please take the 2-3 minutes to answer it so I can make sure the newsletter we are providing is the one you want to read.
As always, you can email me directly about the topics above or any topic on your mind and I will respond.
Thank you in advance for your understanding.
Send Jim an email
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
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
No Active Calls
BEARISH Play Updates (Alpha by Symbol)
HOG - Harley Davidson - Company Profile
No specific news. Shares declined with the market and even despite our bad entry the position is in positive territory.
Original Trade Description: January 31st.
Harley-Davidson, Inc. primarily manufactures and sells cruiser and touring motorcycles. The company operates through two segments, Motorcycles & Related Products, and Financial Services. The Motorcycles & Related Products segment designs, manufactures, and sells wholesale on-road Harley-Davidson motorcycles, as well as motorcycle parts, accessories, general merchandise, and related services. It offers motorcycle parts and accessories, such as replacement parts, and mechanical and cosmetic accessories; general merchandise, including MotorClothes apparel and riding gears; and various services to its independent dealers comprising motorcycle services, business management training programs, and customized dealer software packages. This segment also licenses the Harley-Davidson name and other trademarks. It sells its products to retail customers through a network of independent dealers, as well as ecommerce channels in the United States, Canada, Latin America, Europe, the Middle East, Africa, and the Asia-Pacific. The Financial Services segment provides wholesale and retail financing services; and insurance and insurance-related programs primarily to Harley-Davidson dealers and retail customers in the United States and Canada. This segment offers wholesale financial services, such as floorplan and open account financing of motorcycles, and motorcycle parts and accessories; and retail financing services, including installment lending for the purchase of new and used Harley-Davidson motorcycles. It also operates as an agent providing point-of-sale protection products, including motorcycle insurance, extended service contracts, credit protection, and motorcycle maintenance protection. Harley-Davidson, Inc. was founded in 1903 and is based in Milwaukee, Wisconsin. Company description from FinViz.com.
Harley-Davidson (HOG) reported earnings of 54 cents compared to estimates for 46 cents. Revenue of $1.05 billion beat estimates for $1.01 billion. These numbers were up from 27 cents and $933.0 million in the year ago quarter. That is where the good news ends. The company said it was going to incur consolidation costs of $170-$220 million and $75 million in capital costs over the next two years. The consolidation of plants would save them $65-$75 million annually after 2020.
The company said Q4 sales declined 9.6% year over year with sales down -11.1% in the USA. Industry sales were down -6.5%. Overall shipments by Harley in 2017 were the lowest in six years. The company said the customer base was getting older and younger customers were lukewarm to the brand. They lowered 2018 guidance for shipments of 231,000-236,000 motorcycles, down from actual shipments in 2017 of 241,498 and its prior 2018 forecast of 241,000-246,000. Shares fell 8% on the lowered guidance.
The outlook is negative. Higher costs, lower earnings, falling shipments. This should be a cloud over the stock for weeks to come.
Long March $47.50 put @ $1.99, see portfolio graphic for stop loss.
NTNX - Nutanix Inc - Company Profile
No specific news. Only a minor decline but closed at a 2-month low.
Original Trade Description: January 29th.
Nutanix makes infrastructure invisible, elevating IT to focus on the applications and services that power their business. The Nutanix Enterprise Cloud OS software leverages web-scale engineering and consumer-grade design to natively converge compute, virtualization and storage into a resilient, software-defined solution with rich machine intelligence. The result is predictable performance, cloud-like infrastructure consumption, robust security, and seamless application mobility for a broad range of enterprise applications and services. Company description from FinViz.com.
Expected earnings March 1st.
Nutanix is a good company. They have a great software product. Their challenge is a lot of competition and a rapidly evolving market place. They are faced with educating potential customers about the long-term benefits of the products and then convincing them to lay out a lot of money to change the way they run their server farms.
They are moving into a new layer of software development that will converge all factors of enterprise computing and cloud operations. JP Morgan said that moving to a "new software-oriented model" could "create near-term business disruption" give that it will require operational adjustments for new and existing customers alike. The analyst also warned a recent change to the leadership team might be disruptive as well. Given the recent 4-month rally in NTNX shares, there could be some material impact from implementing the new model.
Shares closed at a two-month low on Monday.
Long March $30 put @ $2.49, see portfolio graphic for stop loss.
QQQ - Powershares QQQ - ETF Profile
Major 2% decline and closed at the low for the day. I put a stop loss on the position and a profit target at $162. I expect this market decline to be brief.
Original Trade Description: January 31st.
PowerShares QQQ, formerly known as QQQ or the NASDAQ- 100 Index Tracking Stock, is an exchange-traded fund based on the Nasdaq-100 Index. The Fund will, under most circumstances, consist of all of stocks in the Index. The Index includes 100 of the largest domestic and international nonfinancial companies listed on the Nasdaq Stock Market based on market capitalization. The Fund and the Index are rebalanced quarterly and reconstituted annually. ETF description from Powershares.
The chart on the QQQ has shown several failures lately at the $170 level and the volatility is increasing. Rising volatility (strong reversals) is typically a sign of investor indecision see at market tops and bottoms.
If the tech sector decides to take profit from the nearly 10% gain in 2018, the drop could be significant. Uptrend support is around $162.
This is a speculative position on the potential for a post earnings depression decline over the next three weeks.
Long March $166 put @ $3.13, see portfolio graphic for stop loss.
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