You never know what is going to trigger a market meltdown because they are not advertised in advance.

The S&P futures started out positive on Monday evening at +3 but once Asian markets opened they quickly declined to -19. That is not a typo. The "cause" of the decline is reported to be strength in the dollar but the Dollar Index is only up 26 cents since Friday's close.

When unexpected changes in direction appear, the talking heads on stock TV scramble to find something to blame for the event. Sometimes there is nothing to blame other than investors decided to take profits. With the markets rocketing higher since January 2nd, there are plenty of profits at risk. Investors have stop losses on these positions and once a real decline appears, it becomes a race to the exits as those stops are hit, which causes further selling and more stops to be hit.

The Asian markets are not down that bad. With this kind of decline, you would not expect the S&P to be imploding. There is something else at play and it may be just time for a retracement.

The calendar for the week is busy with jobs data, manufacturing data, State of the Union and FOMC meeting. The economic data is not likely to move the market. The data has been relatively benign for months with minor beats and misses. As long as that continues, and there is no reason to expect anything different, the market will ignore the data.

The State of the Union speech on Tuesday could be a wild card. We never know what will be said and how it will impact the markets. Comments over trade wars, dollar weakness, treasuries, interest rates, tariffs, North Korea, Russian investigation, etc, could cause ripples in the market pond.

The way the immigration fight is shaping up in Washington the odds are good we are going to get another government shutdown. Like we saw last week, the negative impact to the market was weak and the post shutdown rebound was strong. I would expect that same cycle if another shutdown appears. This will probably garner some comments in the SOTU speech.

This is big cap tech earnings week and I was expecting the market direction to remain positive at least until the end of this week. There are 125 S&P companies and 10 Dow components reporting. Most of the big tech will report including Microsoft, Apple, Amazon, Google, Alibaba, PayPal, Qualcomm, Facebook, etc. This week and next week are the busiest weeks in the Q4 earnings cycle.

After today's decline the S&P is still 239 points or 9.7% above its 100-day average but that is not the big issue. As of Friday's close, the weekly RSI was at a record high. The weekly chart is off the charts in terms of vertical ramp. We are due for some profit taking in the coming weeks. Initial support is well back at 2,800 followed by 2,750. Bank of America warned of a 6% decline back to 2,686.

As of Friday's close the Dow RSI was also at a record high. A record means a 122-year high. Only the newest of investors would not understand that means the market is very overbought and in danger of a severe correction in the coming months.

The Dow gave back -177 points today but that did not even retrace the gains from Friday. The initial support is back at 26,000 followed by 25,300. The Dow has accelerated so rapidly, there were very few pause points along the way to create support.

The Nasdaq only posted a minor decline but only five big cap tech stocks were positive. The rest posted minor declines with the exception of Priceline, which was offset by Amazon.

The Nasdaq is 10.1% above its 100-day average and very unsupported. The ramp from January 2nd has been nearly vertical and clearly out of character for the periodic declines over the prior six months. The index has light support at 7,400 followed by 7,220. That would be a long drop.

The Russell chart has seen a steady progression of gains but nothing like the big cap indexes. This is what a normal chart looks like. The index retreated to initial support at 1,600 on Monday with resistance at 1,610. A breakdown here could test uptrend support at 1,580 and then prior resistance at 1,550.

I have been forecasting a rough patch for the market in early February because I thought the big cap tech earnings would keep investors in the market for the rest of this week. Once into next week the risk of another government shutdown looms large. This one could be longer and produce more headlines than the one we just endured. If the headlines become extreme, it could have a deeper impact on the market. Either way, i expect profit taking in February.

Tighten up your stop losses and try not to jump right back into the market if we do get a decent decline. There will be plenty of opportunities in February to enter positions for the Q1 earnings cycle.

Enter passively, exit aggressively!

