We only lost three positions due to the big Brexit crash. It could have been a lot worse. We lost Ambarella, Nvidia and Zebra. The first two were victims of a 6% decline in the semiconductor index, which was hit hard by the economic outlook as a result of Brexit.
I am still positive on those stocks and will probably add them back into the portfolio as soon as they find a bottom.
The market crash has caused havoc in the charts. Prior winners were sold while some prior losers dipped only slightly as investors saw them as a potential safe haven. The prior winners were sold because traders were trying to capture profits to offset other losses. In a panic you sell what you can, not necessarily what you want to sell.
I expect some further margin selling on Monday but then a rebound later in the week. The S&P dropped right to strong support at 2,040 and this will be a critical pivot point. Any material decline from here would change the outlook for the market to bearish. A rebound back over 2,050 could attract dip buyers.
Current Position Changes
AMBA - Ambarella
The long call position was stopped at the open at $49.50.
NVDA - Nvidia
The long call position was stopped at the open at $45.45.
ZBRA - Zebra Technologies
The long call position was stopped at the open at $54.50.
Check the graphic above for any profit stops in green.
We need to always be prepared for a profit exit at resistance.
Stop Loss Updates
Check the graphic above for any new stop losses in bright yellow.
We need to always be prepared for an unexpected decline.
BULLISH Play Updates
AMBA - Ambarella - Company Description
No specific news. Market crash stopped us out on th eopening gap lower.
Original Trade Description: June 18th.
Ambarella, Inc. develops semiconductor processing solutions for video that enable high-definition (HD) video capture, sharing, and display worldwide. The companys system-on-a-chip designs integrated HD video processing, image processing, audio processing, and system functions onto a single chip for delivering video and image quality, differentiated functionality, and low power consumption. Its solutions enable the creation of video content for wearable sports cameras, automotive aftermarket cameras, and professional and consumer Internet Protocol (IP) security cameras, as well as cameras incorporated into unmanned aerial vehicles in the camera market; and manage IP video traffic, broadcast encoding and transcoding, and IP video delivery applications in the infrastructure market.
The company reported earnings on June 3rd of 34 cents that beat estimates for 28 cents. They guided for Q2 for revenues of $60-$66 million compared to estimates for $69 million. They announced a $75 million share buyback effective immediately or 5.4% of the company's stock.
The verbal guidance for stronger sales was much better than the actual numbers presented. Analysts believe they were under promising so they can continue beating estimates. The revenue miss came from two sources. GoPro cameras are facing stiffer competition and sales are slowing. However, the hero 5 is expected to be announced in September and demand should be strong. Secondly, Sony had a problem with the sensors in its new cameras and production was pushed back significantly until they get the problem solved. That prevented Ambarella from delivering and billing for a large quantity of chips until Sony was ready to proceed. That is also expected to be solved in Q2.
Ambarella popped to about $53 in the week after earnings from a prior close at $42. Shares have consolidated in the $51-$52 range for more than a week and are now pressing the top end of that range. With a positive market I would expect a strong breakout. Even in the currently weak market the shares have been posting minor gains and no material declines.
Earnings are August 30th.
I am going to put an entry trigger on this play just in case the market tanks on Monday. If we do get a significant pullback next week I will revise the recommendation.
Position 6/20/16 with an AMBA trade at $53.50
Closed 6/24/16: Long August $57.50 call @ $2.51, exit $1.12, -1.39 loss.
CNC - Centene Corp - Company Description
No specific news. New 10-month high on Thursday kept us from being stopped out on Friday. Nice rebound on the recovery.
Original Trade Description: June 21st.
Centene Corporation operates as a diversified and multi-national healthcare enterprise that provides programs and services to under-insured and uninsured individuals in the United States. It operates through two segments, Managed Care and Specialty Services. The Managed Care segment offers Medicaid and Medicaid-related health plan coverage to individuals through government subsidized programs, including Medicaid, the State childrens health insurance program, long-term care, foster care, and dual-eligible individual, as well as aged, blind, or disabled programs. Its health plans include primary and specialty physician care, inpatient and outpatient hospital care, emergency and urgent care, prenatal care, laboratory and x-ray services, home health and durable medical equipment, behavioral health and substance abuse, 24-hour nurse advice line, transportation assistance, vision care, dental care, immunizations, prescriptions and limited over-the-counter drugs, specialty pharmacy, therapies, social work services, and care coordination. The Specialty Services segment provides pharmacy benefits management services; health, triage, wellness, and disease management services; vision services; dental services; correctional healthcare services; in-home health services; and integrated long-term care services, as well as care management software that automate the clinical, administrative, and technical components of care management programs.
