Profit From Masses Of Companies Reporting
During The Earnings Season!
by Ian Harvey
October 23, 2017
There will be another round of quarterly earnings from a slew of blue-chip companies, like Exxon Mobil (XOM), McDonald's (MCD), and Intel (INTC) in the week ahead. FAANG stocks Alphabet (GOOGL) and Amazon are also expected to release earnings this week.
Also, the advance reading on gross domestic product (GDP) is slated to be released Friday, which will give traders a glimpse into third-quarter growth.
The Dow Jones Industrial Average (DJIA), S&P 500 (SPX), and Nasdaq Composite (IXIC) all chalked up new record highs this week, with the Dow closing above the 23,000 mark for the first time ever on Wednesday -- its best day in a month -- thanks to impressive earnings from IBM. Tax reform hopes helped the Dow and SPX extend their win streaks to a sixth day on Friday, after the Senate passed a budget plan.
And the optimism continues…..
Third Point's hedge fund manager Dan Loeb expects the S&P 500 to lead global markets higher.
"We believe the US has room to lead versus
the rest of the world from here and while we have increased exposure to Europe
overall this year … the majority of our portfolio remains in US equities," the fund’s manager writes in a letter to
investors. "Supported by strong global GDP growth and the prospect for tax
reform, S&P 500 earnings prospects are solid."
Led by a rally in bank and tech stocks on Friday, the Dow and S&P both extended their daily and weekly win streaks to six -- the Dow's longest of the year, and the SPX's longest since the first quarter.
The S&P 500 Index (SPX) rose to 2,575.21, up 0.8 percent for the week. The Nasdaq Composite (COMP) was up 0.4 percent for the week to 6,629.05. The Dow Jones Industrial Average (DJIA) was up 2.0 percent for the week to end at 23,328.63.
The CBOE Volatility Index (VIX) at 9.97 gained
3.7% on the week.
Besides Microsoft, Alphabet, and Amazon opening their books on Thursday, , this coming week also brings earnings from McDonald’s, Caterpillar, Lockheed Martin, and General Motors on Tuesday, CocaCola, Baxter, and Boeing on Wednesday, Ford and American Airlines on Thursday, and Merck, Chevron, and ExxonMobile on Friday.
The earnings results so far provide a positive and reassuring view of corporate earnings, which will most likely get strengthened and reconfirmed through the remainder of this reporting cycle.
There have been 87 S&P 500 members reported results so far which accounts for 24.7% of the index's total market capitalization; and in the coming week more than 700 companies are on deck to release results, including 180 S&P 500 members.
There are plenty of positives surrounding this reporting period also, such as:-
A Look Back At Earnings Predictions for Week Beginning October 16, 2017
Earnings Results for the Week Beginning October 16, 2017
|October 16, 2017||NFLX OCT 20 2017 200.000 CALL||P.P: 59%|
|October 19, 2017||PYPL OCT 20 2017 65.000 PUT||P.P: 167%|
|October 20, 2017||CLF NOV 17 2017 7.000 PUT||P.P: 50%|
NOTE: P.P: – Potential Profit
Options Trades to Consider Based on Expected Earnings Reports:
Tuesday, October 24
The burger chain McDonald's Corporation (NYSE:MCD) reports Q3 earnings on Tuesday, before the market opens, to grow EPS by 7% to $1.74, down from prior double-digit gains, on revenue of $5.688 billion, an 11% drop. Cheap drinks and premium burgers likely helped lift results during the quarter, RBC said. Delivery via UberEats remains a way for the chain to attract new customers, but data for the company's sales trends during the quarter has been conflicted.
Option trade to consider: Buy the MCD DEC 15 2017 165.000 PUT at approximately $3.70.
Caterpillar Inc. (NYSE:CAT) - read article and recommended options trade -- “Option Trade – Caterpillar Inc. (NYSE:CAT) Calls - Friday, October 20, 2017.”
Melius Research’s Rob Wertheimer writes that for the second time in two decades, machinery stocks are trading at a premium to multi-industry.
From the note:
Underlying demand is strong. North American construction is touching prior highs, and high frequency indicator Komtrax shows dirt being moved growing single digits after a long weak stretch. Trucking rates and utilization are picking up; that lurked beneath strong machinery results in 2007-8. Machinery multiples should have the indicators are volatile and low quality, but all pointing positive. Blow up risks are low…there’s no housing crisis already contracted, but too often shares trade at high multiples on high earnings for too long.
Wertheimer writes that heavy machinery maker Caterpillar Inc., which manufactures construction and mining equipment, diesel and natural gas engines, industrial gas turbines and diesel-electric locomotives, is one of his highest Buy-Accumulate rated stocks.
Caterpillar reports third quarter earnings before the opening bell on October 24 and analysts expect the construction equipment giant to earn $1.20 a share. The stock closed at $130.71 on Oct. 13, up 40.9% year-to-date, and in bull market territory, 57.4% above its postelection low of $83.06 set on Nov. 8.
Option trade to consider: Buy the CAT JAN 19 2018 135.000 CALL at approximately $3.10.
Wednesday, October 25
Aerospace giant Boeing Co (NYSE:BA) is confirmed to report earnings before the market opens. Analysts expect Boeing to report a 24% drop in Q3 EPS to $2.66, but a 0.7% rise in revenue to $24.06 billion, marking the first gain after four straight declines.
The stock has drifted higher by 18.5% from its open following the company's last earnings release to be 31.6% above its 200 day moving average of $201.23.
Q3 total deliveries were up 7.4% year-over-year to 202, which included 145 narrow-body 737s and 35 widebody 787 Dreamliners.
