There is an old saying that all good things must come to an end.

That is never more true than in the stock market where rallies always end and they always seem to end too soon. The Dow has posted a gain for eight consecutive days. This streak of gains will eventually come to an end and hopefully sooner rather than later. The sooner we have a day or two of profit taking the sooner we can get back to the next string of gains.

The Russell did that today. The index traded within one point of a new intraday high and 4 points over its record closing high. However, today was not the day and the strongest index for the month of May ended with a -6 point loss. Resistance won for another day.


I am not predicting a specific market decline. It is simply time for the market to rest after nearly two weeks of gains. We are however in the final stages of the Q1 earnings cycle and post earnings depression is alive and well. You could not tell it from the market gains over the last week but it could rear its ugly head at any time. We are also in the "Sell in May and go away" period which begins the six worst months of the year for the market. The summer doldrums are just a few weeks ahead starting with Memorial Day.

There are a lot of factors working against the market but there are recorded instances of summer rallies. Because they are unexpected, there is normally a lot of short covering. Should one appear, it could be fun.

The Dow ran into resistance at 25,000 again on Monday. This has been a hurdle since it was first crossed in early January. We have traded on both sides, many times but we have not touched it since March 16th. A break over that level would trigger some price chasing.

We hit 24,994 intraday before the Dow gave back 92 points to close with a 68-point gain. Boeing and UnitedHealth were again the big winners.



The Nasdaq tried hard to break through the resistance at 7,421 but was unsuccessful. The intraday high was 7,458 for a nice 55-point gain but it did not hold and the Nasdaq was fortunate to hang on to 8 points at the close. Resistance held once again. The big cap tech stocks were slightly weighted to the positive side.



The S&P was up +14 intraday but gave it back to close barely positive. The index did not reach resistance at 2,750. The chart is improving but it has not yet shifted to bullish. This is still just a lower high in the four-month pattern.


We have a busy calendar for Tuesday with the retail sales and housing index. The Japanese GDP is also important for a global sentiment and fiscal policy view.


There are three Dow components reporting earnings this week. Home Depot reports before the open on Tuesday. This will provide direction for the Dow and their report is expected to be good. Earnings consensus is $2.06 with $25.23 billion in revenue.


During the day I did not seen anything material impacting the market. The software sector was the hardest hit in the afternoon selling but everything else appeared to remain relatively stable. When I was writing a couple hours after the close and the S&P futures were mildly negative, I said I did not see anything other than some simple profit taking. As I write this now the futures are down -4.50 on the large number of injuries and deaths in Israel. At least 37 Palestinians were killed and more than 900 wounded in the border skirmish with protestors over moving the U.S. embassy.

There are a lot of factors working against the market but the 25% earnings growth in Q1 and 22% expected for the rest of the year is a powerful antibiotic against those ills.

I would remain cautious until the Dow closes above 25,000 and the Nasdaq above 7.425. Having the Russell above 1,615 would be a great motivator for the broader market.

Enter passively, exit aggressively!

Jim Brown

Send Jim an email



NEW DIRECTIONAL CALL PLAY

MU - Micron Technologies - Company Profile

Micron Technology, Inc. provides semiconductor systems worldwide. The company operates through four segments: Compute and Networking Business Unit, Storage Business Unit, Mobile Business Unit, and Embedded Business Unit. It offers DDR3 and DDR4 DRAM products for computers, servers, networking devices, communications equipment, consumer electronics, automotive, and industrial applications; lower power DRAM products for smartphones, tablets, automotive, laptop computers, and other mobile consumer device applications; DDR2 DRAM and DDR DRAM, GDDR5 and GDDR5X DRAM, SDRAM, and RLDRAM products for networking devices, servers, consumer electronics, communications equipment, computer peripherals, and automotive and industrial applications, as well as for computer memory upgrades; and hybrid memory cube semiconductor memory devices. The company also provides NAND products, which are electrically re-writeable, non-volatile semiconductor memory, and storage devices; client solid-state drives (SSDs) for notebooks, desktops, workstations, and other consumer applications; enterprise SSDs for server and storage applications; cloud SSDs; and multi-chip package and managed NAND products. In addition, it manufactures products that are sold under other brand names; and resells flash memory products that are purchased from other NAND Flash suppliers. Further, the company provides 3D XPoint non-volatile memory products; and NOR Flash, which are electrically re-writeable and semiconductor memory devices for automotive, industrial, connected home, and consumer applications. It markets its products to original equipment manufacturers and retailers through its internal sales force, independent sales representatives, and distributors; and through a Web-based customer direct sales channel, and channel and distribution partners. The company was founded in 1978. Company description from FinViz.com

