As we said in yesterday’s edition of Tematica Investing, we’re back!

Given the more short-term trading nature of Tematica Pro and its emphasis on options, we’ve got some ground to cover thanks to the stock market fade in the back half of December.

While we’re hearing about how the market indices put in a good year for 2016 — true enough, they did — that has overshadowed their moves at the very end of the year. In the last week of trading, a normally sleepy time of year with most off to enjoy the holidays, the S&P 500 fell more than 1.5 percent and the tech-heavy Nasdaq Composite Index dropped 2.4 percent.

That sharp reversal compared to the prior weeks led to our being stopped out of all four call options trades we set during the last several weeks of 2016. As a reminder they were:

• Alphabet (GOOGL) January $800 calls (GOOGL170120C00800000) -17%
• Facebook (FB) February $120 calls (FB170217C00120000) -22%
• Amazon February 2017 $800 calls (AMZN170217C00800000) -35%
• United Parcel Service (UPS) February 2017 $120 calls (UPS170217C00120000) -29%

You’ll recall that we’ve been cautious and somewhat concerned about the speed of the market’s climb in November and early December, which was why we installed stop losses with each of those positions. Because options move in a more pronounced way — both up and unfortunately down — compared to the stock market, we took a few lumps, but those stop losses prevented us from losing our shirts over the holidays.

Now what to do with all of that returned capital?

As we noted in the latest edition of Tematica Investing, we see shares ofUniversal Display (OLED) — a Disruptive Technology company if there ever was one — being one of, if not the strongest performers, in the coming year. Ramping organic light emitting diode industry capacity to meet a growing number of applications (smartphones, including Apple (AAPL), TVs, wearables and eventually automotive display and lighting applications) will require the company’s OLED chemicals. As we mentioned when we first added Universal Display shares to the Tematica Select List the company has a business model akin to that at Qualcomm (QCOM) — a product and licensing business. With a few more days to go at CES 2017 followed by the National Auto Show next week and before too long several other consumer electronic related trade shows (Mobile World Congress 2017, CeBIT 2017) there are likely to be a number of positive announcements for organic light emitting diode demand even before Apple officially talks about its next iteration of the iPhone.

• To capitalize on this, we’re adding the Universal Display (OLED) February 2017 calls (OLED170217C00070000) that closed last night at 0.75 to our select list. 
• These options can be rather volatile so we are setting a protective stop loss at 0.35, and we aim to ratchet it higher as the underlying OLED share climb higher. 
• We would hold off adding to the position above 1.00. 

Listen to What the Fed Said

Yesterday we received the meeting minutes of the Federal Reserve’s Dec. 13-14 meeting at which in a surprise to no one boosted interest rates and shared it could raise them three times in 2017. If this were to happen, it would be a boon to banks given the importance of loan activity as well as interest rate spreads to their business.

At the time, we said the data to be had would tell us if the Fed really do that. Well, the December ISM Manufacturing as well as the Markit Economics December Manufacturing PMI for the US were both solid. The December ISM Manufacturing Index saw an acceleration in new orders and production, with new orders hitting a 4-month high. The data compiled by Markit Economics, which led its manufacturing PMI reading to hit a 21-month high in December, confirms the ISM data.

While some of this could be companies getting back to work following the 2016 presidential race, we are also likely to see regulatory reform that will ease things for the banks either in terms of cost, business activity or perhaps both. To us, picking the one bank that is best positioned to capitalize on this is like picking a needle in a haystack or like picking the one utility that will benefit from a cold winter weather. That logic led us to select the Utilities Select SPDR calls, which did rather well for us last year.

• Following that lead, we’ll add the Financial Select Sector SPDR ETF (XLF) $25 calls (XLF170421C000250000 that closed last night at 0.39.
• Our recommendation would be to add to the position up to 0.60, and we’re setting a protective stop loss at 0.20.
• As with other stop losses that we’ve used, we’ll look to boost it over time to limit losses or lock in gains — hopefully the latter.