The market is doing something it has not done in several years, trashing winners.

The big cap tech stocks have fallen out of favor and the rotation out of techs and into industrials has been violent. The Dow gapped up 302 points at the open and the Nasdaq spiked up to 6,900 and within 12 points of a new high. The Nasdaq declined -130 points from the highs to lose -72 for the day. The Dow lost -244 points from the highs to close with a minimal 58 point gain. Volatility has definitely returned along with extreme divergence.

The tech sector, led by semiconductors, biotechs and big caps is declining at a high rate of speed. The Semiconductor Index has declined more than 8% in only six trading days. The chip sector normally leads the tech sector.

At Friday's low the Nasdaq had declined -175 points from its high and the biggest decline since the -271 points in August. If the recent trend holds, this bout of profit taking should be about over. The last three bouts averaged only -113 points and we have already exceeded that range. However, this is December and there is going to be some rotation as portfolio managers restructure their holdings for 2018 and to take enough profits to offset any losses they had throughout the year.

While the market normally rises about 2% in December, it is not always steady. There is volatility as portfolio adjustments are made. The rotation out of tech stocks has been violent but in the bigger picture, it is just normal.



Another factor that leads me to believe the damage to the Nasdaq may be about over is the 30-day average. That has been perfect support since August. This would be the perfect place for a rebound to begin.


The S&P posted only a minor 3 point decline after making a new intraday decline. Because there were industrials soaring and techs sinking in the index, the end result was flat. The S&P, like the Dow is overbought and due for a rest. In the chart below note the height of the candles over the last week compared to the rest of the chart. The last time we saw candles like this was a bottoming process in August. High volatility normally occurs at tops and bottoms. This suggests the S&P is at risk but as long as the industrials continue to rally it could inch higher. The 2,650 level is going to be resistance because it is the average year-end high forecast for the top analysts. Support is well back at 2,600.


The Dow was evenly mixed between winners and losers but the index still closed -244 points off its highs. Note the height of the candles over the last week. You have to go back to the post election market in November to see candles that tall. I understand this is tax reform speculation but the intraday volatility is a warning sign that the market is not stable.

The divergence between the Dow and Nasdaq is not healthy in the short term although it is healthy for the long term. Initial resistance is 24,500 but the 25,000 level has a bulls eye painted on it for December. Fund managers will want the year to end at that high for marketing purposes and they will try to make it happen.



The Russell tried to cooperate at the open with a spike to a new high at 1,559 but could not hold it. The index closed -27 points below the intraday high. There has been a 60-point range (4%) over the last two days.


The earnings calendar is mostly retail with Broadcom the biggest tech stock to report for the week. Shares fell -3% on Monday to push the chip sector lower.


The economic calendar is led by the two payroll reports and the government funding deadline on Friday. That is going to be a fight and the conservative bet is to do a short term extension to get the deadline pushed into 2018 and well away from the tax reform votes.


While I believe the Dow and S&P will see higher highs in December, I would be cautious about putting a lot of new money at risk until the intraday volatility declines. That kind of volatility is a symptom of an unstable market. Let it stabilize and then buy the dips.

I believe we will see a bigger sell off in January once the tax calendar rolls over. I could be wrong and it would not be the first time. In January 2016, the S&P lost 269 points in three weeks in January. Note the market highs in November and tall candles in December. That looks a lot like what we have today only today is even more overbought.


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

Enter passively, exit aggressively!

Jim Brown

Send Jim an email



 

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NEW DIRECTIONAL CALL PLAY

ADSK - Autodesk - Company Profile

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.

Buy March $115 call, currently $5.80, initial stop loss $98.50.

That is an expensive option but option premiums drop off sharply more than $10 higher. I do not like to write $5 or $10 spreads and there is no premiums to write a wider one. Because the strike is after the earnings date it should hold its value better.


If there is a trade you would like me to consider or you have comments on this newsletter please click the email link below.

