The S&P futures fell -6 points immediately after the UK bombing but have been improving steadily.
The drop in the futures was a knee jerk reaction to the terrorist attack. The event should not have any material impact on the U.S. markets. These are unfortunate events and remind us we need to be constantly vigilant whenever we are in a public area.
The market on Monday was a mix of short squeeze and actual buying. The Dow gapped open to 20,900 and then traded in a narrow 37-point range the rest of the day. This was a short squeeze driven by Boeing, 3M and United Health. Except for the open, the Dow was dormant. The market volume at 5.89 billion shares was the lowest since April 17th.
The Dow rebounded to resistance at 20,900 and stalled. This was prior support for three weeks and could be a challenge. However, the 20,100 resistance should be even tougher to cross without a material catalyst. There is nothing to push the markets lower unless the FOMC minutes on Wednesday provide a negative surprise.
We are in a solid range between 20,600 and 21,000 and could conceivably chop around here for some time.
The S&P was a little stronger than the Dow with the index pushing through resistance at 2,380 and now retesting the 2395-2400 resistance level that held the prior three weeks. The S&P is getting help from the big cap techs and some biotechs that are posting big gains ahead of the ASCO conference.
The Nasdaq sustained the most damage last week but has almost completely erased the drop. Google and Amazon are leading the charge while Facebook and Netflix closed only fractionally positive today. The chip stocks and biotechs were the biggest supporters. If the Nasdaq breaks out to a new high, we could be in for a decent sprint because there was some heavy shorting the last time we were at this level.
The small cap indexes picked up the pace a little on Monday but they have a long way to go to retest resistance at 1,400 on the Russell 2000. This is encouraging but not necessarily a sign of bullish conviction.
Earnings are winding down and this is the last material week. Only 15 S&P companies report and that is the last group. There are some stragglers but they report throughout the quarter. Hewlett Packard and Costco are the two highlights for the week.
The hurdle on the economic calendar is the FOMC minutes on Wednesday. Assuming there are no revelations that rock the market, the volume should fall off a cliff after the release as everyone shuts down early for the first long weekend of summer.
There is nothing to push the markets either higher or lower as long as President Trump remains overseas and careful about what he says. The political uproar here in the states is calming down and the terrorist attack in Manchester UK. This should fill the headlines for a couple days and take the focus off the President.
With earnings winding down and the sell in May signal triggered, we need something to offset these negatives. I have no idea where it will come from or even if something will arrive. Without a catalyst the markets could wander sideways again until a new direction appears.
I have routinely cautioned readers in late May in years past, to be cautious about adding too many long positions. There is no reason to get out of the market but new long positions should be cautiously entered and with lower position sizes. The summer season is typically choppy.
Enter passively, exit aggressively.
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NEW DIRECTIONAL CALL PLAY
CGNX - Cognex - Company Profile
Cognex Corporation provides machine vision products that capture and analyze visual information in order to automate tasks primarily in manufacturing processes worldwide. The company offers machine vision products, which are used to automate the manufacturing and tracking of discrete items, such as mobile phones, aspirin bottles, and automobile tires by locating, identifying, inspecting, and measuring them during the manufacturing or distribution process. Its products include VisionPro, a software suite that provides various vision tools for programming; displacement sensors with vision software for use in 3D application; In-Sight vision systems that perform various vision tasks, including part location, identification, measurement, assembly verification, and robotic guidance; In-Sight vision sensors; ID products, which are used for reading codes that are applied on discrete items during the manufacturing process, as well as have applications in logistics automation for package sorting and distribution; DataMan barcode readers; barcode verifiers; vision-enabled mobile terminals for industrial barcode reading applications; and barcode scanning software development kits. The company sells its products through direct sales force, as well as through a network of distributors and integrators. Company description from FinViz.com
Cognex reported earnings of 42 cents that rose 200% and beat estimates for 28 cents. Revenue of $134.9 million rose 40% and beat estimates for $123.8 million. They guided for revenue of $165-$170 million for the current quarter and analysts were expecting $173.9 million. Shares did not decline because of the record earnings and their normally conservative guidance. Operating margins rose from 17% to 28%.
The company said the machine automation for the manufacturing sector was growing very strongly and accelerating. Revenue from that segment rose in the "mid-teens" percentages and their automotive business grew 20%.
