We are perfectly positioned to benefit from any January volatility.

After we close DLTR at the open on Tuesday, we will only have four active positions. The volatility over the last couple weeks eliminated the rest. Readers should have a lot of ready cash and be ready to put it to work.

There is a strong chance we could see some volatility in early January that could provide some great buying opportunities. In four of the last five years, the first two weeks of January posted declines. In 2016 the S&P fell more than 10% in less than three weeks. I do not expect a repeat of that drop but the Dow components are very overbought. Stocks like BA, CAT, HD, WMT, UTX, VZ, etc could easily see some serious profit taking. Unfortunately, two of those are in our portfolio. I did raise the stop losses.




Despite the recent historical trend, there is no guarantee the market will decline. Actually the first day in January tends to be up because of the inflows from end of year retirement contributions hitting fund accounts.

If we do have a volatility event I would expect any decline to be short, sharp and shallow. There are too many investors waiting for a buying opportunity and any material dip will likely be bought.

The S&P has been struggling to hold its gains for the last two weeks. Friday's close was a two-week low. Any gain next week is going to find strong resistance at 2692-2695. Initial support is 2,650 followed by 2,625, which should hold unless we get a washout. A 5% drop would take it back to 2,550 but I seriously doubt that will happen. A more realistic 3% drop would be to 2,609.

For planning purposes, I am projecting a market decline starting in early May. The Q4 earnings should support the market with guidance related to increased cash flow related to the tax reform. By the time we are half through the Q1 earnings cycle that starts in mid April, the outcome for the year should be known and portfolio managers may be ready to exit positions ahead of the summer doldrums. If the market has not had a significant decline before early May, the summer weakness could be severe. It has been two years since a 10% drop in January 2016. Normally we see one 10% and two 5% per year. There was a 3.1% decline in August. That was the biggest decline since January 2016.


The Dow has rock solid resistance at 24,850 and closed right at initial support of 24,720 on Friday. So many of the Dow components have had enormous gains over the last four months that a drop in the Dow is almost guaranteed. A 3% decline would target 24,100 and a 5% decline around 23,600. I would be surprised if the 24,100 level failed but it is entirely possible.


The Nasdaq is the weakest index. The big cap tech stocks have been lethargic with most of them already in a minor decline. If that increases in January, the Nasdaq could be the index that drags all the other markets lower. The 3% decline target would be around 6,775 and the 5% at 6,635. The Nasdaq has paused numerous times on the way up so it is not as overbought as the Dow. However, the Nasdaq components have been weaker in late December and suggest there could be further weakness in January.


The Russell 2000 was actually the most bullish index last week. The Russell closed at a new high on Thursday by 0.0013 points. There was an attempt to break through the 1,550 resistance on Friday but it was solid and refused to budge. The close was still a two-week low. A 3% decline would be 1,502 and a 5% at roughly 1,470.



 

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The hurdle the market will have to overcome is the potential government shutdown on January 19th. The opposing sides in Washington seem to be growing farther apart every day on what they are willing to accept in order to pass a real government funding bill. With the House still on vacation next week, the fireworks will not begin until somewhere around January 10th. Hopefully, they can reach some agreement and not crash the market as they did with the last government shutdown.

This is a big week for economic reports with the ADP and Nonfarm payrolls. There is also the ISM and ISM Services and the FOMC minutes. As long as these reports are close to expectations they should not be market movers. The market will be moving on its own on portfolio restructuring before the Q4 earnings cycle and the economic numbers will be ignored.

The earnings calendar is lackluster with only Rite Aid and Walgreens as the highlights with Monsanto and Constellation Brands as honorable mentions.

For the last two weeks, resistance was rock solid. That is a clue of what we should expect in January. In order for resistance to be solid there needs to be a large number of sellers at those levels. The Dow was 24,850, which was just below the unofficial target for the year at 25,000. Sellers parked their sell orders at that level and every attempt to move higher was met with a sharp increase in selling volume.

For January, the new tax year will allow investors to close positions they have been holding with fingers crossed hoping to make it to 2018. There is no longer any reason for them not to take profits and restructure their portfolios ahead of the Q4 earnings cycle.

Nobody can predict market movement. We can theorize based on the fundamentals and technicals but there is always that tsunami of unknowns made up of a million investors all acting at once in their own behalf. Nobody can predict what the herd will do but in this instance, we can make a calculated guess.

I expect the market to decline next week. If it does not, I will be thrilled and we will retain our profitable positions. If it does decline, we will take profits and look to reenter some positions with a more favorable option. Keep some cash in your account in case we get a great buying opportunity.

There is always another day to trade if you have money in your account.

Happy new Year to everyone!