Micron suffered in the chip decline as investors worried over Apple's declining iPhone sales rumors. As soon as Apple reported the stock began to recover and it has returned to resistance and could be poised for a breakout.

The reported earnings of $2.80 and beat estimates for $2.69 but missed the whisper number of $2.81. Revenue of $7.3 billion also beat estimates. They posted $12 billion for all of 2016 and $20 billion for 2017.

Earnings June 21st.

The company is getting out of memory technologies that have run their course and are poised to become a pure commodity. The new CEO Sanjay Mehrotra built Sandisk before selling it to Western Digital. He is rapidly expanding Micron's production in new product lines.

The company has $8 billion in cash and long-term debt is only $7 billion. The company is trading at a PE of only 5.9. That is the same level as Ford.

I am pretty sure everyone understands that every electronic product built today has memory, and those amounts are growing. The IoT devices are growing by millions every month.

Resistance is $53.50 and a break over that level should trigger some short covering. There is no reason why Micron could not make a new high in the coming months, market permitting.

Buy July $57.50 call, currently $2.51, initial stop loss $47.65.




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


AKAM - Akamai
The long call position was entered on Tuesday.


Original Play Recommendations (Alpha by Symbol)


AKAM - Akamai Technologies - Company Profile

Comments:

Major gain for the week after the CEO and Founder, Tom Leighton answered an acquisition question positively. An analyst asked him if the company was for sale and he said, "We are a public company and our board, which is very professional and diligent, is always going to do the right thing for shareholders." That suggests if they are not considering any offers today, they will more than likely be receiving some in the near future. Shares exploded higher.

Original Trade Description: May 7th

Akamai Technologies, Inc. provides cloud services for delivering, optimizing, and securing content and business applications over the Internet in the United States and internationally. The company offers Web and mobile performance solutions, such as Ion, a situational performance solution; Dynamic Site Accelerator that helps in consistent Website performance; Image Manager that automatically optimizes online images; CloudTest to conduct load testing and other analysis of Websites in a pre-production environment; mPulse that provides real-time Website performance data to provide insight about end-user experiences on a Website; and Global Traffic Management, a fault-tolerant solution. It also provides cloud security solutions, including Web Application Protector to safeguard Web assets from Web application and distributed denial of service; Kona Site Defender, a cloud computing security solution; Bot Manager Premier to identify bots; Fast DNS, which translates human-readable domain names into numerical IP addresses; Prolexic Routed to protect Web- and IP-based applications; and Client Reputation for protection against DDoS and Web application attacks. In addition, the company offers enterprise security solutions, including Enterprise Application Access that enables remote access to applications; and Enterprise Threat Protector to enable enterprise security teams to identify, block, and mitigate targeted threats. Further, it provides network operator solutions, including Aura Licensed CDN, Aura Managed CDN, and Intelligent DNS solutions, as well as professional services and solutions; media delivery solutions, such as adaptive delivery, download delivery, infinite media acceleration, media services, and media analytics solutions; and NetStorage, a cloud storage solution. The company sells its solutions through direct sales and service organization; and channel partners. Company description from FinViz.com

Akamai reported earnings of 79 cents that beat estimates for 70 cents. Revenue of $669 million rose 11% and beat estimates for $657 million. The earnings beat came from a concentrated push into cloud security along with a surge in its media delivery business. Revenue in the booming cloud security business surged 36%.

They did not provide guidance but with the cloud business booming shares should continue moving higher.

Earnings July 30th.

Shares have been consolidating for the last two months and now that earnings were positive shares are starting to move higher again. Monday's close was a 6-week high.

Position 5/8/18:
Long August $75 call @ $4.30, see portfolio graphic for stop loss.