On Monday Centene was upgraded by Barclays to overweight (buy) with an $82 price target. They based the upgrade on the growth and valuation potential after the completion of the $6.8 billion Health Net (HNT) merger at the end of March. Health Net had 5.9 million individuals in plans in all 50 states. They also offered employee assistance plans to approximately 7.3 million individuals. The combined companies now insure more than 10 million individuals. Barclays said the combined management team had improved with the merger.
Barclays said, "we believe shares of CNC have simply corrected too far and too long, and now represent a very attractive investment."
Earnings are July 26th.
Shares spiked $2 on the upgrade and failed to pull back on Tuesday. That spike pushed CNC over resistance and any further move higher would be a breakout.
Long August $72.50 call @ $1.97, see portfolio graphic for stop loss.
COST - Costco - Company Description
No specific news. Costco gapped lower to $153 but did not hit our stop loss and rebounded to close at $155.50. It was actually positive for part of the day. Excellent relative strength.
Original Trade Description: June 11th.
Costco Wholesale Corporation, together with its subsidiaries, operates membership warehouses. The company offers branded and private-label products in a range of merchandise categories. It provides dry and institutionally packaged foods; snack foods, candy, tobacco, alcoholic and nonalcoholic beverages, and cleaning and institutional supplies; appliances, electronics, health and beauty aids, hardware, and garden and patio; meat, bakery, deli, and produce; and apparel and small appliances. The company also operates gas stations, pharmacies, food courts, optical dispensing centers, photo-processing centers, and hearing-aid centers; and engages in the travel business. They operate 690 warehouse stores plus online shopping.
A Costco membership costs $55. It is almost worth the cost if all you bought was gasoline. The store charges 7-15 cents less than the prevailing rates at other local stations. There are normally lines at the Costco pumps because it is a bargain. If you purchased 15 gallons of gas per week and saved an average of 10 cents you would save $78 a year and more than enough to cover the cost of the membership. Multicar families would save even more.
However, Costco to many people means bulk purchases of items too big to store in your normal pantry. The mental image of Costco is someone pushing a cart with cases of toilet paper, paper towels, laundry soap and canned goods. While that may be true for a lot of shoppers there are still bargains on everything else. My son stopped there on Saturday to buy 15 gallons of ice cream, 10 watermelons, scores of picnic plates and plastic utensils for a party he was throwing. I know people who only shop at Costco and do not go to stores like Safeway, Kroger, etc. Once you get the Costco shopping virus it is hard to not go there. You can even by caskets at Costco. Members bought 465,000 cars through Costco in 2015. The warehouse chain is the number 1 seller of organic food at $4 billion in 2015 compared to Whole Foods at $3.6 billion. Costco has 84 million paying members and you can cancel at any time and get a full refund.
This has helped Costco maintain an average annual growth rate of 13% while other stores are lucky to manage 2-4% a year. Walmart only grew at 0.44% last year and Target 5.4%. In the latest quarter adjusted for fuel and currency fluctuations Costco managed only 3% same store sales growth compared to estimates for 4.6%. They blamed the colder than normal April weather and the weak retail consumer. We already know from other retailers that sales were down sharply all across the sector.
They reported adjusted earnings of $1.24 compared to estimates for $1.22. Revenue rose +2.6% to $26.77 billion and missed estimates for $27.07 billion for the reasons I stated above. Analysts expect earnings to grow 12% annually over the next two years.
Earnings are Sept 29th.
Shares spiked up to $154 after earnings on May 26th and then went sideways for a week while those gains were consolidated. Now they are trending higher again and even closed up on Friday in a weak market.
Long Oct $160 call @ $4.40, see portfolio graphic for stop loss.
JPM - JP Morgan - Company Description
The good news is that we did not get stopped out. Shares fell -7% but they were actually the strongest of the major banks. Once the panic passes on Mon/Tue we should see a rebound. However, I said going into this it was total speculation and would either be a 100% loser or 200% winner. With the UK voting to exit the winner option is off the table. Now we are playing for a rebound to recover as much of our premium as possible.