Jim Brown

Send Jim an email



NEW DIRECTIONAL PUT PLAY

UTX - United Technology - Company Profile

United Technologies Corporation provides technology products and services to building systems and aerospace industries worldwide. Its Otis segment designs, manufactures, sells, and installs passenger and freight elevators, escalators, and moving walkways; and offers modernization products to upgrade elevators and escalators, as well as maintenance and repair services. The company's UTC Climate, Controls & Security segment provides heating, ventilating, air conditioning, and refrigeration solutions, such as controls for residential, commercial, industrial, and transportation applications. This segment offers electronic security products, including intruder alarms, access control systems, and video surveillance systems; fire safety products; and design, installation, system integration, repair, maintenance, monitoring, and inspection services. Its Pratt & Whitney segment supplies aircraft engines for commercial, military, business jet, and general aviation markets; and provides aftermarket maintenance, repair, and overhaul, as well as fleet management services. The company's UTC Aerospace Systems segment provides electric power generation, power management, and distribution systems; air data and aircraft sensing systems; engine control, intelligence, surveillance, and reconnaissance systems; engine components; environmental control systems; fire and ice detection, and protection systems; propeller systems; engine nacelle systems; aircraft lighting and seating, and cargo systems; actuation and landing systems; space products and subsystems; and aftermarket services. United Technologies Corporation offers its services through manufacturers' representatives, distributors, wholesalers, dealers, retail outlets, and sales representatives, as well as directly to customers. United Technologies Corporation was founded in 1934 and is headquartered in Farmington, Connecticut. Company description from FinViz.com

Expected earnings January 23rd.

This play has nothing to do with the fundamentals of UTX. This is strictly a position to capitalize on any early January decline in the Dow. UTX has rallied sharply since September and is currently sitting at a record high. If the recent Dow leaders sell off in January it could be a sharp drop. I would rather have played BA or CAT but their options are double or triple the price on UTX. I am not looking for a big drop but the $123 level is possible.

The S&P futures are up nearly $4 on Monday night so any opening spike on the Dow could give us an ideal fill on this put. This will be a very short-term position as in 1-2 weeks.

Buy Feb $125 put, currently $1.99. No initial stop loss just in case the market opens higher.




Current Portfolio


Open Positions

Check the graphic below for any new stop losses in bright yellow. We need to always be prepared for an unexpected decline. Any items shaded in blue were previously closed.




Current Position Changes


ADSK - Autodesk
The long call position was stopped at $104.85.

DXCM - DexCom
The long call position was stopped at $56.25.

WDC - Western Digital
The long call position was stopped at $79.50.


Original Play Recommendations (Alpha by Symbol)


ABBV - AbbVie - Company Profile

Comments:

No specific news. Shares flat for the week except for the drop with the market at Friday's close.

Original Trade Description: November 6th.

AbbVie Inc. discovers, develops, manufactures, and sells pharmaceutical products worldwide. The company offers HUMIRA, a biologic therapy administered as a subcutaneous injection to treat autoimmune diseases; IMBRUVICA, an oral therapy for the treatment of patients with chronic lymphocytic leukemia; and VIEKIRA PAK, an interferon-free therapy, with or without ribavirin, for the treatment of adults with genotype 1 chronic hepatitis C. It also provides Kaletra, an anti- human immunodeficiency virus(HIV)-1 medicine used with other anti-HIV-1 medications as a treatment that maintains viral suppression in HIV-1 patients; Norvir, a protease inhibitor indicated in combination with other antiretroviral agents to treat HIV-1; and Synagis to prevent RSV infection at-risk infants. In addition, the company offers AndroGel, a testosterone replacement therapy for males diagnosed with symptomatic low testosterone; Creon, a pancreatic enzyme therapy for exocrine pancreatic insufficiency; Synthroid to treat hypothyroidism; and Lupron, a product for the palliative treatment of prostate cancer, endometriosis, and central precocious puberty, as well as for the treatment of patients with anemia. Further, it provides Duopa and Duodopa, a levodopa-carbidopa intestinal gel to treat Parkinson's disease; Sevoflurane, an anesthesia product for human use; and ZINBRYTA, a subcutaneous treatment for relapsing forms of multiple sclerosis. The company sells its products to wholesalers, distributors, government agencies, health care facilities, specialty pharmacies, and independent retailers from its distribution centers and public warehouses. AbbVie Inc. has collaboration agreements with C2N Diagnostics; Calico Life Sciences LLC; Infinity Pharmaceuticals, Inc.; M2Gen; and Principia Biopharma Inc. Company description from FinViz.com.

Next expected earnings January 26th.