In the San Francisco gold rush the people that made the most money were the ones that sold picks, shovels and wheelbarrows. Cognex is in the business of selling business tools that help businesses run better, cheaper and faster.
Earnings July 31st.
Shares dilled $5 in the market crash and have already rebounded to close at a new high on Monday. This should continue assuming the market cooperates.
Because of the stock price in relation to the strike price this needs to be a spread to produce the best results.
Buy Aug $95 call, currently $4.80, initial stop loss $87.75
Sell short Aug $105 call, currently $1.40, initial stop loss $87.75
Net debit $3.40.
If there is a trade you would like me to consider or you have comments on this newsletter please click the email link below.
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Check the graphic below for any new stop losses in bright yellow. We need to always be prepared for an unexpected decline. Any items shaded in blue were previously closed.
Current Position Changes
CRM - SalesForce.com
The long call position was closed at the open on Tuesday.
NFLX - Netflix
The long call position was stopped at $154.35.
ATVI - Activision
The long call position was entered on Tuesday.
QQQ - Nasdaq 100 ETF
The long put position was stopped at $139.25.
SBUX - Starbucks
The long call position was stopped at $59.50.
Original Play Recommendations (Alpha by Symbol)
ATVI - Activision Blizzard - Company Profile
Bungie, the developer of Destiny 2, marketed by Activision, released about 60 screenshots from the game and players of all ages cannot wait for the September 2017 release date. This will be another billion dollar game for Activision. ATVI shares are not slowing down. They dipped with the market last Wednesday but are already back at the highs.
Original Trade Description: May 15th.
Activision Blizzard, Inc. develops and publishes online, personal computer (PC), video game console, handheld, mobile, and tablet games. The company operates through two segments, Activision Publishing, Inc. and Blizzard Entertainment, Inc. The company develops, publishes, and sells interactive software products and content through retail channels or digital downloads; and downloadable content to a range of gamers. It also publishes subscription-based massively multiplayer online role-playing games; and strategy and role-playing games. In addition, the company maintains a proprietary online gaming service, Battle.net that facilitates the creation of user generated content, digital distribution, and online social connectivity in its games. Further, it engages in creating original film and television content; and provides warehousing, logistical, and sales distribution services to third-party publishers of interactive entertainment software, as well as manufacturers of interactive entertainment hardware products. The company serves retailers and distributors, including mass-market retailers, consumer electronics stores, discount warehouses, game specialty stores, and consumers through third-party distribution, licensing arrangements, and direct digital purchases in the United States, Canada, Canada, the United Kingdom, France, Germany, Ireland, Italy, Sweden, Spain, the Netherlands, Australia, South Korea, China, and internationally. Company description from FinViz.com
Activision reported Q1 earnings of 56 cents, up 17%. Sales rose 19% to $1.73 billion. Activision had originally guided for 25 cents and $1.55 billion. Analysts were expecting 22 cents and $1.1 billion so it was a major blowout. For the full year they raised guidance to 88 cents and $6.1 billion, up from 72 cents and $6.0 billion.
Blizzards's monthly active users rose to 431 million. King Digital has 342 million active users. The new Overwatch game was the fastest Blizzard title to hit 25 million registered players and now has more than 30 million. Revenues from in game purchases rose 25% driven by World of Warcraft and Overwatch customization features.
Earnings August 3rd.
We just exited a profitable position on ATVI last week in order to avoid any potential earnings disappointment. Hindsight is 20:20 as shares continued to move higher. With the strong earnings and raised guidance, Activision should continue higher. Options are ridiculously cheap.
Long August $60 call @ $1.69, see portfolio graphic for stop loss.
COMM - Commscope Holdings - Company Profile
No specific news. Shares are rebounding again and near a 3-week high.
Original Trade Description: May 8th.