JP Morgan did well in the Fed stress tests and should announce a dividend increase in the next couple of weeks.
Original Trade Description: May 11th.
JPMorgan Chase & Co. operates as a financial services company worldwide. It operates through Consumer & Community Banking, Corporate & Investment Bank, Commercial Banking, and Asset Management segments. The Consumer & Community Banking segment offers deposit and investment products and services to consumers; lending, deposit, and cash management and payment solutions to small businesses; residential mortgages and home equity loans; and credit cards, payment services, payment processing services, auto loans and leases, and student loans. The Corporate & Investment Bank segment provides investment banking products and services, including advising on corporate strategy and structure, capital-raising in equity and debt markets, as well as loan origination and syndication; treasury services, such as cash management and liquidity solutions; and cash securities and derivative instruments, risk management solutions, prime brokerage, and research services. It also offers securities services, including custody, fund accounting and administration, and securities lending products for asset managers, insurance companies, and public and private investment funds.
JP Morgan has 15% revenue exposure to Brexit. That will be the major market mover the rest of the week. They are also expected to increase their capital return percentages for buybacks and dividends. Those will be announced next Wednesday.
I am playing the call side because the potential for a short squeeze on a remain vote or a major buy the dip program on an exit vote. The put options are more than double the call options so it appears everyone is expecting the worst. Shares have declined to the bottom of their uptrend channel.
I am using the August options to capture all the events over the next couple weeks. Earnings are July 14th and we will exit before earnings.
This is probably a 100% loser or a 200% gainer. There is no in between because of the binary nature of the event. We cannot use stop losses on this position because of the potential for opening gaps.
Long August $65 call @ $1.31, no stop loss.
NVDA - Nvidia Corp - Company Description
No specific news. Chip stocks were crushed with the semiconductor index down -5% and the Nasdaq the biggest broad index loser at -4%. We were stopped out on the Brexit crash.
Original Trade Description: May 11th.
NVIDIA Corporation operates as a visual computing company worldwide. It operates in two segments, GPU and Tegra Processor. The GPU segment offers processors, which include GeForce for PC gaming; Quadro for design professionals working in computer-aided design, video editing, special effects, and other creative applications; Tesla for deep learning, accelerated computing, and general purpose computing; and GRID for cloud-based streaming on gaming devices. The Tegra Processor segment provides processors that integrate a computer onto a single chip under the Tegra brand name; DRIVE automotive computers, which offer supercomputing capabilities; and tablet and portable devices for mobile gaming under the SHIELD name. The companyÂ’s products are used in gaming, professional visualization, datacenter, and automotive markets. It sells its products primarily to original equipment manufacturers, original design manufacturers, system builders, motherboard manufacturers, add-in board manufacturers, and retailers/distributors.
Q1 earnings rose 46% to 33 cents and beat earnings by a penny. They hiked full year revenue guidance as well as the current quarter. Tor Q2 they raised the forecast to $1.35 billion that was above analyst estimates at $1.28 billion. Gaming revenue was up 17% to $687 million but all areas of effort saw significant gains. They recently released a new graphics card that is twice as fast and 40% cheaper than the card it is replacing.
Nvidia's Graphics Processing Units or GPUs have become more than just video chips. They have become supercomputing processors and can be packaged in large groups to parallel process monster datasets and computations that would have taken weeks with conventional chips. They are truly revolutionizing the processor industry.
The focus on Artificial Intelligence or AI, a lot of companies like Google and Amazon are turning to GPUs to handle the monster amounts of data they collect every day. Facebook already uses Nvidia M40 GPU accelerators to power its Big Sur machine learning computers. Those NVIDIA GPUs were specifically designes to train deep neural networks for enterprise data centers, and the company says they are 10-20 times faster than other network computers. Nvidia said their GPD powered machine learning computers can help train networks new things in just a few hours that would take days or weeks with less powerful systems.
The new P100 GPU is 12 times faster than the prior version and can provide more performance than "several hundred computer nodes" and up to eight P100s can be interconnected to provide previously unheard of computing power. The chips in the GPUs contain more than 15.3 billion transistors each and the largest chip ever built at 16 nanometer technology. That is twice as many as on Intel's biggest chips. The P100 delivers more than 10 teraflops of performance. One teraflop can process one trillion floating-point instructions per second and the P100 can do 10 teraflops or 10 trillion calculations per second.