A lot of companies have 1-2 real drugs in the pipeline that may be approved. Several companies have one drug that could be a blockbuster and reach $1 billion in sales annually. AbbVie has multiple blockbusters in the pipeline and dozens of other drugs already in the market.

AbbVie was a spinoff from Abbott Laboratories in 2012 and they are doing great.

ABBV reported earnings of $1.41 that beat estimates for $1.39. Revenue of $7 billion missed estimates for $7.04 billion. They raised full year guidance from $5.44-$5.54 to $5.53-$5.55. They guided for 2018 earnings of $6.37 to $6.57. Analysts were expecting $5.53 for 2017 and $6.56 for 2018. The company raised its quarterly dividend by 11% to 71 cents.

AbbVie previously guided for sales of Humira to exceed $18 billion in 2020. In their earnings call they raised that guidance to $21 billion in 2020. Sales of Humira hit $4.7 billion in Q3 to put it on track for $18 billion two years earlier than prior guidance. That is just one drug. At the same time, they are projecting non-Humira sales to reach $35 billion in 2025. That is a risk adjusted assumption that some drugs will fail in trials. Without any failures they are projecting $47 million. The risk-adjusted number would put AbbVie in 9th place by revenue. The nominal number would put them in fifth place.

The company recently announced a deal with Amgen to resolve patent problems on Humira and push biosimilar competition well into the future. The company's confident that there would not be a biosimilar drug until 2021-2022 matched analyst estimates. This is a steep uphill battle for anyone trying to copy this drug.

In September AbbVie filed two new drug applications with the FDA and reported positive results on two drug trials. Shares have gained $12 in a week. On Monday, they reported studies on rheumatoid arthritis with the drug Upadacitinib had met all primary and secondary endpoints. In testing two different doses 40% of patients reported clinical remission after 12 weeks and 50% reported the same after 24 weeks, without any unforeseen side effects. These were patients that had failed to respond to conventional treatments. More than 23 million people are afflicted with this disease. This will be a blockbuster drug for AbbVie and they have many more in the pipeline.

The company received a favorable opinion on MAVIRET, a once daily Hep-C drug, from the European Medical Agency and the CHMP. This is an 8-week cure for Hep-C that will compete with Gilead's products.

Analysts claim AbbVie's pipeline is the strongest in the industry. The post earnings drop is a buying opportunity and shares are rebounding. The company's other drugs are going to be cash cows. Imbruvica generated $1.8 billion in sales in 2016 and could reach $7 billion annually over the next couple of years. Venclexta was approved in 2016 for leukemia and sales could peak at $3.5 billion a year. An experimental cancer drug called Rova-T could hit $5 billion a year when approved. A psoriasis drug called risankizumab could produce $4 billion a year and arthritis drug upadacitinib could peak at $3.5 billion.

Update 11/27: AbbVie was just notified that one of its groundbreaking lymphoma drugs had been accepted as a late-breaking abstract at the American Society of Hematology conference in early December. In all, the company will have a total of 28 abstracts presented across various hematologic malignancies. The conference if Dec 9-12th and should generate some positive headlines for the company.

Update 12/4: AbbVie said a phase 3 trial of its plaque psoriasis treatment, risankizumab, met all co-primary and ranked secondary endpoints. The company said no new safety signals were detected. "With a significant portion of risankizumab patients achieving high levels of skin clearance, these results add to the data supporting risankizumab's potential to be an impactful new treatment option for patients living with psoriasis. Shares tried to rally but the biotech sector was crashing with the Nasdaq.

Update 12/11: AbbVie said a phase 2 trial of Imbruvica, showed positive results for cGVHD after stem cells or bone marrow transplants. They also reported positive results for the same drug on Mantle Cell Lymphoma and chronic Lymphocytic Leukemia. The drug still has additional testing but it appears to be on track for successful adoption in various therapies.

Position 11/7/17:

Long Feb $95 call @ $3.75, see portfolio graphic for stop loss.



ADSK - Autodesk - Company Profile

Comments:

No specific news. Shares finally broke below the 200-day average to stop us out.