CommScope Holding Company, Inc. provides infrastructure solutions for communications networks worldwide. The company's CommScope Connectivity Solutions segment offers optical fiber and twisted pair structured cable solutions, intelligent infrastructure software, and network rack and cabinet enclosures under the SYSTIMAX, AMP NETCONNECT, and Uniprise brands; and fiber management systems, patch cords and panels, complete cabling systems, and cable assemblies for use in offices and data centers. This segment also provides fiber optic connectivity solutions, including hardened connector systems, fiber distribution hubs and management systems, couplers and splitters, plug and play multiport service terminals, hardened optical terminating enclosures, high density cable assemblies, splices, and splice closures that supports video, voice, and high-speed data services provided by telecommunications operators and multi-system operators. Its CommScope Mobility Solutions segment offers macro cell site solutions for wireless tower sites and on rooftops, such as base station antennas, microwave antennas, hybrid fiber-feeder and power cables, coaxial cables, connectors, and filters; metro cell solutions for outdoors on street poles and on other urban structures comprising radio frequency delivery and connectivity solutions, equipment housing, and concealment; and small cell and distributed antenna system (DAS) solutions consisting of DAS and distributed cell solutions that allow wireless operators to enhance efficiency, and cellular coverage and capacity in network conditions. This segment provides its solutions under the Andrew brand. CommScope Holding Company, Inc. sells its products through a network of distributors, system integrators, and resellers. The company was formerly known as Cedar I Holding Company, Inc. Company description from FinViz.com
Commscope reported earnings of 52 cents compared to estimates for 53 cents. Revenue of $1.14 billion matched street estimates. They guided for the current quarter for earnings of 62-67 cents and revenue from $1.20 to $1.25 billion. Full year earnings are expected to be $2.70-$2.80 with revenue $4.85-$4.95 billion.
The earnings were ok, the guidance was a killer. Analysts were expecting $2.95 and $5.1 billion. Shares fell from $41 to $33. Management blamed the miss on "more cautious spending patterns" at North American telecom customers. They are also experiencing some merger pains from their 2015 acquisition of TE Connectivity, which they said they were addressing aggressively. The TE products were lower margin products.
Despite the negativity, telecom spending is expected to pickup in the second half of the year.
Earnings August 3rd.
Shares are already rebounding and I believe this is a buying opportunity on a previously strong chart. If I am wrong the option is cheap and we do not have much at risk.
Long August $38 calls @ $1.25, see portfolio graphic for stop loss.
CRM - Salesforce.com - Company Profile
We closed the position at the open on Tuesday to avoid the earnings on Thursday. Fortunately, we avoided the Wednesday market drop as well.
Original Trade Description: April 10th.
Salesforce.com, inc. develops enterprise cloud computing solutions with a focus on customer relationship management. The company offers Sales Cloud to store data, monitor leads and progress, forecast opportunities, gain insights through relationship intelligence, and collaborate around sales on desktop and mobile devices, as well as solutions for partner relationship management. It also provides Service Cloud, which enables companies to deliver personalized customer service and support, as well as connects their service agents with customers on various devices; and Marketing Cloud to plan, personalize, and optimize one-to-one customer interactions. In addition, the company offers Commerce Cloud to deliver a digital commerce experience; Community Cloud to create and manage branded digital destinations for customers, partners, and employees; Internet of Things Cloud that provides insights to companies enabling them to sell, service, and market to their customers in personalized ways, as well as engage with them in real time; and Analytics Cloud that enables employees across an organization to explore business data, uncover new insights, make decisions, and take action from various devices. Further, it provides Salesforce Quip, a next-generation productivity solution for teams with a mobile-first strategy to collaborate without email; and Salesforce Platform for building enterprise apps. Additionally, the company offers professional cloud services, such as consulting, deployment, training, user-centric design, and integration to facilitate the adoption of its solutions; and architects and innovation program teams, as well as various education services comprising introductory online courses and advanced architecture certifications. Salesforce.com, inc. offers its services through direct sales; and through consulting firms, systems integrators, and other partners. Company description from FinViz.com
Evercore ISI penned an article in Barrons last week saying they expect Salesforce to grow annual revenue to $20 billion within four years. They see +20% revenue growth over the next several years and a 20% upside in the stock price in the next 6-12 months. They have a short term price target of $100.
Last week Salesforce received a government classification of Impact Level 4 or IL 4 for short. With this certification, government agencies and employees are free to use the Government Cloud for controlled, unclassified information.
There is also a persistent rumor that Salesforce could be acquired. Google has been speculated as a potential candidate. With Oracle, Microsoft and IBM trying to compete in this market, having Google's big bucks behind Salesforce would help them compete.
Earnings May 30th.
With the stock up 21% YTD there could be some profit taking if the market decides to rest. Support is around $81.
Futures are falling overnight so I am picking a closer to the money strike in hopes we get a gap lower open on Tuesday. If the market does open lower, let the call premiums breathe for a few minutes before adding the position. It normally takes 10-15 minutes for them to settle. Obviously if the market continues to fall then wait for a bottom to appear before entering the position.
