The holiday week ended with decent gains but it only brought the indexes back to neutral. The major indexes rebounded back over critical support levels but all remain under resistance. The rebound on the payroll numbers was muted and mostly accomplished at the open, which suggests short covering.
The true test will be the direction on Monday. The first week of the quarter is over and the retirement funds have been put to work. Next week will require a conscious decision by investors to either buy or sell stocks ahead of earnings.
Stop Loss Updates
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We need to always be prepared for an unexpected decline.
Check the graphic below for any profit stops in green.
We need to always be prepared for a profit exit at resistance.
Current Position Changes
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BULLISH Play Updates
AAPL - Apple Inc - Company Profile
Canaccord Genuity said it was seeing "steady" iPhone 7 sales ahead of the company's earnings on August 1st. The analyst said the pace of sales is consistent with prior estimates for 42 million in Q2 and 47 million in Q3. They have a $180 price target. A Raymond James analyst said their survey found strong consumer interest in the watch, and Apple speakers including the Beats wireless speakers and the upcoming HomePod smart speaker. The survey found that 14% of iPhone owners plan to buy the HomePod when it goes on sale in December. They also found that 12% of consumers plan to buy the Apple Watch, the highest level since the watch was announced.
Original Trade Description: June 28th.
Apple Inc. designs, manufactures, and markets mobile communication and media devices, personal computers, and portable digital music players to consumers, small and mid-sized businesses, and education, enterprise, and government customers worldwide. The company also sells related software, services, accessories, networking solutions, and third-party digital content and applications. It offers iPhone, a line of smartphones; iPad, a line of multi-purpose tablets; and Mac, a line of desktop and portable personal computers. The company also provides iLife, a consumer-oriented digital lifestyle software application suite; iWork, an integrated productivity suite that helps users create, present, and publish documents, presentations, and spreadsheets; and other application software, such as Final Cut Pro, Logic Pro X, and FileMaker Pro. In addition, it offers Apple TV that connects to consumers' TV and enables them to access digital content directly for streaming high definition video, playing music and games, and viewing photos; Apple Watch, a personal electronic device; and iPod, a line of portable digital music and media players. Further, the company sells Apple-branded and third-party Mac-compatible, and iOS-compatible accessories, such as headphones, displays, storage devices, Beats products, and other connectivity and computing products and supplies. Additionally, it offers iCloud, a cloud service; AppleCare that offers support options for its customers; and Apple Pay, a mobile payment service. The company sells and delivers digital content and applications through the iTunes Store, App Store, Mac App Store, TV App Store, iBooks Store, and Apple Music. It also sells its products through its retail and online stores, and direct sales force, as well as through third-party cellular network carriers, wholesalers, retailers, and value-added resellers. Company description from FinViz.com.
This play is not going to take a lot of explanation. Shares rallied to $156 in May and then stalled at that level as various rumors continued to circulate over a potential delay in shipping the iPhone 8. Analysts routinely debated the various pros and cons of the Apple outlook. Shares fell to $144 and they have been trading at $145 for the last three weeks. On Tuesday's decline the stop lost $2, which was immediately recovered on Wednesday.
Apple is expected to report earnings on August 1st. The stocks always ramps up into earnings. Since Apple is expected to announce multiple iPhone models in September, a shipment delay on the big iPhone 8 will not be a disaster. We will be out of the position before the August earnings so that will not impact us either way.
The plan is to capture the ramp into the earnings and then exit. Having Apple dormant at $145 for the last three weeks shows there is plenty of support under that level and a rebound could start at any time. Fortunately, because of the dormancy, the options premiums have shrunk.
Apple is a sleeping giant. When it awakes, there could be plenty of price chasing.
Update 7/5/17: Nomura said iPhone 7 demand was weak but it was ok because of the pent up demand for the iPhone 8, expected out in a couple months. The analyst said the model 8 would provide sufficient upside in both volume and price to more than compensate for the current weak sales in the model 7.
Update 7/6/17: Qualcomm is seeking to ban imports of some iPhones in their long running patent dispute with Apple. The news was announced after the bell and shares of Apple declined about 10 cents. This will not impact any current phones or the iPhone 8 because the case will not even begin to be heard until spring of 2018 or later. The two companies will eventually settle out of court. This is just legal sparring.
Long August $150 call @ $3.00, see portfolio graphic for stop loss.
BABA - Alibaba - Company Profile
No specific news. After two days of extreme volatility, BABA shares were dormant with only a minor gain.
Original Trade Description: June 10th.
Alibaba Group Holding Limited, through its subsidiaries, operates as an online and mobile commerce company in the People's Republic of China and internationally. It operates Taobao Marketplace, an online shopping destination; Tmall, a third-party platform for brands and retailers; Juhuasuan, a sales and marketing platform for flash sales; Alibaba.com, an online wholesale marketplace; Alitrip, an online travel booking platform; 1688.com, an online wholesale marketplace; and AliExpress, a consumer marketplace. The company also provides pay-for-performance and display marketing services through its Alimama marketing technology platform; Taobao Ad Network and Exchange (TANX), a real-time bidding online marketing exchange in China; and data management platform through TANX for marketers to execute their campaigns with proprietary and tailored data. In addition, it offers cloud computing services, including elastic computing, database, storage and content delivery network, large scale computing, security, and management and application services through its Alibaba Cloud Computing platform; Web hosting and domain name registration services; payment and escrow services; and develops and operates mobile Web browsers. The company provides its solutions primarily for businesses. Company description from FinViz.com
Alibaba is the poor investor's Amazon. With shares at $135, the options are at least reasonable but not cheap. Alibaba is growing as fast or faster than Amazon and tries to copy everything Amazon does.