Original Trade Description: December 4th

Autodesk, Inc. operates as a design software and services company worldwide. It operates through Architecture, Engineering, and Construction; Manufacturing; Platform Solutions and Emerging Business; and Media and Entertainment segments. The company offers AutoCAD, a professional design, drafting, detailing, and visualization software; and AutoCAD LT, a professional drafting and detailing software; Maya and 3ds Max software products that offer 3D modeling, animation, effects, rendering, and compositing solutions; and Revit software for building information modeling. It also provides Inventor tool for 3D mechanical design, simulation, analysis, tooling, visualization, and documentation; AutoCAD Civil 3D, a surveying, design, analysis, and documentation solution for civil engineering, including land development, transportation, and environmental projects; and computer-aided manufacturing (CAM) software for computer numeric control machining, inspection, and modelling for manufacturing. In addition, the company offers Fusion 360, a 3D CAD, CAM, and computer-aided engineering tool; BIM 360, a construction management software; and Shotgun, a cloud-based software for review and production tracking in the media and entertainment industry. It licenses or sells its products to customers in the architecture, engineering, and construction; manufacturing; and digital media, consumer, and entertainment industries directly, as well as through resellers and distributors. Autodesk, Inc. was founded in 1982 and is headquartered in San Rafael, California. Company description from FinViz.com.

Expected earnings Feb 27th.

Autodesk was flying high a week ago at $130 but fell off a cliff after earnings. Shares plunged to $105 on weaker than expected subscriber additions. Autodesk is converting from the software sales model to the software as a service model with various subscription plans. This will produce steady earnings in the future but it normally rocky in the first two years of conversion as we have seen with a dozen other companies.

The company reported a loss of $119.8 million on revenue of $515.3 million. Analysts were expecting $116.4 million and $513.6 million. There was nothing in those numbers that would have caused a $25 share drop.

They reported 146,000 new subscribers and analysts were expecting 147,000. The company slightly lowered the full year subscriber forecast because of the minor miss. The company said the reason for the miss was a large number of new enterprise customers. These customers buy companywide licenses for extended periods compared to the 2-3 license subscriptions in smaller companies. The bigger deals sharply raised the unbilled deferred revenue from $63 million to $148 million.

William Blair said this was the first quarter of YoY revenue growth since April 2015. Morgan Stanley also said not to worry about the subscriber numbers because the enterprise customers were "higher value" subscribers.

The company also announced a cutback of 1,000 jobs in a previously unannounced restructuring. Morgan Stanley things that will yield about $6 per share in free cash flow in 2020.

ADSK shares have moved sideways for the last week despite the Nasdaq crash. Three other stocks in this sector have been crashing. Those are CDNS, ANSS, SNPS.

I believe the ADSK decline is about over. Once it begins to rebound it should return to its prior trend. As the market rises higher, Autodesk begins to look like a value stock after a $25 hair cut.

Update 12/10: Shares traded sideways for the week as analysts try to decide if the next direction is going to be higher or lower. I reread all the commentary since the conference call and I believe the restructuring is going to be positive. Basically, they said they were going to shutdown all the noncore operations and simply focus on making the core business better. I believe they grew too fast and prior management was spreading the effort into other areas that would not be highly profitable. The new management said, focus on the profitable areas and trim the costs and other efforts. Time will tell if I am right.

Position 12/5/17:

Closed 12/20: Long March $115 call @ $5.25, exit $2.96, -2.29 loss.



BOTZ - Robotics & AI ETF - Company Profile

Comments:

No specific news. The decline in the chip sector on Friday blunted the rebound. Since most of the components are chip stocks this is is a play on the leading edge chip companies. Nvidia is a major holding.

Original Trade Description: October 24th

The Global X Robotics & Artificial Intelligence ETF seeks to invest in companies that potentially stand to benefit from increased adoption and utilization of robotics and artificial intelligence (AI), including those involved with industrial robotics and automation, non-industrial robots, and autonomous vehicles. The ETF seeks to provide investment results that correspond generally to the price and yield performance, before fees and expenses, of the Indxx Global Robotics & Artificial Intelligence Thematic Index.

The ETF has 28 stocks including NVDA, ISRG, TRMB, BRKS, IRBT, MZOR, Toshiba and Cyberdyne.

The ETF is somewhat slow moving since it just began trading in September. Volume has increased significantly to 2.59 million shares on Monday.

The key to this ETF and this position is that the stock rarely goes down and the options are cheap. There have only been 3 periods of decline in 2017 and each drop was only about 60 cents. The ETF is rising steadily since April but has recently been accelerating. If this continues, even allowing for some declines, that would equate to a nice gain by June and the option costs $1.45 at the money. This is not going to set the world on fire like a Facebook or Netflix but it should be dependable, stable gains. Obviously, past performance is no guarantee of future results.

Position 10/24/17:

Long June $24 call @ $1.45. See portfolio graphic for stop loss.



CAT - Caterpillar - Company Profile

Comments:

No specific news. CAT shares peaked on Thursday at $158.50 and in a normal market they would be setup for a nasty decline. This has been the second biggest Dow gainer over the last five months. I raised the stop loss just in case the stock rolls over.