Update 4/17/17: Salesforce opened a new data center in Japan to deliver the Intelligent Customer Success Platform including Sales Cloud, Service Cloud, App Cloud, Community Cloud, Analytics Cloud and more for customers in Japan and the Asia Pacific region. Salesforce is very close to opening their new 61 floor tower in San Francisco as well. They are expecting a July completion.
Closed 5/16/17: Long June $85 call @ $3.55, exit $6.44, +$3.09 gain.
FMC - FMC Corp - Company Profile
No specific news. Shares dipped with the market but immediately returned to the highs.
Original Trade Description: April 17th.
FMC Corporation, a diversified chemical company, provides solutions, applications, and products for the agricultural, consumer, and industrial markets worldwide. The company operates through three segments: FMC Agricultural Solutions, FMC Health and Nutrition, and FMC Lithium. The FMC Agricultural Solutions segment develops, manufactures, and sells crop protection chemicals, such as insecticides, herbicides, and fungicides that are used in agriculture to enhance crop yield and by controlling a range of insects, weeds, and diseases, as well as in non-agricultural markets for pest control. The FMC Health and Nutrition segment offers microcrystalline cellulose for use in drug dry tablet binders and disintegrants, and food ingredients; carrageenan for use in food ingredients for thickening and stabilizing, pharmaceutical, and nutraceutical encapsulates; alginates for food ingredients, pharmaceutical excipients, healthcare, and industrial uses; natural colorants for use in foods, pharmaceutical, and cosmetics; and omega-3 EPA/DHA for nutraceutical and pharmaceutical uses. The FMC Lithium segment offers lithium for use in batteries, polymers, pharmaceuticals, greases and lubricants, glass and ceramics, and other industrial uses. FMC Corporation was founded in 1884 and is headquartered in Philadelphia, Pennsylvania. Company description from FinViz.com
FMC has been around forever as in 123 years. However, last month it entered a new phase of its life. DuPont is (DD) merging with Dow Chemical (DOW) and the EU is forcing them to divest DuPont's crop protection business in order to gain approval of the merger.
On March 31st, the companies announced that FMC will acquire DuPont's crop protection business and overnight become the fifth largest in the world. Secondly, FMC will sell its health and nutrition business to DuPont. This is a low margin, low growth business that FMC is glad to be selling. FMC will pay DuPont $1.2 billion in cash.
The transactions will be immediately accretive to FMC upon closing. FMC expects revenue from the acquired business of $1.5 billion in 2017 and $475 million in EBITDA. Total annual revenue will be $3.8 billion. The combination of the DuPont crop business with the R&D capabilities of FMC it will catapult FMC into an entirely new range of capabilities. The company will acquire multiple major brands of pesticide and herbicides. It will also expand the reach of FMC around the world where there was little market penetration in the past. FMC is gaining a global manufacturing network of four active ingredient manufacturing facilities and 10 regional formulation plants.
In one transaction FMC dumped its underperforming health business and gained a crop protection business equal or greater than its own and cleaned up their balance sheet at the same time.
Earnings are May 2nd. There is no way to play this without holding over that earnings report. With all the good news breaking out about the transaction, the earnings will be another podium to brag about their good fortune.
Update 5/8/17: FMC reported earnings of 43 cents that missed estimates for 56 cents. Revenue of $596 million missed estimates for $742 million. However, those included some discontinued operations that reduced earnings by 21 cents and revenue by $177 million. When adding those back in they beat on both numbers. Shares dipped on the initial report but rebounded once the details were known. The acquisition of the Dow assets is expected to close in Q4.
Long July $77.50 call @ $2.54, see portfolio graphic for stop loss.
HAIN - Hain Celestial - Company Profile
Hain finally said the prior week they would release earnings sometime this month. No firm date yet. They are rapidly running out of month. The Nasdaq has given them until June 15th or be delisted.
