As expected, the Fed’s much-anticipated September meeting of the Federal Open Market Committee (FOMC) left interest rates unchanged, and in a move that likely surprised few, reduced its 2016 GDP forecast to 1.8% from the 2% in July and 2.2% in March.

The sum of the FOMC statement can be found in these words: “The Committee judges that the case for an increase in the federal funds rate has strengthened but decided, for the time being, to wait for further evidence of continued progress toward its objectives.” Despite that “continued progress” phrase, the Fed continues to see GDP reaching just 2% in both 2017 and 2018, which suggests there is less conviction inside the Fed over the true state of the US economy.

Harvesting Some Big Profits…

Following the market’s digestion of the Fed’s statement, the stock market moved higher and this popped our Utilities Select Sector SPDR ETF (XLU) October $51 calls (XLU161021C00051000), which closed last night at 0.69. We initially issued a Buy on that call option and added it to the Tematica Pro Select List on September 8 at 0.46 and after a quick drop, we scaled into these XLY calls the next day at 0.21.

What this means is based on last night’s close, our initial position is up 50 percent, while the second one closed last night up 229 percent! On a blended basis, the XLY call position returned just under 106 percent.

• With the temperature set to cool, we are issuing a Sell on this call position, and closing it out on the Tematica Pro Select List.

…Positioning for the Holiday Shopping Season

Tuesday night, FedEx (FDX) reported better-than-expected quarterly results and lifted its outlook for the coming year. The drivers of those two developments bode well for our shares of Amazon (AMZN). While much attention likely will be paid to FedEx’s acquisition and integration of TNT, we’re looking past that to the driver of the quarter’s outperformance relative to expectations, namely the accelerating shift toward digital commerce that is driving demand for its shipping services. Revenue rose across all three reportable segments at FDX — Express, Freight, and Ground — with FedEx Ground average daily volume growing 10% in the quarter. Management on the earnings conference call cited the key drivers of that growth as e-commerce and commercial package growth.

Ah, the sweet sound of confirmation for that aspect of our Connected Society investing theme!

As the FedEx management team put it so well on that call, “As e-commerce grows, there is demand for online ordering and delivery of everything from large-screen TVs to mattresses and trampolines.” We’ve discussed the evidence of this shift each month when the Retail Sales report is issued by the Census Bureau, which has served to reinforce our thesis on Amazon shares. Still, it’s always reaffirming to hear a company that is part of the ecosystem chime in with a confirming perspective. The more confirming data points we find for an investment thematic, the better.

We see FDX’s comments, performance and outlook as bullish for the Amazon shares heading into the shopping-heavy end of the year and into 2017 as Amazon continues to expand its footprint and Prime offerings. While AMZN shares are on the Tematica Investing Select List, to capitalize even further on this accelerating shift and Amazon’s prime position (pun intended):

• We are issuing a Buy on Amazon (AMZN) January 2017 $800 calls (AMZN170120C00800000) that closed last night at $42.02. 
• As we look to add the shares to the Tematica Pro Select List, we would buy these calls up to $46 and we are setting a protective stop at $35. 
• We are opting for the January 2017 calls in order to maximize the pre-Christmas holiday shopping season, but also post-holiday sales as well. 

Recognizing that buying a position of size in that Amazon recommendation could be cost prohibitive for some, we are making a second Buy recommendation on Consumer Discretionary Select Sector SPDR ETF (XLY) January 2017 $85 calls (XLY170120C00085000)that closed last night at $0.45. The largest holding in this ETF, at 13.3 percent of total assets — nearly double the next largest holding — is Amazon. The only ETF with greater exposure to AMZN shares, almost 16 percent of total assets, is the VanEck Vectors Retail ETF (RTH), but call options for this ETF are too thinly traded to be viable.

Outside of Amazon, XLY also has meaningful exposure to Disney (DIS), Starbucks (SBUX) and Nike (NKE), all of which should perform well this coming holiday season. As with the AMZN call recommendation, we are purposely choosing the January 2017 strike to maximize the pre- and post-holiday shopping season.  So in summary:

• We would look to add the Consumer Discretionary Select Sector SPDR ETF (XLY) January 2017 $85 calls (XLY170120C00085000) up to $0.60 but, given wide swings, we will hold off before adding a protective stop loss.

SUMMARY OF ACTIONS FROM THIS POST:

• Issuing a Sell rating and closing out the Utilities Select Sector SPDR ETF (XLU) October $51 calls (XLU161021C00051000) for a blended 106 percent return.
• Issuing a Buy on Amazon (AMZN) January 2017 $800 calls (AMZN170120C00800000) up to $46 with a protective stop at $35.
• Issuing a Buy on Consumer Discretionary Select Sector SPDR ETF (XLY) January 2017 $85 calls (XLY170120C00085000) up to $0.60, but given wide swings,hold off before adding a protective stop loss.