The COSMOS weather forecasting application runs faster on the P100 than the 27 servers, running twin multicore processors each that were previously tasked with the project. Intel makes commodity processors for the millions of PCs and servers in the world. Nvidia is light years ahead of Intel in technology. Nvidia's data center revenue increased 63% in Q1.
More than 50 automakers are testing the new Drive PX chip for self-driving cars. The chip combines inputs from cameras, lasers, maps and sensors to allow cars to drive themselves and learn from each experience.
Earnings August 11th.
I have been waiting for a dip to enter a position on Nvidia but it never came. I thought the $1 drop this week was a prelude and we could get a better entry point when the market pulled back. The market does not look like it will decline until after the Fed meeting and Nvidia is back at a new high. I am going to bite the bullet and make the entry before it is over $50 and I am kicking myself even harder.
Closed 6/14/15: Long August $49 call @ $2.22, exit $1.59, -.63 loss.
QRVO - Qorvo Inc - Company Description
No specific news. New 7-month high on Thursday lifted the stock higher enough that we were not stopped out on Friday. This is very encouraging because buyers should flock to the relative strength.
Original Trade Description: June 14th.
Qorvo, Inc. provides technologies and radio frequency (RF) solutions for mobile, infrastructure, and defense and aerospace applications worldwide. It operates through Mobile Products (MP) and Infrastructure and Defense Products (IDP) segments. The MP segment supplies its RF solutions into mobile devices, including smartphones, notebook computers, wearables, tablets, and cellular-based applications for the Internet of things. The IDP segment provides low noise amplifiers, switches, radio frequency filter solutions, CMOS system-on-a-chip solutions. This segment supplies its RF solutions to wireless network infrastructure, defense, and aerospace markets; and connectivity applications for commercial, consumer, industrial, and automotive markets.
Qorvo is a major supplier to Apple and other smartphone manufacturers. The slowdown in Apple iPhone sales hurt earnings last quarter but sales increases to Samsung and Chinese handset maker Huawei have helped to offset sluggish demand. The Samsung Galaxy S7 is selling very well and taking over the smartphone market. Strong base station demand rose +25% sequentially and a 9% increase in defense spending is helping offset the perceived slowdown in iPhones.
However, sales of the new iPhone 5E were only expected to be 10-15 million but sales have ramped up and are now expected to be in the 40-45 million range. Citigroup upgraded Qorvo and downgraded Slyworks saying the high performance Qorvo chips were much better than the Skyworks product and the company had a commanding lead in that segment. Qorvo is much better positioned for the carrier aggregation market and the low-band market fed by Skyworks was seeing a lot more competition.
Qorvo should benefit significantly from the ramp of 3G and 4G handsets into India and lower dollar emerging markets. The 5G specifications are starting to emerge and Qorvo is expected to be a leader in that transition, which will involve hundreds of millions of chips.
Earnings August 3rd.
Shares of QRVO gained 74 cents today in a very weak market. I have to stretch some on the strike because shares are just under $55 and that strike is too expensive. I am going out to $60 to get some premium relief.
Long Aug $60 call @ $2.10, no initial stop loss.
ZBRA - Zebra Technology - Company Description
No specific news. Despite the new 2-month high on Thursday shares collapsed -8% and broke below support at $55 to stop us out.
Original Trade Description: June 20th.
Zebra Technologies designs, manufactures, sells, and supports direct thermal and thermal transfer label printers, radio frequency identification (RFID) printer/encoders, dye sublimation card printers, real-time locating solutions, related accessories, and support software worldwide. Its products are used principally in automatic identification (auto ID), data collection, and personal identification applications. The company also provides mobile computing and advanced data capture technologies and services, which include rugged and enterprise-grade mobile computers; laser, imaging, and radio frequency identification based data capture products; wireless LAN (WLAN) solutions and software; and applications that are associated with these products and services. In addition, it offers barcode scanners; specialty printers for barcode labeling and personal identification; real-time location systems; and related accessories and supplies, such as self-adhesive labels and other consumables, utilities, and application software.
Back on May 10th Zebra was trading at $63 when it reported disappointing earnings. Shares tanked to $48 on the news and the stock has been steadily creeping higher since the bottom on May 19th. The company reported earnings of $1.01 compared to estimates for $1.22. Revenue of $847 million missed estimates for $879 million. They blamed the miss on a cautious enterprise spending environment and tough comparisons from double-digit growth in the year ago quarter. They adopted a "tempered outlook" for full year revenue between $3.56 and $3.7 billion and analysts were expecting $3.72 billion.