When the company reported earnings for the last quarter at 63 cents, they missed estimates for 68 cents. Revenue of $5.6 billion easily beat estimates for $5.2 billion. Other than the earnings miss it was a solid quarter with ecommerce up 47% and cloud computing up 102%. Digital media growth was up 234%. Mobile MAUs rose from 493 to 507 million. That is important because 90% of China's ecommerce occurs on a mobile device.
The company announced plans to buy back $6 billion in stock over a two-year period.
Earnings August 18th.
Shares dipped on the earnings miss then spiked on the guidance to $125.50, which was a new high. After a little more than two weeks of post earnings consolidation, shares returned to that $125.50 level and closed at a new high.
There was an analyst day last week and that kicked the stock up to another level with a $10 gain. The company guided for 45% to 49% revenue growth in this year and analysts were only expecting 37%. MKM partners raised the price target to $177. Pacific Crest raised their price target to $160 from $137. Needham raised their target to $155. The Benchmark Company is targeting $175.
Shares declined on Tuesday on no news. With the stock overbought after the analyst meeting we could be seeing some simple profit taking. I am going to put an entry trigger on the position. If shares continue lower I will revise the entry.
Update 6/20/17: Alibaba is hosting a forum for 3,000 entrepreneurs in Detroit to explain how easy it is for them to begin selling products on Alibaba's websites. CEO Jack Ma said in another interview he expects to employ 1 million workers in the USA.
Update 6/27/17: JP Morgan initiated coverage with an overweight rating and $190 price target. Barclays said it valued Alibaba in a sum of the parts method at $200 but their price target for the parent is $175 with an overweight rating.
Update 6/29/17: Mott Capital said Alibaba could be worth $210 on a fundamental basis. A "source" in China said Alibaba will launch a device similar to Amazon's Echo but Chinese speaking, next week. That should give the stock a decent pop.
Update 7/5/17: Alibaba announced the Alexa clone called Genie X1, which will be available to the first 1,000 people for a one-month trial. The cost will be $73 during this live test and it only speaks mandarin.
Position 6/19/17 with a BABA trade at $139.50
Long Aug $145 call @ $5.95, see portfolio graphic for stop loss.
Short Aug $155 call @ $2.92, see portfolio graphic for stop loss.
Net debit $3.03.
PYPL - PayPal - Company Profile
No specific news. Shares posted a minor gain after a volatile week.
Original Trade Description: June 21st.
PayPal Holdings, Inc. operates as a technology platform company that enables digital and mobile payments on behalf of consumers and merchants worldwide. It enables businesses of various sizes to accept payments from merchant Websites, mobile devices, and applications, as well as at offline retail locations through a range of payment solutions, including PayPal, PayPal Credit, Braintree, Venmo, Xoom, and Paydiant products. The company's platform allows consumers to shop by sending payments, withdraw funds to their bank accounts, and hold balances in their PayPal accounts in various currencies. Company description from FinViz.com.
PayPal started out as a payment system for Ebay. Since then they have moved into dozens of areas including credit cards, peer to peer payments. Instead of being locked into one business model, they are rapidly expanding to multiple business models. Recently they partnered with MasterCard and Visa to have their digital payments processed on their systems. The company is expanding the scope of its Venmo payment platform, which handled $6.8 billion in Q1, up 114%. This peer to peer app will now allow you to pay for goods at any merchant that accepts the app, just like Apple pay.
In Q1 PayPal revenue rose 17% to $2.975 million and earnings rose 5%. Total accounts rose 23% to 203 million. As a comparison, Mastercard's revenue was less at $2.7 billion. That is a shocker to most people.
With their Q1 earnings, PayPal committed to buy back $5 billion in stock.
Expected earnings July 26th.
Shares dipped with the Nasdaq tech crash but are recovering. Their recent high was $55 and shares closed at $53.50 today. Options are inexpensive.
Update 7/5/17: Payment processor, Vantiv, offered $10 billion to buy London based Worldpay. That immediately boosted Paypal and Square on thoughts there may be other combinations in the future. Paypal has a market cap of $66 billion and Square $5 billion so Paypal is not likely a potential target but they could benefit from acquiring a smaller player.
Long August $55 call @ $1.58, see portfolio graphic for stop loss.
RH - RH Inc - Company Profile
No specific news. Profit taking finally caught up with RH with shares down -$5 or -7.5% on Friday. The true test will be watching to see what happens on Monday. After weeks of massive gains, is $5 enough to attract buyers again?
Original Trade Description: June 26th.