Jim Brown

Send Jim an email



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.

The portfolio look positively barren after closing five plays for nice gains last week.




Current Position Changes


FB - Facebook
The long call position was entered at the open on Tuesday, stopped on Wednesday.

DIA - Dow ETF
The long put position expired on Friday.


Original Play Recommendations (Alpha by Symbol)


ABBV - AbbVie - Company Profile

Comments:

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.

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.

Position 11/7/17:

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



BOTZ - Robotics & AI ETF - Company Profile

Comments:

No specific news. The drop in the chip sector, specifically Nvidia is killing the ETF.

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. Shares trading with the Dow.

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.

Position 11/14/17:

Long Feb $140 call @ $5.08, see portfolio graphic for stop loss.
Long Dec $130 put @ 77 cents, see portfolio graphic for stop loss.



CERN - Cerner - Company Profile

Comments:

Cerner is holding the gains on news they would partner with Amazon Web Services and their Healtheintent product. I did not see where an actual announcement was made and Zacks is claiming they are still ironing out the details so we could see another bounce if it happens.

Original Trade Description: October 30th

Cerner Corporation designs, develops, markets, installs, hosts, and supports health care information technology, health care devices, hardware, and content solutions for health care organizations and consumers in the United States and internationally. The company offers Cerner Millennium architecture, which includes clinical, financial, and management information systems that allow providers to access an individual's electronic health record at the point of care, and organizes and delivers information for physicians, nurses, laboratory technicians, pharmacists, front- and back-office professionals, and consumers. It also provides HealtheIntent platform, a cloud-based platform that enables organizations to aggregate, transform, and reconcile data across the continuum of care, as well as assists to enhance outcomes and lower costs. In addition, the company offers a portfolio of clinical and financial health care information technology solutions, as well as departmental, connectivity, population health, and care coordination solutions; and various complementary services, including support, hosting, managed, implementation, and strategic consulting services. Further, it provides various services, such as implementation and training, remote hosting, operational management, revenue cycle, support and maintenance, health care data analysis, clinical process optimization, transaction processing, employer health centers, employee wellness programs, and third party administrator services for employer-based health plans; and complementary hardware and devices for third parties. It serves integrated delivery networks, physician groups and networks, managed care organizations, hospitals, medical centers, reference laboratories, home health agencies, blood banks, imaging centers, pharmacies, pharmaceutical manufacturers, employers, governments, and public health organizations.Company description from FinViz.com

Cerner reported earnings of 61 cents that missed estimates for 62 cents. Revenue of $1.28 billion missed estimates for $1.29 billion. They guided for the current quarter for earnings of 60-62 cents and revenue of $1.3-$1.35 billion. They raised full year guidance to earnings of $2.52-$2.68 per share, up from $2.46-$2.54 on revenue of $5.5 to $5.7 billion, up from $5.15-$5.25 billion.

Cerner said they missed the Q3 estimates because several large contracts did not close in Q3 as expected and would now close in Q4. Fourth quarter bookings are expected to be a record $1.75-$2.0 billion, because of that contract slippage. This means Q4 earnings are going to be strong.

Expected earnings January 25th.

On August 14th, MIT Medical selected Cerner's integrated healthcare technology and shares reversed their slide. On August 30th, IBD upgraded their rating from 69 to 73 saying internal metrics were improving and to watch for a breakout over prior resistance highs.

Shares dropped from $71 to $63 on the earnings miss but are already starting to rebound sharply. The share drop means there is less risk in CERN in case the market finally decides to pause for a few days.

I am using the March options so we will have some Q4 earnings expectations in the premium when we exit before the event.

Update 11/20/17: The VA secretary, David Shulkin, is pushing for $782 million for funding for a Cerner conversion of the Dept of Veteran Affairs. They want to coordinate with the new Cerner EHR systems at four Dept of Defense sites. Shulkin said the money would be far less than the "billions" it would cost to continue using the VA's legacy VistA platform over the next 10 years. A magazine that covers costs for federal technology said the final cost for a complete Cerner system could be close to $10 billion. Currently the VA has 1,600 sites with 130 different software vendors under the VistA system.