Here is an interesting article on their new products. Zebra Technology IoT
Earnings August 9th.
Apparently, investors are willing to forgive and forget and the stock is in rebound mode. Resistance is that $63 level where it was trading before the earnings. That is $6 above today's close so plenty of room for a profitable trade.
Long August $60 call @ $2.95. See portfolio graphic for stop loss.
BEARISH Play Updates (Alpha by Symbol)
FL - Foot Locker - Company Description
No specific news. Shares collapsed intraday to $51.45 then rebounded sharply to end at $53.11. Apparently the positive earnings from Finish Line helped lift them from the lows. I lowered the stop loss in case the rebound continues.
Original Trade Description: June 15th.
Foot Locker, Inc. operates as an athletic shoes and apparel retailer. The company operates in two segments, Athletic Stores and Direct-to-Customers. The Athletic Stores segment retails athletic footwear, apparel, accessories, and equipment under various formats, including Foot Locker, Lady Foot Locker, Kids Foot Locker, Champs Sports, Footaction, and SIX:02, as well as Runners Point, and Sidestep. As of January 30, 2016, it operated 3,383 primarily mall-based stores in the United States, Canada, Europe, Australia, and New Zealand.
Unfortunately, mall traffic is slowing as we have seen repeatedly in retailer earnings comments. Sports Authority just closed all 450 of its stores because of declining sales. The NPD Group Consumer Tracking Service said the "performance" shoe business has never been worse but the total sneaker business remains solid. That means all the high dollar shoes with a sports star name attached to them are not selling, with the exception of Stephen Curry.
Only about 24% of people who buy a specific type of shoe actually wear it for that purpose. That means 75% of the shoes are just bought to wear as a daily living shoe rather than the specific sport. Running shoes are the strongest with 50% of buyers actually running. Basketball logs in at about 33% and outdoor shoes are low at 10%. Asics has been a top selling brand for sports with 66% saying they use them for that particular sport. Skechers was the lowest brand at 10%.
The luxury brands with names like Michael Jordan, Le Bron James, etc are not selling near as well as they did in the past. Foot Locker had a 50% off sales on the high dollar shoes in April in order to reduce inventory.
With shoe makers paying more and more money for super star endorsements they have to charge more for their shoes. In the current economy that is not working out well. A $200 pair of shoes is not a hot item when money is being spent on smartphones and video games instead.
Foot Locker reported earnings back on May 20th and shares dropped $5 on the news. It was not pretty. Foot Locker has been declining since the highs back in October. After the post earnings drop they rebounded about $2 to $56 but could not gain any momentum. Now that basketball is over and the summer doldrums are approaching shares have declined back to $54 and could easily break to a new 52-week low.
Earnings are August 19th.
Given the lack of excitement in shoes and the slowdown in retail, I am recommending we place a bet that Foot Locker does break down before earnings. There is support at $52 but the decline since October is accelerating.
Long August $52.50 put @ $2.40, see portfolio graphic for stop loss.
PYPL - PayPal - Company Description
No specific news. Big 4% decline to a new 4-month low.
Original Trade Description: June 13th.
Paypal bills itself as a technology company that enabled digital and mobile payments on behalf of consumers and merchants worldwide. The software allows users to pay and be paid from any computer or mobile device. They have outlasted several competitors but their time in the number one position is running out.
Apple announced Apple Pay for the web. With more than 1 billion Apple devices in use worldwide and 300 million of those are iPhones. When counting Macs and iPads there are more than 500 million Apple users. That is an instant market for Apple Pay on the web and it is going to be a major blow to Paypal.
Paypal has 14 million active merchant accounts and 170 million active consumer accounts. The one feature that works in PayPal's favor is that Apple Pay will initially only be available in the Safari browser and not on Chrome, which has more than 1 billion users.
Regardless the perceived hit to Paypal is likely to be detrimental to the stock price, which is already in decline.
Earnings July 27th.
Long Aug $35 put, @ $1.05, see portfolio graphic for stop loss.
Previously Closed 6/20/16: Position 6/14/16 Long Aug $35 put, @ $1.35, exit $1.05, -.30 loss.
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