Original Trade Description: March 20th
The Hain Celestial Group, Inc. manufactures, markets, distributes, and sells organic and natural products in the United States, the United Kingdom, Canada, and Europe. Its grocery products include infant formula; infant, toddler, and kids foods; diapers and wipes; rice and grain-based products; flour and baking mixes; breads, hot and cold cereals, pasta, condiments, cooking and culinary oils, granolas, granola bars, and cereal bars; canned, chilled fresh, aseptic, and instant soups; Greek-style yogurt; chilies and packaged grains; and chocolates and nut butters, as well as plant-based beverages and frozen desserts, such as soy, rice, almond, and coconut. The company's grocery products also comprise juices, hot-eating, chilled and frozen desserts, cookies, crackers, gluten-free frozen entrees and bars, frozen pastas and ethnic meals, frozen fruits and vegetables, cut fresh fruits, refrigerated and frozen soy protein meat-alternative products, tofu, seitan and tempeh products, jams, fruit spreads and jelly, honey, marmalade, and other food products. In addition, it provides snack products, such as potato, root vegetable, and other vegetable chips, as well as straws, tortilla chips, whole grain chips, pita chips, puffs, and popcorn; specialty teas, including herbal, green, black, wellness, rooibos, and chai tea lattes; ready-to-drink beverages comprising organic kombucha and chai tea lattes; personal care products consisting of skin, hair and oral care, deodorants, baby care items, acne treatment, body washes, and sunscreens; and poultry and protein products, such as turkey and chicken products. The company sells its products through specialty and natural food distributors, supermarkets, natural food stores, mass-market and e-commerce retailers, food service channels and club, and drug and convenience stores in approximately 70 countries worldwide.
Company description from FinViz.com
We played Hain before back in the fall. Basically, they have not filed their quarterly reports since last May because of a review of accounting procedures. They have suffered over the last year and have reportedly spent $20 million in the complete accounting review for years past and a review of their procedures. They are facing class action suits and SEC probes but none of these things will have a lasting impact.
They are facing a new deadline of May for their reports or they will be in default with their lenders. While they will not say when they will file the back reports, they continue to assure investors there was no wrongdoing and these types of corporate autopsies for prior years take time.
They are so undervalued compared to their peers and their historical norms, it is silly not to have a long position. Once they file the reports this will all be behind them.
I am recommending we buy the August $40 call and forget about it. At $2 it is not a lot of money and they could quickly return to the $50s once they file the reports.
Long Aug $40 call @ $1.97, see portfolio graphic for stop loss.
LIT - Lithium ETF - Company Profile
No specific news. New intraday high.
Original Trade Description: April 17th.
The investment seeks to provide investment results that correspond generally to the price and yield performance, before fees and expenses, of the Solactive Global Lithium Index. The fund invests at least 80% of its total assets in the securities of the underlying index and in American Depositary Receipts ("ADRs") and Global Depositary Receipts ("GDRs") based on the securities in the underlying index. The underlying index is designed to measure broad-based equity market performance of global companies involved in the lithium industry. The fund is non-diversified. Company description from FinViz.com
Lithium-Ion batteries are becoming the fuel of the future. We are right on the edge of an explosion in demand for lithium. Tesla is only making 100,000 cars per year today but by the end of 2018 they expect to be making up to 500,000 cars. They are only one of the manufacturers making electric vehicles. Others are right on the verge of their own surge in manufacturing.
Tesla also makes the batteries for the Solar City energy storage units and the Tesla storage batteries for residential, commercial and industrial use. This barely even scratched the surface of lithium demand two years ago. Add to that nearly 2 billion cell phones and tablets and suddenly there is a surge in lithium demand that is not going to stop.
Tesla's Gigafactory is so big that it will double the entire planet's battery making capacity. Elon Musk is now saying he may need up to four additional Gigafactories to keep up with demand as he builds hundreds of thousands of electric cars per year plus the solar storage demand for mass scale utility companies, businesses, residential, etc.
The demand for lithium could rise by 1,000% over the next several years. Companies are racing to find new supplies of the raw material and contract it before the prices explode out of sight.
Rather than buying one company that maybe has one mine or one division to produce lithium there is now an ETF for that purpose. It has options but the prices are crazy if you can even find them listed. Most quote locations just list zero for the bid/ask.
The ETF is relatively inexpensive dollar wise given the coming surge in lithium demand and prices. This may be as close as we can get to the ground floor since the odds of it moving lower are almost zero.
This will be a long-term hold.
Long LIT shares @ $28.20. See portfolio graphic for stop loss.
NFLX - Netflix - Company Profile
We were stopped out on the market drop on Wednesday when NFLX hit $154.35.
Original Trade Description: April 24th.