Update 11/27/17: Cerner saw a huge spike last week on news they would partner with Amazon Web Services and their Healtheintent product. The CEO, Andy Jassy, is scheduled to give the keynote speech at the Amazon re:Invent Conference on Wednesday. Reportedly, Amazon and Cerner will use Amazon's considerable AI resources to predict patient outcomes within a population.

Position 10/31:

Long Mar $70 call @ $2.28, see portfolio graphic for stop loss.



DIA - Dow SPDR ETF - ETF Profile

Comments:

The DIA position expired on Friday and the Dow continues to power higher. I considered adding another DIA put today but decided to wait another week. This rocket ride is eventually going to run out of fuel.

Original Trade Description: October 24th

The SPDR Dow Jones Industrial Average ETF Trust seeks to provide investment results that, before expenses, correspond generally to the price and yield performance of the Dow Jones Industrial Average. The DJIA is the oldest continuous barometer of the U.S. stock market, and the most widely quoted indicator of U.S. stock market activity.

I am going to make this as simple as possible. The Dow is extremely overbought. It is due for a rest. There are 8 Dow components left to report earnings this week. Volatility will occur but we do not know in which direction. Since all the Dow gainers are already up strongly over the last several weeks, there is a good chance we could see some declines.

This is highly speculative. I am using the December options to give us some time for this to play out. Once a real decline begins, we will take profits rather quickly and I do not intend to hold this very long.

Position 10/25/17:

Closed 12/1: Long Dec 1st Weekly $232 put @ $2.25, expired, -2.25 loss.


DLTR - Dollar Tree - Company Profile

Comments:

DLTR shares are exploding higher. Analysts cannot say enough positive things about them. I hate to close the position but we need to keep tightening the stop loss. This is a January option.

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 are holding the recent gains in a crazy market.

DXCM will present an operational update on Dec 14th at 11:AM at the BMO Healthcare Conference in NYC.

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:

Long Mar $60 Call @ $2.75, see portfolio graphic for stop loss.



FB - Facebook - Company Profile

Comments:

That was quick. We entered the position just before the Nasdaq crashed last week and the decline is still in progress. We were stopped out on Wednesday in the first sector rotation drop.

Original Trade Description: November 27th

Facebook, Inc. provides various products to connect and share through mobile devices, personal computers, and other surfaces worldwide. Its solutions include Facebook Website and mobile application that enables people to connect, share, discover, and communicate each other on mobile devices and personal computers; Instagram, a mobile application that enables people to take photos or videos, customize them with filter effects, and share them with friends and followers in a photo feed or send them directly to friends; Messenger, a messaging application to communicate with people and businesses across platforms and devices; and WhatsApp Messenger, a mobile messaging application. The company also offers Oculus virtual reality technology and content platform, which allow people to enter an immersive and interactive environment to play games, consume content, and connect with others. As of December 31, 2016, it had approximately 1.23 billion daily active users. Company description from FinViz.com.

Expected earnings January 31st.

Everyone knows Facebook so I do not need to go into a lengthy explanation. Shares have refused to decline despite the choppy market. Big caps techs are currently in favor and they should be in favor until year end as portfolio managers window dress their portfolios. Facebook closed at a new high on Monday.

The risk here is a failure of the tax reform process or a market correction. Both are possible but that would be the same risk for any stock. Facebook's relative strength should give us some protection in either case. I plan on exiting this position before Christmas.

Position 11/28:

Closed 11/29: Long Feb $190 call @ $5.40, exit 3.43, -1.97 loss.
Closed 11/29: Short Feb $205 call @ $1.61, exit .97, +.64 gain.
Net loss $1.33.



TSN - Tyson Foods - Company Profile

Comments:

No specific news. Stock continues to close at new highs. This is a January option so I am raising the stop loss again to take us out if the sector rotation hits the food sector.

