Stocks finally cracked a bit last week as Washington turbulence reached a new high regarding the firing of ex-FBI director James Comey. To date, the stock market has duly ignored most of the noise regarding the President’s tweets or commentary. However, the likelihood that this new controversy will sway legislators away from supporting Trump reduces the chance for swift legislative changes in the U.S.

Investors who gobbled up stocks in anticipation of a pro-business environment dumped their shares.

Luckily, the solid pillars of strong economic data and robust earnings will support the market. I expect more volatility as investors sort out stocks with sturdy business plans versus those levitating on hope for proposals from the government. This period should be a productive time for us to find new long and short positions.
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I’ll be using what I expect to be a volatile period to prune and to plant new names in our portfolio. Last Friday I sold Air Transport Services Group (NSDQ: ATSG), a 60% plus winner. It’s always hard to say goodbye to a winner, particularly when the company continues to execute well. Air Transport has done all it told investors that it would. However, with my target within shooting distance, I thought it prudent to book the gain.

Subscribers who wish to ride the stock higher can consider a $20 stop loss on their position. Just a note, whenever I have a stop loss on a position, I move that price up once or twice a week in tandem with the stock. For example, if Air Transport moves up to $25, I would increase the stop loss to $22.

Unfortunately, the Edgewell Personal Care (NYSE: EPC) puts expired worthless last week. With options, it is a constant battle between time and price. I am working on some parameters to formulate the best time to sell an option and roll into a future series. For example, I still believe Edgewell will trade lower than $65, but that’s no help to those of us with the May puts. In the future, I hope to sell losing puts earlier and use the proceeds to buy puts with expiration dates further in the future.

We had a similar experience with the March $29 strike Winnebago puts which expired worthless only to see the stock promptly fall to $25 in the next few weeks. Options are incredibly risky, but I am working on improving my system to avoid worthless expirations.

Regarding our remaining put positions, Walmart reiterated its price and inventory reduction strategy when it reported earnings last week. Management noted that inventory at each store fell more than 7%. Walmart is an expert in squeezing suppliers for price and payment terms. Walmart is taking longer to pay its suppliers and taking on just enough inventory to fill its shelves.

Walmart also noted profits are already improving due to lower prices from suppliers. We still hold puts in two Walmart suppliers. Laundry maker Church & Dwight (NYSE: CHD), whose stock was downgraded by heavyweight Morgan Stanley last week (details below) and spice maker McCormick (NYSE: MKC) who are both being squeezed by Walmart.

News around the portfolio:

Church & Dwight (NYSE: CHD) was downgraded to Underweight at Morgan Stanley. Analyst Dara Mohsenian lowered the stock’s price target to $49 from $51 saying shares are too high. Mohsenian believes the market is giving too much potential to the Unilever bid and not enough to Church & Dwight’s deteriorating outlook.

Impinj (NSDQ: PI) jumped 7% today after a positive mention by Barrons financial magazine. Long time tech guru Tiernan Ray called out Impinj as one of the few technology companies with innovative technology in memory chips. He pointed out Impinj’s unique, low-power chips that can tag any item (luggage, clothing inventory, hospital supplies). Companies are increasingly utilizing this technology to manage their supply chain.

Gabelli group reported a 5% stake in Mueller Water (NYSE: MWA). The fund company, which focuses on growth stocks, purchased the shares as recently as May 8 and paid an average of around $11.00 for the overall position. It is positive that small cap Mueller is getting some attention from mutual fund companies.