Netflix, Inc., an Internet television network, engages in the Internet delivery of television (TV) shows and movies on various Internet-connected screens. The company operates in three segments: Domestic Streaming, International Streaming, and Domestic DVD. It offers members with the ability to receive streaming content through a host of Internet-connected screens, including TVs, digital video players, television set-top boxes, and mobile devices. The company also provides DVDs-by-mail membership services. It serves over 100 million streaming members in 190 countries. Netflix, Inc. was founded in 1997 and is headquartered in Los Gatos, California. Company description from FinViz.com
CEO Reed Hastings tweeted out this week a picture of himself eating a steak at a Dennys to celebrate their 100 millionth subscriber. That is the same thing he did when they passed one million subscribers.
Netflix reported earnings on April 17th and while the earnings were good, the subscriber guidance was mediocre compared to analyst expectations. However, the company continues to grow rapidly. They are just not growing at the pace analysts would like to see.
The company said it expects a big rebound in subscriber growth rates for Q2 with projected growth of 3.2 million subscribers. Some analysts believe Netflix is actually low balling subscriber growth estimates. They had 98.75 million subscribers at the end of March. For Hastings to celebrate they would have had to add 1.25 million in only the first three weeks of April. With ten weeks to go, they could easily blow past their target of 3.2 million.
Netflix had only 9 million DVD subscribers at the end of 2008. Now they have progressed to streaming in 190 countries in 12 languages with 100 million subscribers. Hastings was asked how long it would take to add another 100 million and he said, "not as long" with a big grin.
Stifel Nicholas raised their price target from $155 to $170 because of the faster subscriber growth in Q2. RBC analyst Mark Mahaney raised his price target to $175.
Netflix is using the Amazon model of build it and they will come. They continue to lose money but they are rapidly approaching $1 billion a month in subscription fees. They estimate that as many as 50% of their streams go to accounts that are sharing a username/password that belongs to someone else. When Netflix gets to the point where they want to make a profit all they have to do is not allow sharing and suddenly half the people who are currently hooked on streaming will have to sign up on their own. Also, a $2 or $5 price hike on 100 million accounts is suddenly a lot of money.
Netflix offered to sell one billion euros in debt last week ($1.08 billion) to add original international content. That is a huge audience of 7 billion potential customers compared to only 300 million in the USA.
Because they recently reported earnings they do not report again until the middle of July. The July options are very expensive but we can use some June options with 55 days to go and try to capture any bullish sentiment rubbing off on Netflix from the other tech stocks reporting.
Update 5/1/17: Shares spiked at the open last Tuesday to give us a higher entry than I profiled but I doubt anyone is complaining since the stock has risen $11 since last Monday's close. The spike came on news the company would begin streaming in China through a licensing deal with iQiyi, the streaming service for Baidu. The details of the deal including which titles were included and how much Netflix would get from the deal, were confidential. iQiyi has 500 million monthly viewers for its free service and 20 million paid viewers for the subscription service. While Netflix is not likely to receive much income from the licensing deal, it also does not cost them anything to allow iQiyi access to their content. This will be Netflix original content so every movie/episode will have a Netflix label on it and that increases the brand awareness in China. Eventually they hope to stream directly but Chinese censors are very tough. The deal gives Netflix some revenue now and sets them up for direct streaming later.
Update 5/8/17: Hardly a day goes by that some analyst doesn't do a story on why Apple should buy Netflix. A Citigroup analyst calculated last week it has a 40% chance of happening and he listed all the reasons why it should. I think every investor should have a Netflix position. They are either going to dominate the global streaming community or be bought by Apple or Disney for a hefty premium.
Closed 5/17/17: Long June $150 call @ $3.74, exit $7.45, +$3.71 gain.
QQQ - Nasdaq 100 ETF - ETF Profile
The Nasdaq 100 spiked to a new high on Tuesday to stop us out the day before the market crashed. Fortunately, it was a minor loss.
Original Trade Description: May 1st.
PowerShares QQQ, formerly known as QQQ or the NASDAQ-100 Index Tracking Stock, is an exchange-traded fund based on the Nasdaq-100 Index. The Fund will, under most circumstances, consist of all of stocks in the Index. The Index includes 100 of the largest domestic and international nonfinancial companies listed on the Nasdaq Stock Market based on market capitalization. The Fund and the Index are rebalanced quarterly and reconstituted annually.
This is a simple technical play. The Nasdaq 100 is very overbought and came to a dead stop at uptrend resistance since November 2014. In theory, this would be the perfect place for the Nasdaq to fail and decline to fill the gaps from last week.