RH, together with its subsidiaries, operates as a retailer in the home furnishings market. The company offers products in various categories, including furniture, lighting, textiles, bathware, decor, outdoor and garden, tableware, and child and teen furnishings. It provides its products through its retail galleries and Source Books, as well as online through rh.com, rhmodern.com, restorationhardware.com, rhbabyandchild.com, rhteen.com, and waterworks.com Websites. As of January 28, 2017, the company operated 85 retail galleries, including 50 legacy galleries, 6 larger format design galleries, 8 next generation design galleries, 1 RH modern gallery, and 5 RH baby and child galleries in the United States and Canada; 15 Waterworks showrooms in the United States and the United Kingdom; and 28 outlet stores. The company was formerly known as Restoration Hardware Holdings, Inc. and changed its name to RH in January 2017. Company description from FinViz.com
RH reported earnings of 5 cents that beat estimates for 4 cents. Revenue of $562.1 million beat estimates for $560.4 million. However, they guided for Q2 earnings of 38-43 cents and analysts were expecting 53-75 cents. That is not a misprint.
The company said it was ditching its prior merchandising model and switching to a membership model in order to make the company Amazon proof and enhance the customer experience. They are moving away from the highly promotional retail experience with constant sales and discounts and moving to a membership model where the focus will be on the customer experience. "Members" will pay $100 a year for the ability to shop in a high quality store where they will find only high quality merchandise.
The Costco CEO once told Jeff Bezos at an event that once people buy a membership they no longer price shop. Bezos went on to create Amazon Prime where customers pay $99 a year for a membership and the rest is history. RH is trying to duplicate that experience.
Shares crashed 26% to $42 on the guidance but the rebound has been amazing. Apparently, investors like the concept and the idea of a "Costco" model but in high quality products.
Earnings August 31st.
Shares closed at a 52-week high on Monday as shorts are being forced to cover. There are a lot of shorts! The surge over the May highs should be a trigger for an entirely new round of short covering.
Options are expensive because of the rapid gain since they changed the retail model. I am using September to retain that earnings expectation premium. We can buy time but we do not have to use it.
Long Sep $65 call @ $5.20, see portfolio graphic for stop loss.
Short Sep $75 call @ $1.26, see portfolio graphic for stop loss.
Net debit $3.94.
BEARISH Play Updates (Alpha by Symbol)
NKE - Nike Inc - Company Profile
No specific news. Minor rebound which was probably short covering ahead of the weekend.
Original Trade Description: July 5th.
NIKE, Inc., together with its subsidiaries, designs, develops, markets, and sells athletic footwear, apparel, equipment, and accessories worldwide. It offers products in nine categories, including running, NIKE basketball, the Jordan brand, football, men's training, women's training, action sports, sportswear, and golf. The company also markets products designed for kids, as well as for other athletic and recreational uses, such as cricket, lacrosse, tennis, volleyball, wrestling, walking, and outdoor activities. In addition, it sells sports apparel; and markets apparel with licensed college and professional team and league logos. Further, the company sells a line of performance equipment, including bags, socks, sport balls, eyewear, timepieces, digital devices, bats, gloves, protective equipment, golf clubs, and other equipment under the NIKE brand name for sports activities; various plastic products to other manufacturers; athletic and casual footwear, apparel, and accessories under the Jumpman trademark; action sports and youth lifestyle apparel and accessories under the Hurley trademark; and casual sneakers, apparel, and accessories under the Converse, Chuck Taylor, All Star, One Star, Star Chevron, and Jack Purcell trademarks. Additionally, it licenses agreements that permit unaffiliated parties to manufacture and sell apparel, digital devices, and applications and other equipment for sports activities under NIKE-owned trademarks. The company sells its products to footwear stores, sporting goods stores, athletic specialty stores, department stores, skate, tennis and golf shops, and other retail accounts through NIKE-owned retail stores and Internet Websites (direct to consumer operations), as well as independent distributors and licensees. Company description from FinViz.com.
Nike reported earnings last week of 60 cents that beat estimates for 50 cents. Revenue of $8.7 billion narrowly beat estimates for $8.6 billion. The earnings spike was due mostly to a lower tax rate.
The stock spiked $5 on short covering after they announced they were turning to Amazon to help them sell shoes and apparel. Some analysts believe this will lead to further discounting because Amazon is a cutthroat market. We have already seen a weak market for high dollar Nike models with sales at 50% off. Moving to Amazon will cause additional discounting in those high dollar models. They also believe it will lead to lower orders from distributors and cause them even more grief in the U.S. where sales were flat. The U.S. is Nike's biggest market where they face less competition from brands like Adidas, which is rapidly accelerating.
Futures orders were reportedly down -10% indicating weak orders from distributors. As Nike shifts more from wholesale sales to the direct to retail market, they are going to face an entirely different set of problems. They announced they were laying off 1,400 employees as part of their consumer direct offense strategy.
Expected earnings Sept 28th.
The earnings are over and the post earnings depression phase should be starting. With everyone else starting their earnings next week, traders will be leaving Nike to find a stock with positive momentum.
Long Aug $57.50 put @ $1.51, see portfolio graphic for stop loss.
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