BOTZ - Robotics & AI ETF - ETF Profile

Comments:

BOTZ is rebounding but it is likely to expire worthless if the rebound does not accelerate soon. The last drop in the chip sector killed the momentum and deflated the premium. If Nvidia were to catch fire again we might have a chance.

Original Trade Description: February 26th

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 average 2.55 million shares.

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 rose steadily since April and hit a new high in January just before the market correction. If this continues, even allowing for some declines, that would equate to a nice gain by the end of the Q1 earnings cycle and that would be our exit target. 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 2/27/18:
Long June $26 call @ $.90, see portfolio graphic for stop loss.



CAT - Caterpillar - Company Profile

Comments:

No specific news. Shares have been rebounding strongly and helping to lift the Dow to 2 days of gains. Currently testing resistance at $156. We have a long way to go on this option as well. We need CAT to move back over $160 to recover the premium.

Original Trade Description: February 26th

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. Its 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. The company was founded in 1925 and is headquartered in Peoria, Illinois. Company description from FinViz.com.

CAT reported their rolling 3-month sales rose 34% globally. There was a 23% rise in North America. Resource segment sales rose 49%, construction sales +30%, rnergy and transportation rose 16%, power generation +8%, industrial sales +13% and oil and gas sales +27%. This company is in the sweet spot of the global economic boom. They report the rolling 3-month average to smooth out the big ticket sales spikes from month to month.

I have had several people email me lately asking why I do not recommend short puts to offset the cost of long calls on stocks with good relative strength. I believe that is a great strategy but got away from recommending it over the last couple years because a lot of readers have smaller accounts and do not have the margin availability. I am going to start recommending it again as an option. Those who want to use it can but it is not a requirement for the position.

Update 4/30: Caterpillar was the poster child for blowout earnings and investing their cash in the business. The yellow metal maker reported earnings of $2.82 that rose 120% on a 31% rise in revenue to $12.86 billion and they raised guidance. Analysts were expecting $2.11 and $11.58 billion. Everything was great with the stock spiking 4.5% on the news. Unfortunately, on the conference call the CEO said "operating margins would be lower for the rest of 2018 because of targeted investments to continue expanding their offerings and services, consistent with our strategy for long term growth." Investors should have been cheering. Instead, shares immediately crashed from the $161 high to close at $144. I am sure the CEO meant well but his case of foot in mouth disease cost his shareholders $10 billion in lost market cap. Shares are holding at support at $143.

Position 2/27/18:
Long June $160 call @ $6.25, see portfolio graphic for stop loss.


CVX - Chevron - Company Profile

Comments:

No specific news. Shares are almost at a new high on $70 oil.

Original Trade Description: March 5th

Chevron Corporation, through its subsidiaries, engages in integrated energy, chemicals, and petroleum operations worldwide. The company operates in two segments, Upstream and Downstream. The Upstream segment is involved in the exploration, development, and production of crude oil and natural gas; processing, liquefaction, transportation, and regasification associated with liquefied natural gas; transportation of crude oil through pipelines; and transportation, storage, and marketing of natural gas, as well as operates a gas-to-liquids plant. The Downstream segment engages in refining crude oil into petroleum products; marketing crude oil and refined products; transporting crude oil and refined products through pipeline, marine vessel, motor equipment, and rail car; and manufacturing and marketing commodity petrochemicals, and fuel and lubricant additives, as well as plastics for industrial uses. It is also involved in the cash management and debt financing activities; insurance operations; real estate activities; and technology businesses. The company was formerly known as ChevronTexaco Corporation and changed its name to Chevron Corporation in 2005. Chevron Corporation was founded in 1879 and is headquartered in San Ramon, California. Company description from FinViz.com

Chevron probably has more new production in the pipeline than any other U.S. company. Most of that production is gas with two monster projects in Australia. The Gorgon project is a $54 billion LNG facility with the export capability of 15.6 million tons per annum (MTPA)(2.184 Bcf/d) of LNG to Asian markets. Demand for gas to Asia is expected to double by 2025. The fields feeding this LNG plant have more than 40 Tcf of gas with new discoveries every month.