Original Trade Description: November 13th

Caterpillar Inc. manufactures and sells construction and mining equipment, diesel and natural gas engines, industrial gas turbines, and diesel-electric locomotives for heavy and general construction, rental, quarry, aggregate, mining, waste, material handling, oil and gas, power generation, marine, rail, and industrial markets. Its Construction Industries segment offers backhoe, compact, track-type, small and medium wheel, knuckleboom, and skid steer loaders; small and medium track-type, and site prep tractors; mini, wheel, forestry, small, medium, and large track excavators; and motorgraders, pipelayers, telehandlers, cold planers, asphalt pavers, compactors, road reclaimers, and wheel and track skidders and feller bunchers. The company's Resource Industries segment provides electric rope and hydraulic shovel, landfill and soil compactor, dragline, large wheel loader, machinery component, track and rotary drill, electronics and control system, work tool, hard rock vehicle and continuous mining system, scoop and hauler, wheel tractor scraper, large track-type tractor, and wheel dozer products; longwall, highwall, and continuous miners; and mining, off-highway, and articulated trucks. Its Energy & Transportation segment offers reciprocating engine powered generator set and engine, integrated system, turbine, centrifugal gas compressor, diesel-electric locomotive and component, and other rail-related products and services. The company's Financial Products segment offers finance for Caterpillar equipment, machinery, and engines, as well as dealers; property, casualty, life, accident, and health insurance; and insurance brokerage services, as well as purchases short-term trade receivables. It's "All Other" operating segments provides parts distribution and digital investments services. The company was formerly known as Caterpillar Tractor Co. and changed its name to Caterpillar Inc. in 1986. Company description from FinViz.com.

CAT has been alternately ignored or talked down for the last couple years but the shares keep rising. Part of the recent gains came from the guidance. The company has been bitten by the global slowdown in construction since the financial crisis. Then it was hit by the slowdown in the energy sector. Every expected rebound falied to appear and CAT continued to give cautious guidance. That changed over the last several months.

The global economy is rebounding. There are massive construction projects now underway in China and Asia. The Eurozone is also seeing a resurgence in consrtuction. Commodity metals are booming and mines are reopening shuttered capacity and opening new mines. Everything is suddenly positive for CAT and guidance is exploding.

In December they guided for full year 2017 revenues of $38 billion "as a reasonable midpoint expectation." Analyst estimates for earnings of $3.25 were "too optimistic" according to CAT.

In January they guided for $36-$39 billion in revenue and $2.90 in earnings.
In April they guided for $38-$41 billion in revenue and $3.75 in earnings.
In July they guided for $42-$44 billion in revenue and $5 in earnings.
In October they guided for $44 billion and $6.25 in earnings.

In April they guided for revenue from construction at flat to 5%.
In July they guided for 10% to 15% growth.
In October they guided for 20% construction growth.

In April they guided for revenue from mining at 10% to 15%.
In July they guided for 20% to 25% growth.
In October they guided for 30% growth in mining.

In April they guided for energy revenue at flat to 5%.
In July they raised it to 5% to 10%.
In October they raised it to 12%.

At the September 12th investor day meeting the new CEO said they were targeting $55 billion in revenue in 2018 with margins of 14%-17% compared to 12% in 2017. That would take them back to 2014 levels before the bear market in commodity/energy began. That is 28% above 2017 levels. He was careful not to call it a target but said that level was achievable if the current rebound in mining, energy and construction continued.

In late September, CAT reported a global increase in machine sales of 11% for August. Total sales in Asia and the Pacific surged 44%. In their October earnings, they said Asia-Pacific revenue spiked 57%.

After the devastation in Houston, there were new estimates from analysts for 17% or higher revenue growth in construction equipment.

In late October Caterpillar (CAT) reported earnings of $1.95 that nearly quadrupled and blew past estimates for $1.22. That is the kind of earnings beat that should have spiked shares but given CAT's recent string of new highs over the last three months, a lot of excitement was already priced into the stock. Revenue rose 25% to $11.41 billion compared to estimates for $10.61 billion. Construction equipment revenue rose 37% with energy and transportation equipment revenue rising 12%. CAT raised guidance for the full year from $5.00 to $6.25 on revenue of $44 billion. Analysts were expecting $5.29 and $42.94 billion. This was a killer quarter for CAT and this confirms more than anything else that the global economy is beginning to surge.

CAT shares surged to $140 on the earnings. Over the last three weeks the Dow has been moving sideways and so has CAT. Despite the intraday dips in the Dow CAT continues to hold at $136. If the Dow takes a cliff dive over the next couple of weeks, CAT will follow but the 30-day average is $133 and that has been support. I am recommending we buy a December $130 put to hedge against a sudden decline.