However, Boeing faces a backlash overseas over the company’s situation with Bombardier Inc.
Option trade to consider: Buy the BA NOV 17 2017 255.000 PUT at approximately $3.80.
Thursday, October 26
The e-commerce giant Amazon.com, Inc. (NASDAQ:AMZN) -- reports Q3 earnings after the market close Thursday. The consensus estimate looks for EPS of 3 cents, 94% below the 52 cents reported a year ago, on revenue of $42 billion, up 28%.
Short interest has increased by 25.3% since the company's last earnings release while the stock has drifted lower by 2.9% from its open following the earnings release to be 6.1% above its 200 day moving average of $926.42. Also, overall earnings estimates have been revised lower since the company's last earnings release.
Option trade to consider: Buy the AMZN NOV 17 2017 950.000 PUT at approximately $16.00.
Google-parent Alphabet Inc. (NASDAQ:GOOGL) reports Q3 earnings late Thursday. Analysts expect the internet search giant to report GAAP earnings growth of nearly 15% to $8.33 per share, with revenue rising 21% to $27.2 billion.
Alphabet's strong revenue growth recently continues to demonstrate the search giant's ability to consistently grow its business at heady rates.
Alphabet's "Google other" segment, made up primarily of revenue from the Android app store, Google-branded hardware, and cloud services, in Alphabet's second quarter, was up 42% year over year. Further, other revenue accounted for a notable 12% of second-quarter revenue, up from 10% in the year-ago quarter.
Also, Alphabet's other bets operating loss is to continue to improve on both a year-over-year and sequential basis in Q3.
Alphabet has lagged other FANG stocks, though shares recently edged above a buy point of 1,008.71 before retreating.
Option trade to consider: Buy the GOOGL NOV 17 2017 1020.000 CALL at approximately $20.00.
Friday, October 27
Exxon Mobil Corporation (NYSE:XOM) will report earnings before the market opens. The report will be for the fiscal Quarter ending Sep 2017. Analysts see Exxon's EPS rising 35% to 85 cents with revenue up 9% to $63.97 billion. The reported EPS for the same quarter last year was $0.63.
The oil and natural gas business is an inherently volatile one, driven by often swift and dramatic commodity price moves. That's not likely to change anytime soon.
Exxon added a lot of debt during the energy downturn; between 2013 and 2016, long-term debt increased from roughly $7 billion to almost $29 billion. That's a massive increase.
While Exxon Mobil stock is hitting chart resistance they are also registering an overbought signal from their RSI. The latest readings have crossed above 70, usually an indication of upcoming price weakness.
The 50-day moving average for Exxon Mobil remains in a bearish trend. This suggests that any selling pressure will be increased as the technical traders and programs determine the latest rally an anomaly within the longer-term trend.
Six analysts have rated the stock with a sell rating, sixteen have given a hold rating, eight have assigned a buy rating and one has issued a strong buy rating to the company. The stock currently has a consensus rating of Hold and an average target price of $85.11.
Option trade to consider: Buy the XOM NOV 17 2017 82.500 PUT at approximately $1.10.
One of the biggest earnings days of the quarter comes this Thursday when Microsoft, Alphabet, and Amazon all report, the same day that the European Central Bank meets. The ECB has continued to inject a large amount of funds into the bond market every month, to the tune of about $70 billion. That’s even as the U.S. Fed has embarked on a rate-raising cycle and has begun unwinding its own quantitative easing program.
Toward the end of this past week, Nasdaq was up more than 22% year-to-date, vs. 17% for the Dow Jones Industrial Average and 14% for the S&P 500.
The potential passage of a new U.S. tax plan raises a lot of debate about who might benefit. If initial market reaction to the Senate’s passage of tax legislation late Thursday is any guide, it looks like financials and info tech might be among the sectors investors expect might get a boost, as both jumped solidly in early action Friday.
With all the potentially scary news out there, stocks continue to edge higher. We’ve seen fresh all-time highs in most of the major indexes from the Dow Jones Industrial Average to the Dow Jones Transportation Average. Lesser known indexes like the Standard & Poor’s 100 mega-cap index and Russell 2000 small-cap index have also rallied.
Despite an array of potentially detrimental geopolitical and economic factors, it is important to refrain from getting too comfortable and complacent; the key-word now is “vigilance” – even though there seems to be little in the way of catalysts to de-rail the rally.
However, realizing that the markets could react in the short term to any further signs of escalation or de-escalation of the geopolitical risk, as well as the impact of the weather, will help plan for a successful and profitable week ahead.
Therefore, with the market uptrend still continuing, investors should exercise extra caution. But by learning to use call and put options, investors can significantly reduce risk and capitalize on basing stocks that are making breakaway gains caused by earnings reports.
Now that the earnings season is starting to get into full-swing, members of Stock Options Made Easy will be receiving recommendations from our private option trading portfolios. There are two memberships available, “Cut-to-the-Chase” and “Armchair Trader” Membership Series, which provides you with the very best of recommendations.
As to the “trades to consider” mentioned in this article, you will notice that most options trades have short-term expiry dates, as the expected movement of the option’s price should occur just prior to, or shortly after, report of earnings. It is entirely up to the individual trader as to whether they add a stop-loss or not.
Also Note: These suggestions for options trade considerations require investors/traders to use their own discretion as to when to enter or exit! As well, it is advisable to do further research and due diligence before executing your trade.
If you wish to receive more options trading recommendations similar to this, which will help boost your portfolio strategy, get on board with the members of Stock Options Made Easy.
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