The $29 billion Wheatstone project consists of two LNG trains with a combined capacity of 8.9 MTPA (1.25 Bcf/d) with the option to expand to 25 MTPA (3.5 Bcf/d). The first LNG output was in 2016. More than 80% of the gas supplied to Wheatstone will come from Chevron fields. Another 20% will come from an Apache find in the same region. Chevron has made 21 major discoveries of gas in the region since 2009. The initial discovery was 9 Tcf of gas but more is being added every month.

They have been planning/building these facilities for the last 10 years and all the capex expenses are behind them. Now that production is well underway they are producing cash flow rather than burning cash flow.

In the last ten years Chevron has added 13 billion barrels of oil reserves. Chevron said it replaced 161% of what it produced in 2017. They added four barrels of oil for every barrel produced and 6 cubic feet of gas for every one produced. They touted their 1.7 million acres in the Permian as their future production capability. They drilled 310 Permian wells in 2017 compared to 201 in 2016. They have been in the Permian for so long that they pay very little or even zero royalties for their acreage.

Chevron reported Q4 earnings of 73 cents that missed estimates for $1.27. Revenue of $37.62 billion just barely beat estimates for $37.55 billion. They did report a new discovery in the Gulf of Mexico that should be a gusher 7-9 years from now. That is a very long lead time project.

Chevron currently pays a $1.12 quarterly dividend. With the rising cash flows from the LNG facilities, shale reserves in the Permian and offshore production, their dividend is secure.

The monster drop in January is a buying opportunity. Bank of America upgraded them last week from neutral to buy.

Crude prices are normally weak in March/April but rebound sharply in May as the summer driving season begins. Prices typically peak in August. I am recommending we buy the September call and ride it into that August peak.

Update 3/26/18: The Chevron CEO said deepwater oil is coming back thanks to new technologies that pump the oil for miles underwater to existing topside platforms rather than building new platforms for each new discovery. Chevron is currently bringing online the 170,000 bpd Jack/St Malo with a distributed well system. Transocean's CEO saif all but a handful of the current 29 deepwater projects have breakeven costs in the low $40 a barrel range. This is great because Chevron has a lot of reserves they have not even started to develop.

Update 4/16/18: Chevron approved a $5 1 billion expansion of the $54 billion Gorgon LNG project in Australia. They will drill 11 more wells in the offshore gas fields that feed the Gorgon facility. With priced rising for LNG, Chevron is in the right place at the right time. The original $54 billion has already been spent and thesteadily increasing production is going to be a well deserved windfall in the years ahead.

Update 4/30/18: Chevron reported earnings of $1.90 that blew away estimates for $1.48. However, revenue of $37.76 billion missed estimates for $40.97 billion. Production rose 7% to 2.9 million Boepd. Shares spiked to a three-month high on the news.

Position 3/6/18:
Long Sept $120 call @ $4.46, see portfolio graphic for stop loss.



INTC - Intel - Company Profile

Comments:

Shares have been moving up steadily after Qualcomm said it was getting out of the server chip business. No specific news.

Original Trade Description: March 26th

Intel Corporation designs, manufactures, and sells computer, networking, and communications platforms worldwide. The company operates through Client Computing Group, Data Center Group, Internet of Things Group, Non-Volatile Memory Solutions Group, Intel Security Group, Programmable Solutions Group, and All Other segments. Its platforms are used in notebooks, 2 in 1 systems, desktops, servers, tablets, smartphones, wireless and wired connectivity products, and mobile communication components; enterprise, cloud, and communication infrastructure; and retail, transportation, industrial, video, buildings, and other market segments. The company offers microprocessors that processes system data and controls other devices in the system; chipsets, which send data between the microprocessor and input, display, and storage devices, such as keyboard, mouse, monitor, hard drive or solid-state drive, and optical disc drives; and system-on-chip and multichip packaging products that integrate its central processing units with other system components onto a single chip. It also offers NAND flash memory products primarily used in solid-state drives; security software products that secure computers, mobile devices, and networks; programmable semiconductors and related products for communications, data center, industrial, military, and automotive market segments. In addition, the company develops computer vision and machine learning-based sensing products, mapping and driving policy technology solutions for advanced driver assistance systems, and autonomous driving technologies. It serves original equipment manufacturers, original design manufacturers, cloud and communications service providers, and industrial, communications, and automotive equipment manufacturers. The company was founded in 1968 and is based in Santa Clara, California. Company description from FinViz.com.