Jim Brown

Send Jim an email


PRGS - Progress Software - Company Profile

Progress Software Corporation provides software solutions for various industries worldwide. Its OpenEdge segment offers Progress OpenEdge, a development software, which builds multi-language applications for secure deployment across various platforms and devices, as well as cloud; and Progress Corticon, a business rules management system that enables applications with decision automation and change process, and decision-related insight capabilities. The company's Data Connectivity and Integration segment provides Progress DataDirect Connect software, which offers data connectivity using industry-standard interfaces to connect applications running on various platforms; and Progress DataDirect Cloud, a software-as-a-service (SaaS) based connection management service that simplifies SQL access to a spectrum of cloud-based data sources through a single standards-based interface. Its Application Development and Deployment segment offers Dev Tools, a design, quality assurance, debugging, and reporting suite; NativeScript, an open-source application development platform; Dev Cloud, a cloud-based application design, deployment, hosting, and testing suite; Telerik Platform, an end-to-end application lifecycle solution; Test Studio, an application lifecycle management suite for testing Web, mobile, and desktop applications; Sitefinity, a Web content management and customer analytics platform; and Progress Rollbase, a software that allows the creation of SaaS business applications. The company also provides project management, implementation, custom development, programming, and other services, as well as services to Web-enable applications; and training services. It sells its products directly to end-users, as well as indirectly to application partners, original equipment manufacturers, and system integrators. Progress Software Corporation was founded in 1981 and is headquartered in Bedford, Massachusetts. Company description from

Next earnings April 11th.

Progress is not only fighting competitors but fighting off activist shareholders as well. The company has three involved but only one currently agitating for change. Praesidium Investment Management is the third largest shareholder (8.8%) and it opposes the company's attempt to turn itself into an artificial intelligence tools company.

Praesidium has complained about their acquisition strategy to buy leading edge technology rather than spend years attempting to recreate it. The activist calls it venture capital type businesses. The Progress CEO defended their strategy saying "We are looking for mature businesses, companies that have been around for a while, and have grown to scale but growth may be slowing. By combining with these companies we can drive efficiencies and bring new products into the business.

A Benchmark Company analyst said the company appears to be implementing bits and pieces of Praesidium's proposals in an effort to fend-off the activist hedge fund. Praesidium wanted seats on the board so in order to dilute the impact of those seats, Progress expanded the number of board positions.

The company has been running "lean business" carefully managing costs and executing on their goals, according to the CEO.

They reported earnings on January 10th of 67 cents that beat estimates for 61 cents. Revenue of $116.1 million beat estimates for $114.3 million. For the current quarter they guided for earnings of 46-48 cents on revenue of $90-$93 million. Analysts are expecting 38 cents. For the full year, they guided for $2.29-$2.35 and $398-$404 million.

Activists mean the company has to pay a lot more attention to detail and always remain on their toes. This means they are more than likely going to continue executing with a minimum of wasted expenses. That means higher profits.

Shares spiked about $8 on their earnings and have pulled back only slightly over the last three weeks. They are holding just over the $50 level and posted a gain today when the Nasdaq was negative.

Buy June $55 call, currently $2.55, initial stop loss $47.85.

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

DLTR - Dollar Tree
The long call position was entered at the open on Tuesday.

ABBV - AbbVie
The long call position was closed at the open on Thursday.

CAT - Caterpillar
The long call position was closed at the open on Tuesday.

Original Play Recommendations (Alpha by Symbol)

ABBV - AbbVie - Company Profile


Sellers remorse!! We closed the ABBV position at the open on Thursday ahead of earnings on Friday. It was a decent gain of about $800. Unfortunately, ABBV posted blowout results and guidance and the stock rallied $20 on Friday. We cannot cry over spilled milk or missed profits in this case. They could just as easily have reported disappointing earnings and fallen $20 on Friday.

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

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:

Closed 1/25: Long Feb $95 call @ $3.75, exit $11.70, +$7.95 gain.

ADSK - Autodesk - Company Profile


No specific news. Shares faded slightly from the 2-month high.

Original Trade Description: January 15th

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

Expected earnings Feb 27th.

Autodesk was flying high in November 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.

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. ADSK shares have moved sideways for the two weeks after the initial drop. We entered a position in ADSK on Dec 5th but were stopped on Dec 20th when shares briefly broke below support. Shares are rising again and I want to reenter a positin.

The options are expensive so I am going to recommend a spread. I believe the stock will ramp into earnings and then it is a coin toss for direction. We will exit before the Feb 27th earnings.

Position 1/16/18:
Long March $120 call @ $4.19, see portfolio graphic for stop loss.
Short March $130 call @ $1.45, see portfolio graphic for stop loss.
Net debit $2.74, maximum gain $7.26

BOTZ - Robotics & AI ETF - ETF Profile


No specific news. Continuing to rally with the market and the chip sector.

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


We exited the CAT position on Tuesday before their earnings. They had great earnings and shares double topped at $173 before crashing back below $160 three days later. This is an example of why we do exit before earnings. Anything can happen and it is normally in our best interest to take profits off the table in advance. A dollar in hand today is better than the potential for none in hand tomorrow.

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

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:

Closed 1//23: Long Feb $140 call @ $5.08, exit $29.85, +$24.77 gain.
Closed 12/15: Long Dec $130 put @ 77 cents, expired, -.77 loss.