Original Trade Description: September 18th.

Tyson Foods, Inc., together with its subsidiaries, operates as a food company worldwide. It operates through four segments: Chicken, Beef, Pork, and Prepared Foods. The company raises and processes chickens into fresh, frozen, and value-added chicken products; processes live fed cattle and live market hogs; and fabricates dressed beef and pork carcasses into primal and sub-primal meat cuts, as well as case ready beef and pork, and fully-cooked meats. It also supplies poultry breeding stock; sells allied products, such as hide and meats; and manufactures and markets frozen and refrigerated food products, including pepperoni, bacon, breakfast sausage, turkey, lunchmeat, hot dogs, pizza crusts and toppings, flour and corn tortilla products, desserts, appetizers, snacks, prepared meals, ethnic foods, soups, sauces, side dishes, meat dishes, breadsticks, and processed meats. Tyson Foods, Inc. offers its products primarily under the Tyson, Jimmy Dean, Hillshire Farm, Ball Park, Van's, Sara Lee, Chef Pierre, Wright, Aidells, State Fair, Gallo Salame, and Golden Island brands. The company sells its products through its sales staff to grocery retailers, grocery wholesalers, meat distributors, warehouse club stores, military commissaries, industrial food processing companies, chain restaurants or their distributors, live markets, international export companies, and domestic distributors, as well as through independent brokers and trading companies. Tyson Foods, Inc. was founded in 1935 and is headquartered in Springdale, Arkansas. Company description from FinViz.com

Tyson has seen a rocky ten month period. With bird flu, chicken slaughters, hurricanes and commodity prices all working against them. However, they have persevered. The SEC probe on chicken pricing was concluded in late August and the SEC did not recommend any enforcement actions. The probe had been ongoing for more than a year over production and pricing of broiler chickens. This was a win for Tyson to remove this cloud from their outlook.

They announced last week they were going to build a $320 million plant in Leavenworth Kansas that could process 1.25 million chickens a week. Business is good!

For Q2 the company reported earnings of $1.21 that beat estimates for $1.18. Revenue of $9.85 billion beat estimates for $9.48 billion. They guided for the full year for earnings of $4.95-$5.05 and analysts were expecting $5.01.

Tyson shares have been chopping around between $58 and $66 since the probe was announced last November. Shares closed at a 10-month high on Monday at $67.41. I believe this breakout is going to stick now that the SEC cloud has been lifted.

Update 11/13/17: Tyson reported earnings of $1.43 that beat estimates for $1.38. Revenue of $10.15 billion beat estimates for $9.95 billion. Annual earnings rose to $4.79 on revenue of $38.26 billion. The company said a steady demand for its products plus a big decline in feed costs produced record earnings. Feed costs declined $65 million in the quarter and $80 million for the year after 4 years of bumper crops lowered prices. Tyson lowered guidance for 2018 feed costs by $100 million. Beef sales rose 9.5% and chicken sales 8.0%. The company guided for 2018 revenue of $41 billion, ahead of estimates for $40.36 billion. The company also said they acquired Original Philly Holdings, a leading producer of raw and fully cooked Philly-style sandwich steak and cheesesteak appetizer products. This company will be folded into Tyson's prepared foods division. Shares spiked to a new 11-month high and almost a record high.

Update 11/20/17: Tyson accepted the invitation from city, county and state leaders to build a new chicken complex in the city of Humboldt in western Tennessee. Tyson was going to build the plant in Kansas but the city cancelled its subsidies after citizens complained. The $300 million project will create 1,500 local jobs once operation begins in 2019. Tyson already has chicken facilities in Tennessee so this will be closer to those existing facilities. The new plant will process 1.25 million chickens a week and produce prepackaged chicken products for grocery stores.

Position 9/19/17:

Long Jan $70 calls @ $2.50, see portfolio graphic for stop loss.



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