Intel has shows excellent relative strength over the last couple weeks of market volatility. Monday's close was a new high and there is nothing to keep it from moving higher. Long term support is $43 but I seriously doubt we will see that again.

Intel does not need a lot of play description. It is a big cap tech stock in a chip driven world.

Update 4/16: Consumer tests of the new Windows notebooks with the Qualcomm Snapdragon processor have gone badly. The notebooks have the same processor as the Samsung Galaxy S8 phone. That should give you a clue as to notebook performance. It does not run 64 bit applications. Suffice to say Intel is not going to lose a lot of business to Qualcomm.

Update 4/30: Intel spiked to a new high after reporting earnings of 87 cents that beat estimates for 72 cents. Revenue of $16.07 billion beat estimates for $16.3 billion. Data center revenue rose 24% to $5.2 billion. They guided for full year earnings of $3.85 and revenue of $67.5 billion. Shares spiked 6.4% but faded in the weak market.

Update 5/7: Late after the bell today, Qualcomm said it was shutting down its datacenter chip effort and would either shutter the unit or attempt to sell it. Qualcomm just started selling its first server chip, the Centriq 2400 last year and customer acceptance has been lacking. Intel has a 99% market share in the server chip market and releases new higher end chips constantly and for Qualcomm to try and keep up using the limited ARM chip, it would have been an expensive and time-consuming battle. This should give Intel a boost on Tuesday.

Position 3/27/18:
Long June $55 call @ $2.07, see portfolio graphic for stop loss.



QQQ - Powershares QQQ - ETF Profile

Comments:

Strong rebound in the Nasdaq but the QQQ has to move over $171 to rescue this position. The last dip in April erased the majority of the premium but it is clawing back.

Original Trade Description: March 26th

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.

The Nasdaq crashed along with the Dow but did not retest the February lows. The Nasdaq actually set a new high two weeks ago before the second drop arrived. The tech stocks led out of th einitial correction and I believe they will lead through the Q1 earnings cycle. Even though the Nasdaq gained 3% on Monday, there could be a lot more to go and the index should make another new high before the Q1 earnings cycle is over.

I am going to offset the call with an optional short put to reduce our cost significantly just in case the expected rally does not appear.

Position 3/27/18:
Long June $170 call @ $4.31, see portfolio graphic for stop loss.
Optional:
Position 4/3:
Closed 4/24: Short June $140 put @ $2.36, exit .67, +$2.69 gain.

Previously Closed 3/28: Short June $150 put @ $1.47, exit $4.49, -3.02 loss.



SAIC - Science Applications International - Company Profile

Comments:

No specific news. New closing high on Thursday.

Original Trade Description: April 23rd

Science Applications International Corporation provides technical, engineering, and enterprise information technology (IT) services primarily in the United States. Its offerings include engineering; technology and equipment platform integration; maintenance of ground and maritime systems; logistics; training and simulation; operation and program support services; and end-to-end services, such as design, development, integration, deployment, management and operations, sustainment, and security of its customers' IT infrastructure. The company serves the U.S. military comprising Army, Air Force, Navy, Marines, and Coast Guard; the U.S. Defense Logistics Agency; the National Aeronautics and Space Administration; the U.S. Department of State; and the U.S. Department of Homeland Security. The company was formerly known as SAIC Gemini, Inc. and changed its name to Science Applications International Corporation in September 2013. Company description from FinViz.com

SAIC is making waves in the military procurement arena. The previously sectored company was limited in the services it offered but that has changed in recent years. For instance they are now one of two surviving bidders to produce a floating tank. An Amphibious Combat Vehicle (ACV) for the Marine Corp. This is remarkable because BAE has supplied all amphibious vehicles for the Marines since 1941. The competition began with 5 companies building 16 prototypes. BAE and SAIC entered the second round and were awarded $100 million and 18 months to build 16 prototypes by June 2017. The winner of the competition gets a $1.2 billion contract to deliver 204 vehicles by 2020.

This is just one example of SAIC successfully branching out in to other areas of military procurement. With $700 billion in military funding passed and the money being spent, there are going to be a lot of contracts doled out over the next several months.