Lastly, the S&P futures are negative tonight. If the market opens lower DO NOT enter this position until CAT shares are positive, even if it takes a couple of days. I would rather buy a dip if possible.

Update 12/18: CAT announced a quarterly dividend of 78 cents payable Feb 20th to holders on Jan 22nd. CAT has raised its dividend for 24 consecutive years and has paid quarterly dividends since 1933.

The company said sales rose 26% for the three months ending in November. Asia Pacific sales rose 43%, Europe, Africa and the Middle East rose 32%, North America rose 12%. Latin America sales rose 48% in October. No number was given for November.

Position 11/14/17:

Long Feb $140 call @ $5.08, see portfolio graphic for stop loss.
Closed 12/15: Long Dec $130 put @ 77 cents, expired, -.77 loss.



DLTR - Dollar Tree - Company Profile

Comments:

No specific news. Holiday shopping is over and retail stocks may be gettnig ready to decline. This is a January position and it is time to exit. Close the position.

Original Trade Description: September 11th.

Dollar Tree, Inc. operates variety retail stores in the United States and Canada. It operates in two segments, Dollar Tree and Family Dollar. The Dollar Tree segment offers merchandise at the fixed price of $1.00. It provides consumable merchandise, including candy and food, and health and beauty care products, as well as everyday consumables, such as household paper and chemicals, and frozen and refrigerated food; various merchandise comprising toys, durable housewares, gifts, stationery, party goods, greeting cards, softlines, and other items; and seasonal goods, which include Valentine's Day, Easter, Halloween, and Christmas merchandise. This segment operates under the under the Dollar Tree and Dollar Tree Canada brands, as well as 11 distribution centers in the United States and 2 in Canada, and a store support center in Chesapeake, Virginia. The Family Dollar segment operates general merchandise discount retail stores that offer consumable merchandise, which comprise food, tobacco, health and beauty aids, household chemicals, paper products, hardware and automotive supplies, diapers, batteries, and pet food and supplies; and home products, including housewares, home decor, and giftware, as well as domestics, such as blankets, sheets, and towels. It also provides apparel and accessories merchandise comprising clothing, fashion accessories, and shoes; and seasonal and electronics merchandise, which include Valentine's Day, Easter, Halloween, and Christmas merchandise, as well as personal electronics that comprise pre-paid cellular phones and services, stationery and school supplies, and toys. This segment operates under the Family Dollar brand, 11 distribution centers, and a store support center in Matthews, North Carolina. As of January 28, 2017, the company operated 14,334 stores in 48 states and the District of Columbia, and 5 Canadian provinces. Company description from FinViz.com

Dollar Tree reported earnings in late August that rose 36.1% to 99 cents and beat estimates for 87 cents. Revenue of $5.28 billion rose 5.7% and beat estimates for 5.24 billion. Same store sales rose 2.4%. They guided for the full year for revenue of $22.07-$22.28 billion, up from $21,95-$22.25 billion. Earnings guidance of $4.44-$4.60 rose from $4.17-$4.43.

Shares spiked $6 on the earnings and then went through a week of post earnings depression. Shares have firmed and are right on the verge of breaking through resistance to a 9 month high, and probably higher.

Next earnings Nov 21st.

After earnings Raymond James upgraded them from market perform to strong buy. Bernstein upgraded from underperform to market perform. Telset Advisory reiterated an outperform.

Dollar Tree is Amazon proof. With everything in the store $1 or less even Amazon cannot sell and ship items that cheap. Since their acquisition of Family Dollar they now operated 14,334 stores. This is a retail powerhouse and even if the economy weakens, their business will thrive because of the low price point.

Shares are right at resistance at $83.50 and a 5-month high. They are poised for a breakout with the next resistance at $90.

The November options expire several days before earnings so I am going with the January strikes so there is some earnings expectations in the premium when we exit before the event.

Update 11/27: DLTR reported earnings of $1.01 that beat estimates for $90 cents and was well above the 70 cents reported in the year ago quarter. Revenue of $5.32 billion beat estimates for $5.28 billion. For the current quarter, they guided for revenue in the range of $6.32-$6.43 billion and analysts were expecting $6.26 billion. Full year earnings guidance was $4.64-$4.73 and $22.2-$22.31 billion. That is up from $4.44-$4.60 in prior guidance. Analysts were expecting $4.69.

Same store sales (SSS) for the system rose 3.3% and beat estimates for $2.4%. Dollar Tree SSS rose 5.0% and Family Dollar sales rose 1.5%. Position 9/12/17:

Long Jan $87.50 call @ $3.30, see portfolio graphic for stop loss.