Closed 5/16/17: Long July $135 put @ $2.09, exit $1.45, -.64 loss.
SBUX - Starbucks - Company Profile
No specific news. Starbucks was in decline mode the teo days before the market crash and that just puched it over the edge to stop us out at $59.50.
Original Trade Description: April 3rd.
Starbucks Corporation, together with its subsidiaries, operates as a roaster, marketer, and retailer of specialty coffee worldwide. The company operates in four segments: Americas; China/Asia Pacific; Europe, Middle East, and Africa; and Channel Development. Its stores offer coffee and tea beverages, packaged roasted whole bean and ground coffees, single-serve and ready-to-drink coffee and tea products, juices, and bottled water; an assortment of fresh food and snack offerings; and various food products, such as pastries, breakfast sandwiches, and lunch items, as well as beverage-making equipment and accessories. The company also licenses its trademarks through licensed stores, and grocery and national foodservice accounts. It offers its products under the Starbucks, Teavana, Tazo, Seattle's Best Coffee, Evolution Fresh, La Boulange, Ethos, Frappuccino, Starbucks Doubleshot, Starbucks Refreshers, and Starbucks VIA brand names. As of November 3, 2016, the company operated 25,085 stores. Company description from FinViz.com
I have had trouble playing Starbucks over the last couple of years. The company always seems to have everything going for it but the stock heads in the opposite direction. There have been three major sell offs since December. Maybe this time it is different.
In mid March the company disclosed a series of changes that suggest the company has finally found the key to financial success. At the company shareholder meeting the board disclosed plans to hire 240,000 additional employees by 2021. Since they only have 330,000 workers today that is a major increase. In order to do that they would have to be planning for a significant jump in revenue and profits. Of those new jobs 68,000 would be in the USA.
They also announced plans to open 12,000 new stores of which 3,400 would be in the USA. They currently have nearly 26,000 stores globally. They are also planning on implementing a new menus with sandwiches and salads along with new varieties of premium craft teas. Manu of their stores will be adding alcohol to attract the evening crowds.
They have so many current customers it is hurting business. Ordering and paying through the mobile app has become so easy and so popular, it is jamming the stores with customers and causing long wait times for drinks. Starbucks is working on a method to streamline the process and using employees to surge mobile orders into specific stores to see if the new methods are working before implementing them system wide. They are also testing walk up windows for mobile orders so the customers do not have to come into the store.
They even implemented voice ordering through Amazon's Alexa app. A survey last year found that collectively, have more money in their Starbucks accounts than they do in some banks.
Starbucks guided for $30 billion in revenue by fiscal 2019 and that target appears easily reached with all the new initiatives.
Crowded stores are a problem for consumers but when that many people are standing in line to give the retailer money, it is a good problem to have.
Earnings April 27th.
This is going to be a short fused position since earnings are less than four weeks away. However, the May option is only 79 cents and I am planning on holding over the earnings report unless we are already strongly profitable ahead of earnings. We will make that decision the week of earnings. After several quarters of disappointments, this could be a quarter with a positive surprise.
Shares are close to a new 52-week high but that also means old high resistance at $59. A break over that level could trigger some serious short covering.
Update 4/17/17: Starbucks said it was going to distribute 100 million healthy coffee trees to farmers by 2025 to insure the future of coffee. Existing plantations have old trees that do not produce as well as they did years ago. There is also a disease called coffee rust that is attacking the older trees. Starbucks began this program in 2016 with the distribution of 10 million trees.
Update 4/24/17: Starbucks created a major marketing gimmick with their Unicorn Frappucino drinks. The sweet multicolored pink and blue concoctions were only supposed to be on the menu for five days. This created such a demand that stores were overrun with customers and many stores ran out of the ingredients after just the first two days.
Twitter was mobbed with people asking what store still offered them and thousands of tweets complaining about not being able find them. Starbucks said it created so much congestion in the stores that people were leaving without buying anything.
As a company, the success of this gimmick showed them how to drive future sales and they are on a crash program to staff up the stores and change the traffic flow to handle the excess customers. What company would not like to have too many customers. Shares spiked for a week and are retesting 52-week highs.
Update 5/1/17: Starbucks reported earnings of 45 cents that matched estimates. Revenue rose 8% to $5.29 billion and missed estimates for $5.41 billion. Same store sales rose 3.0% globally and 3.0% in the USA. Both metrics missed the mark. Investors are worried that growth may be slowing given the increasing competition from McDonalds and Dunkin Donuts just to name a couple. McDonalds is offering $1 coffee and $2 specialty drinks.