For Q4 they reported earnings of $1.16 compared to estimates for 81 cents. Revenue of $1.13 billion beat estimates for $1.07 billion.

Earnings are expected around June 28th.

Shares spiked to $86 on earnings and then pulled back for a couple weeks in the struggling market. Over the last week they have returned to $86 and appear ready for a breakout.

Position 4/24/18:
Long Aug $90 call @ $3.30, see portfolio graphic for stop loss.



SMH - Semiconductor ETF - ETF Profile

Comments:

The sector is trying to rebound after the late April drop inspired by Apple. Nvidia has not sold off materially after earnings and a positive market will probably pull investors back into that stock.

Original Trade Description: April 2nd

VanEck Vectors Semiconductor ETF (SMH) seeks to replicate as closely as possible, before fees and expenses, the price and yield performance of the MVIS US Listed Semiconductor 25 Index (MVSMHTR), which is intended to track the overall performance of companies involved in semiconductor production and equipment. ETF description from VanEck.com.

The chip sector peaked in early March with the SMH at $114.50 and it has since declined to $100. The world runs on chips. The sector has been crushed by several analysts calling for an end to the shortage of memory chips although the actual companies claim demand remains strong. The sector also fell last week on worries about tariffs on chips coming out of China. With President Xi Jinping putting an end to the tariff worries on Tuesday after the bell, the chip stocks should return to rally mode.

The world runs on chips and with IoT devices expected to grow by the tens of billions and AI becoming a potential blockbuster technology, the demand for chips will continue to grow.

The SMH closed at $100 with the 200-day average at $97. If we do not get a rally on Tuesday, support is only $3 away.

Position 4/10/18:
Long June $105 call @ $3.70, see portfolio graphic for stop loss.



SYMC - Symantec - Company Profile

Comments:

Symantec was a major disaster last week. Fortunately, the option was cheap. They posted mediocre guidance and disclosed an internal audit. The stock fell -35%. On Monday the company held an investor call and gave some more details saying it would not likely impact past earnings. There were fears there would be a restatement. The company also firmed up revenue and margin forecasts for 2019 and 2020. Shares rebounded 10% on the news.

I am going to recommend we add a longer dated option because this dip will more than likely be recovered over the next couple months. Since the company said it would not impact past earnings, this is a buying opportunity. We will not hold the position until October but the July strikes are too close to retain any earnings premium.

Buy Oct $24 call, currently $1.65, stop loss $18.65.

Original Trade Description: April 16th

Symantec Corporation, together with its subsidiaries, provides cybersecurity solutions worldwide. It operates through two segments, Consumer Digital Safety and Enterprise Security. The Consumer Digital Safety segment provides Norton-branded services that provide multi-layer security services across desktop and mobile operating systems, public Wi-Fi connections, and home networks to defend against online threats to individuals, families, and small businesses. This segment also offers LifeLock-branded identity protection services, such as identifying and notifying users of identity-related and other events, and assisting users in remediating their impact; and digital safety platform designed to protect information across devices, customer identities, and the connected homes and families. The Enterprise Security segment provides endpoint protection products, endpoint management, messaging protection products, information protection products, cyber security services, Website security, and advanced Web and cloud security offerings. Its enterprise endpoint, network security, and management offerings supports evolving endpoints and networks, as well as provides an integrated cyber defense platform. This segment delivers its solutions through various methods, such as software, appliance, software-as-a-service, and managed services. The company serves individuals, households, and small businesses; small, medium, and large enterprises; and government and public sector customers. It markets and sells its products and related services through direct sales force, direct marketing and co-marketing programs, e-commerce and telesales platforms, distributors, Internet-based resellers, system builders, Internet service providers, employee benefits providers, wireless carriers, retailers, original equipment manufacturers, and retail and online stores. Company description from FinViz.com

Symantec has gotten a bad rap over the last year and it was undeserved. They make the best consumer antivirus software available for a reasonable price. You are living in a fantasy land if you don't believe that cyber attacks are going to continue to skyrocket. Hijacking cryptocurrencies rose significantly in 2017. Ransomware continues to grow in popularity and severity. Cryptojacking, where your computer is hacked and forced to run coin mining programs to mine coins for others, is also exploding with an 8,500% rise in 2017. Even Tesla's computers were cryptojacked and used for coin mining.