DXCM - DexCom Inc - Company Profile

Comments:

No specific news. Shares broke below support to stop us out for a minor gain.

Original Trade Description: November 20th

DexCom, Inc., a medical device company, together with its subsidiaries, focuses on the design, development, and commercialization of continuous glucose monitoring (CGM) systems in the United States and internationally. The company offers its systems for ambulatory use by people with diabetes; and for use by healthcare providers in the hospital for the treatment of patients with and without diabetes. Its products include DexCom G4 PLATINUM system for continuous use by adults with diabetes; DexCom G4 PLATINUM with Share, a remote monitoring system; and DexCom G5 Mobile, a CGM system that directly communicates to a patient's mobile and its data can be integrated with DexCom CLARITY, which is a next generation cloud-based reporting software for personalized, easy-to-understand analysis of trends to improve diabetes management. The company also offers sensor augmented insulin pumps. It has a collaboration and license agreement with Verily Life Sciences LLC to develop a series of next-generation CGM products. The company markets its products directly to endocrinologists, physicians, and diabetes educators. Company description from FinViz.com.

DSCM was slammed for a $22 loss at the open on Sept 28th on news that Abbott Labs had made a glucose monitoring system that did not require the daily pinprick to draw a drop of blood. Shares fell from $67.50 to $44.50 and stayed there for a month. Investors feared diabetics would drop the DexCom monitoring products in a heartbeat and move to Abbott's system.

On November 1st, the company posted better than expected earnings and revenue and the stock began to rise again.

Expected earnings January 31st.

The DexCom CEO gave an interview on CNBC last week and he said the Abbott system will not have a dramatic impact to DexCom sales. He pointed out that they had been competing against the Abbott Libre system in Europe for three years and growth has continued to rise. It wa sup 80% in Q3 alone.

The CEO said the DexCom system does much more than the Abbott system. "Our system connects to phones. We share data with people who watch patients. We offer performance and accuracy that others do not. He said DexCom could release its own blood-free glucose monitoring device by the end of 2018. DexCom is also in a venture with Apple to monitor glucose through the Apple Watch. The data will go straight to the cloud for monitoring and there will be no need to communicate through a daily phone call. The watch will become your monitoring device.

The $20 drop was serious overkill and the stock is rebounding now that investors understand there is no immediate impact and there are new devices on the horizon.

Position 11/21/17:

Closed 12/21: Long Mar $60 Call @ $2.75, exit $3.18, +.43 gain.



HD - Home Depot - Company Profile

Comments:

No specific news. Shares closed at a new high on Tuesday but faded with the market the rest of the week. With the holiday shopping season over there could be weakness ahead. However, HD will benefit greatly from the tax changes and that could provide support. HD is reportedly talking to XPO Logistics about an acquisition of the $9 billion company. HD uses them to deliver large items like refrigerators and other appliances. There could be a battle with Amazon since that large item shipping is a problem for Amazon.

Original Trade Description: December 18th

The Home Depot, Inc. operates as a home improvement retailer. It operates The Home Depot stores that sell various building materials, home improvement products, and lawn and garden products, as well as provide installation, home maintenance, and professional service programs to do-it-yourself, do-it-for-me (DIFM), and professional customers. The company offers installation programs that include flooring, cabinets, countertops, water heaters, and sheds; and professional installation in various categories sold through its in-home sales programs, such as roofing, siding, windows, cabinet refacing, furnaces, and central air systems, as well as acts as a contractor to provide installation services to its DIFM customers through third-party installers. It primarily serves homeowners; and professional renovators/remodelers, general contractors, handymen, property managers, building service contractors, and specialty tradesmen, such as installers. The company also sells its products through online. It operates through approximately 2,278 stores, including 1,977 in the United States, including the Commonwealth of Puerto Rico, and the territories of the U.S. Virgin Islands and Guam; 182 in Canada; and 119 in Mexico.

The company reported Q3 earnings of $1.84 that rose 15% and beat estimates for $1.81. Revenue rose 8.1% to $25.026 billion, up from $23.154 billion. This beat estimates for $24.523 billion. Same store sales rose 7.9%. HD said the hurricanes added about $282 million in sales but also cost them about $51 million in store damages and inventory shifting costs. The company guided for Q4 revenue growth of 6.3% and same store sales of 6.5%. Those numbers were up from 5.3% and 5.6% in prior guidance. Earnings are expected to grow 14% to $7.36 for the full year, up from prior guidance of $7.29. Full year 2017 sales are expected to be $100.6 billion. They had $8 billion unspent on a $15 billion share repurchase program.

