Turning up the AC again and preparing for all those packages shipping in the coming months
Welcome Back to Tematica Pro
Yes, welcome back to Tematica Pro. We hope you’re as rested as we are, if not more so, because as we leave the Labor Day weekend behind we have entered the final stretch for 2016. As you probably know, September tends to be one of the worst performing months for the stock market, but with more data of late suggesting the Fed will more than likely hold off raising interest rates at its next FOMC meeting on Sept. 20-21, September 2016 may be one of the gentler Septembers.
Now, we still have concerns over what we see as aggressive earnings expectations as we move from 3Q 2016 to 4Q 2016 — after all, if recent economic data in the form of the August Employment Report, August ISM Index and August ISM Services Index are showing the vector and velocity for the US economy heading in the wrong direction, odds are earnings expectations for 2016 will once again need to be reset lower. Balance against the s&P 500 — our preferred barometer for the stock market — trading at 18.4x consensus earnings expectations, and any downward revision means we are paying even more for slower earnings growth. Hmmm… at some point, economic reality is going to catch up with expectations.
For that reason, we will continue to keep our inverse ETF positions as well as our more defensive ETFs position on the Tematica Pro Select List.
SOME LIKE IT HOT — BUT WE’RE SICK OF IT
If you’re like us, you tend to look forward to the cooler temperatures that arrive after Labor Day. Here at Tematica in the Washington, DC area we’re going to have to bit longer for much-needed relief, since after a brief respite, we’re right back into what we call the “Triple H Threat” — hazy, hot & humid!
As the temps heat up again, homeowners are back on the defensive, closing the windows back up and cranking up the air conditioning. This is stimulating utility production, just like we saw in June and July. During those two months, utility production was the primary driver of overall Industrial Production as mining and manufacturing remained tepid. This temperature dynamic is poised to continue in August and September and should spur utility shares higher.
Rather than choose one utility over another, we are making the following move:
- Adding the Utilities Select Sector SPDR ETF (XLU) October calls (XLU161021C00051000) that last traded at 0.50.
- We would add the XL calls up to $0.65, and on the downside, we are implanting a protective stop loss at $0.20.
- We are using such a wide delta between last night’s close and the stop loss price given the wide trade range in the calls. For example, yesterday these XLU calls traded between 0.27 — 0.52.
The Holiday Rush is On
As we look past the next few weeks, soon the September quarter earnings season will be upon us. It seems the June quarter rush only just subsided, but in roughly four weeks the onslaught returns. Looking past those few weeks, several significant retail shopping events will be upon us.
As hard as it may be to believe, Halloween has become a major shopping spree on candy, costumes, and home decorations. While it may pale in comparison to Christmas and New Year’s spending, consumer spent more than $7 billion dollars on Halloween last year. Although we’re NOTgoing to be adding this disgusting Halloween-themed Captain Crunch cereal to our shopping baskets — gross!
Nevertheless, as the spooktaculars, cornfield mazes, and houses of horror subside, we’ll soon be into Thanksgiving and year-end holiday shopping. Given the continued shift toward online spending, we’re continuing to evaluate call option positions for Cashless Consumption payment processing companies such as MasterCard (MA), Visa (V) andSquare (SQ).
As we’ve often said, buying online and paying online still means purchased goods that still need to be shipped to you or the intended party. As such as we get ready for all that spending, we’re making the following move: UPDATE ON 9/9/16: We goofed in this post — click here for the details.
- Adding United Parcel Service (UPS) January 2017 $110 calls (UPS160909C00110000) that last traded at $0.17. Not only will this strike price allow us to capture the upside to be had from Back to School spending, but also Halloween and the year-end holidays, but also the holiday returns that have to be shipped back. The timing also allows us to capture the benefit of a recent price increase announced by UPS that goes into effect in late December.
- We would add these UPS calls up to $0.30, but given the recent trading range, we are holding off implementing a protective stop loss at this time. We’d rather not get stopped out on a down market day this early into the position.
Recap of Actions from this week:
- Keeping the defensive ETFs on the Tematica Select List
- Issuing a Buy on Utilities Select Sector SPDR ETF (XLU) October calls (XLU161021C00051000) that last traded at 0.50. We would add the XLU calls up to $0.65, and utilize a protective stop-loss at $0.20.
- Issuing a Buy rating on United Parcel Service (UPS) January 2017 $110 calls (UPS160909C00110000) that last traded at $0.17. We would add these UPS calls up to $0.30, but given the recent trading range we are holding off implementing a protective stop loss.
UPDATE ON 9/9/16: We goofed in this post on this UPS option call — click here for the details and the revised guidance.