Starbucks said the minor sales miss was the result of their mobile ordering app. It was so successful that stores were mobbed during peak periods and customers had to stand in long lines to get their drinks. This discouraged them from coming to the store as often.
They turned the success of the Unicorn Frappuccino set the stage for their latest marketing gimmick, Frappuccino Happy Hour. This launches this week. CEO Kevin Johnson said he was looking forward to the next earnings report because this was going to be a huge winner for Starbucks.
The company said it was reviewing the poor performance of the 350 Teavana stores located in shopping malls. The CEO said sales were declining because the malls were declining as a result of the shift to online shopping. Considering Starbucks has 26,000 stores, those 350 are not material but they are weighing on the same store sales comps.
Closed 5/18/17: Long May $60 call @ 76 cents, exit .50, -.26 loss.
SMH - Semiconductor Index - ETF Profile
Massive breakout to a new high thanks to Nvidia and others. Chips lead the Nasdaq.
Original Trade Description: May 8th.
VanEck Vectors Semiconductor ETF (SMH) seeks to replicate as closely as possible, before fees and expenses, the price and yield performance of the MVIS US Listed Semiconductor 25 Index (MVSMHTR), which is intended to track the overall performance of companies involved in semiconductor production and equipment.
The top five components are TSM 12.9%, INTC 11.4%, QCOM 5.7%, AMAT 5.34% and NVDA 5%. The rest of the components are the top names in the business.
The ETF has had a good year with a $30 gain since last June. However, electronics are the fastest selling consumer items and sales are increasing every month. The chip sector is the leading edge of the tech sector. With the iPhone 8 coming along with the 5G revolution beginning, the chip stocks are going to continue rising.
Nvidia reports earnings on Tuesday after the close and that could lift the SMH.
The ETF paused on April 28th and has been moving slowly sideways with a minor upward bias. This corresponds with flat markets over the last two weeks. If the markets are going to break through current resistance levels the SMH should power higher as well. The semiconductor index always leads the Nasdaq but up and down.
Long Aug $82 call @ $2.40, see portfolio graphic for stop loss.
SWKS - Skyworks Solutions - Company Profile
No specific news. Shares are recovering from the post crash dip and should make a new high in the next couple of days. The Wednesday drop was right to support.
Original Trade Description: May 1st.
Skyworks Solutions, Inc., together with its subsidiaries, designs, develops, manufactures, and markets proprietary semiconductor products, including intellectual property worldwide. Its product portfolio includes amplifiers, attenuators, circulators/isolators, DC/DC converters, demodulators, detectors, diodes, directional couplers, diversity receive modules, filters, front-end modules, hybrids, LED drivers, low noise amplifiers, mixers, modulators, optocouplers/optoisolators, phase shifters, phase locked loops, power dividers/combiners, receivers, switches, synthesizers, technical ceramics, voltage controlled oscillators/synthesizers, and voltage regulators. The company provides its products for automotive, broadband, cellular infrastructure, connected home, industrial, medical, military, smartphone, tablet, and wearable applications. Skyworks Solutions, Inc. sells its products through direct sales force, electronic component distributors, and independent sales representatives. Company description from FinViz.com
Skyworks reported earnings of $1.45 that beat estimates for $1.40. Revenue of $851.7 million beat estimates for $840.3 million. They guided for Q2 revenue of $890 million and earnings of $1.52. Analysts were expecting $866.6 million and $1.49. Annual revenue growth os forecast at 18%.
On the conference call the company said Apple was still 40% of the company's revenue but Samsung and Huawei now exceeded 10% each. The company said the quarter just ended was normally their low point for the year and it was actually a strong quarter this year. They expect even better quarters later this year when the next generation of phones begin to ship in quantity. The Apple iPhone 7s and/or 8 will be a big boost to revenue. They are looking at double digit revenue increases for the next two quarters.
Earnings July 27th.
Shares inexplicably declined $5 after the report. Multiple analysts immediately came out claiming this was a buying opportunity. I agree.
We have to reach out to the August option cycle to get past the July earnings and keep that earnings expectation premium inflated.
Long Aug $105 call @ $4.15, see portfolio graphic for stop loss.
Prices Quoted in Newsletter
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