In early December, Home Depot (HD) announced a new $15 billion buyback and raised guidance for annual sales between $114.6-$119.8 billion by the end of 2020. The new repurchase program replaced the existing $15 billion program. The company expects to buy back $8 billion in shares total in 2017 with $2.1 billion in Q4. Since 2002, Home Depot has bought back 1.3 billion shares worth $73 billion.

Home Depot had an effective tax rate of 37% in Q3. Under the new tax plan that would drop to about 23%. Analysts believe this could boost HD's 2018 earnings by as much as 25%. That means their earnings could rise as much as $1.81. They currently have a PE of 25 and that would equate to about a $45 rise in the stock price. However, I would expect that PE to decline somewhat in the conversion.

Shares are already up after their November earnings guidance but I believe they can still go higher. Options are not cheap. In order to get the benefit of the rise in expectations I would like to reach out to May but the options are too expensive but not enough to make a spread worthwhile. I am recommending a March position and hopefully analyst projections will do the work for us.

Earnings are Feb 13th and I would plan to hold over that report because they will give tax guidance at that time.

Position 12/19/17:

Long Mar $190 call @ $4.40, see portfolio graphic for stop loss.



WDC - Western Digital - Company Profile

Comments:

The rally on the announcement of the settlement with Toshiba over the chip business faded quickly. Helping the decline was the news that Seagate scored a partnership with the winners of the Toshiba bid and now Seagate will have access to unlimited cheap memory making it a stronger competitor against WDC. Shares fell hard on the news and we were stopped out.

Original Trade Description: December 11th

Western Digital Corporation, together with its subsidiaries, develops, manufactures, and sells data storage devices and solutions worldwide. It offers performance hard disk drives (HDDs) that are used in enterprise servers, data analysis, and other enterprise applications; capacity HDDs and drive configurations for use in data storage systems and tiered storage models; and enterprise solid state drives (SSDs), including NAND-flash SSDs and software solutions that are designed to enhance the performance in various enterprise workload environments. The company also provides system solutions that offer petabyte scalable capacity; data storage platforms and systems; datacenter software and systems; and HDDs and SSDs for desktop and notebook PCs, gaming consoles, security surveillance systems, and set top boxes. In addition, it offers NAND-flash embedded storage products for mobile phones, tablets, notebook PCs, and other portable and wearable devices, automotive, IoT, and connected home applications; NAND-flash memory wafers; and custom embedded solutions and iNAND embedded flash products, such as multi-chip package solutions that combine NAND-flash and mobile dynamic random-access memory in an integrated package. Further, it provides client solutions that consist of HDDs and SSDs embedded into external storage products; removable cards for use in mobile phones, tablets, imaging systems, still cameras, action video cameras, and security surveillance systems; USB flash drives used in computing and consumer markets; and wireless drive products. Additionally, the company licenses its intellectual property. It sells its products under the HGST, SanDisk, and WD brands to original equipment manufacturers (OEMs), distributors, resellers, cloud infrastructure players, and retailers. It serves storage subsystem suppliers, OEMs, Internet and social media infrastructure players, and PC and Mac OEMs. The company was founded in 1970 and is headquartered in San Jose, California. Company description from FinViz.com.

Expected earnings Jan 25th.

Western Digital has been fighting Toshiba's sale of their joint venture chip unit for several months. WDC gained a 50% interest when it acquired Sandisk in 2016. This is a big deal for WDC since the company can use the memory in its disk drive business at a very low cost.

Toshiba got in trouble when it bought Westinghouse Electric before the company was forced to file bankruptcy for problems related to some nuclear plants under construction. Toshiba ran out of cash and was in danger of being delisted in early 2018 if it could not raise some capital. They decided to sell their 50% of the chip business. There were several rounds of bidding and a sale was eventually awarded to a consortium headed by Bain.

WDC said their joint venture agreements gave WDC the right to approve any sale and they filed an arbitration case and a suit to halt the sale. WDC had also bid but the feelings between the two companies had been so corrupted by the arguing and legal issues that Toshiba awarded the deal to Bain.

They have been in negotiations for the last two months to solve their legal issues. The Bain deal cannot close until WDC and Toshiba settle those issues that are clouding the sale.

The WSJ is reporting there could be a settlement later this week. I believe this will remove a cloud from WDC shares and cement their relationship with Toshiba and the new consortium for years into the future.

Update 12/18: Toshiba and WDC announced they have settled their disagreements. WDC will remain a partner in Toshiba Memory Corp and will be able to invest in all future plants and upgrades, have access to memory at cost and they did not have to spend billions to do it. This was a win for WDC and shares moved higher on the news.

Position 12/12/17:

Closed 12/26: Long April $85 call @ $5.20, exit $3.60, -1.60 loss.



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