DLTR - Dollar Tree - Company Profile


No specific news. This position is going according to plan with the stock punching through the resistance highs at $115.50 on Monday in a weak market. If the market were to cooperate we could see DLTR accelerate higher.

Original Trade Description: January 22nd

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

In late November, 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%. Next earnings Feb 20th.

After earnings, Moffett Nathanson initiated coverage with a buy. A week ago Guggenheim initiated coverage with a buy rating and $125 price target.

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.

We had a great run on DLTR in Q4 for a $1,700 gain. We close the position on Jan-2nd when momentum slowed and shares declined several days in a row. The Guggenheim buy rating saw the shares spike from $110 to $115 and then traded sideways to down for a week as traders took the unexpected profits.

Retailers across all sectors are surging again and I believe DLTR is going to break out to a new high.

Position 1/23/18:
Long March $120 call @ $3.05, see portfolio graphic for stop loss.

HD - Home Depot - Company Profile


No specific news. HD shares closed at a new high on Friday but Dow weakness on Monday weighed on the stock. HD is now one of more than 100 companies giving employee bonuses because of the tax reform package. They are giving their hourly workers up to $1,000 each as a bonus. The bonus is based on length of employment starting at $200 for 2 years of service.

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.

Update 1/1/18: 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.

Position 12/19/17:

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

NTGR - Netgear - Company Profile


No specific news. Shares have stalled at $71 after the CES headlines faded.

Original Trade Description: January 8th

NETGEAR, Inc. designs, develops, and markets innovative networking solutions and smart connected products for consumers, businesses, and service providers. The company operates in three segments: Retail, Commercial, and Service Provider. The Retail segment offers home WiFi networking solutions and smart connected products. The Commercial segment provides business networking, storage, and security solutions. The Service Provider segment offers made-to-order home networking hardware and software solutions, including 4G LTE hotspots sold to service providers for sale to their subscribers. The company also offers commercial business networking products, such as Ethernet switches, wireless controllers and access points, Internet security appliances, and unified storage products; broadband access products, including broadband modems, WiFi gateways, and WiFi hotspots; and smart home/Internet-of-Things connectivity and products comprising WiFi routers and home WiFi system, WiFi range extenders, powerline adapters and bridges, remote video security systems, and WiFi network adapters. It markets and sells its products through traditional retailers, online retailers, wholesale distributors, direct market resellers, value-added resellers, and broadband service providers worldwide. Company description from

Expected earnings February 6th.

Two weeks ago Amazon bought Blink. You may not have heard about Blink but they launched in 2016 with an inexpensive wireless camera and video doorbell. This is the hot new sector for video surveillance. You have probably heard about Ring video doorbells, which is a different company.

The point to this commentary is that Netgear is making the very popular Arlo security camera and sales are booming. Netgear also has 48% of the market for home routers.

With Amazon likely to go big in this category after the acquisition of Blink, that means Netgear is suddenly a target. Global Equities said Facebook, Google or even Apple could acquire Netgear because that gives them a top position in the space. Google would be the prime candidate because they could link the Arlo system to Google Home. It would also allow Google access to trillions of terabytes of data related to the home routers and networking equipment. Monitoring those devices would be like keeping their finger on the pulse of technology. They would know how many people are watching Netflix, how much data was being consumed by what subset of users, etc. This could be very important in their planning for the future.

Apple is not likely to make a play for Netgear because they do not do big acquisitions and Netgear has too many "common" products for Apple to manage. They would be more likely to buy Tesla or Netflix if they were going to make a big splash.

Facebook could find a way to use the Arlo system and that would be a significant branch away from their social media roots. I doubt they would want the networking business.

In reality, nobody has to buy Netgear for them to succeed. They are already successful and Arlo is an entirely new category for them and a category that is exploding in sales. When they report Q4 numbers they could be very high.

Shares spiked to $60 in mid December and traded sideways for the last three weeks. I believe shares are about to move higher.

Update 1/16/18: Netgear demonstrated new products at the CES show and the crowd loved them. Apparently, so did investors. They announced the Nighthawk Pro Gaming system of network gear that will cut lag time and enhance multiplayer game play for serious gamers. They also demonstrated the Orbi Wi-Fi system, which has also been very successful. With the rapid ramp of the Arlo video cameras for security, they have completed an entire cloud support system that allows storage of video, multiviewer capability for home monitoring, etc.

Position 1/9/18:
Long Mar $65 call @ $2.25. see portfolio graphic for stop loss.

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