Symantec announced a new AI process on Monday that will allow subscribers to automate the discovery of targeted attacks. The program is called Targeted Attack Analytics. Targeted attacks are rarely accomplished with brute force but are done skillfully utilizing known holes in the system firewall. They are normally disguised as a brute force attack in order to hide in the mountain of daily alerts received by system managers. TAA identifies these attacks before they can get inside the system and then alerts the network so that millions of other machines are protected in advance.

The Symantec team discovered Stuxnet, Regin, Lazarus, Swift and WannaCry among thousands of other viruses.

Earnings May 10th.

Shares have been fighting resistance at $28 since early January. I believe a breakout is imminent.

Position 4/17/18:
Long June $28 call @ $1.21, see portfolio graphic for stop loss.



VXX - Volatility Index Futures - ETF Description

Comments:

Volatility is collapsing and the VXX broke below support at 40. It is finally moving in our direction.

The VXX always moves lower eventually.

Original Trade Description: September 18th.

The VXX is a short-term volatility ETF based on the VIX futures. As a futures product it has the rollover curse. Every time they roll to a new futures contract, they have to pay a premium and that lowers the price of the ETF. It is a flawed product with a perpetual decline built in from the monthly roll over in the futures contracts.

As evidence of this flaw, they have now done five 1:4 reverse stock splits. The last five reverse splits occurred at $13.11 (11/2010), $8.77 (10/2012), $12.84 (11/2013), $9.52 (8/8/16), $12.77 (8/22/17). The prospectus says it can reverse split anytime it trades under $25 for a prolonged period and the splits will always be 1:4.

We know from experience that the VXX always declines.

Unfortunately, put options are expensive with a volatility instrument at this price level. The only recommendation is to short the ETF and forget it. If we do get a new rally into the Q1 earnings cycle we could see a sharp decline in the VXX over the next 2-3 months. This will be a long-term position. This is not a 2-3 week play. I can guarantee you, if history holds, we can play this until it splits 1:4 again at $10. Once we are in the position and profitable I will put a trailing stop loss on it. We will take profits and then look for a bounce to get back in.

The VXX is hard to short. There are 34.2 million shares outstanding and ShortSqueeze.com says 44.5 million are short. The shares are out there and being traded because the volume on Monday was 46.5 million. More than 221 million traded on Feb 5th. This ETF is a favorite vehicle for the computer traders so the volume is always high. You have to tell your broker you really want to short it and make them find the shares. Sometimes it takes days or even a week before your broker will find you the shares. Trust me, be persistent and it will be worth the effort.

Previously: On Feb-5th a reader emailed me saying a friend was short 1,000 shares. When the VXX spiked $21 in afterhours, Ameritrade closed that position for a $35,000 loss. They did not have a protective stop loss.

We are not using a profit stop in this position because it could be hard to re-short the shares after a volatility event. That is just trade management for a profitable position.

In ANY SHORT POSITION, you should have a catastrophe stop loss to avoid the position turning into a major loss. Had this person had a stop loss at their entry point, they would have been closed for a breakeven and they would be sleeping a lot better today.

Readers should always assume the potential for the worst possible outcome of a short position. Trade smart!

Position 2/13/18:
Short VXX shares @ $49.16, no initial stop loss.



Prices Quoted in Newsletter

At Option Investor, we have a long-standing policy prohibiting the editors and staff from actually trading the individual recommendations in order to conform to SEC rules concerning trades.

The prices quoted in the newsletter are the end of day prices in most cases.

When discussing fills or stops the prices quoted are the bid/ask at the time the entry trigger or exit stop is hit. This is NOT a price that someone on staff actually got using a live order.

For entry/exit points at the market open the prices quoted will be the opening print. The majority of the time readers are able to get a better fill than the opening print because of market maker bias at the open.

For trades with an opening qualification the prices quoted will be the bid/ask at the time the qualification was met.

All of these rules normally produce worse prices than an active trader would normally get. Because they are standardized there may be some cases where a price quoted was better than an actual fill. If you received a price that was dramatically different than what was quoted please let us know.