The markets peaked just after 2:PM but it was a downhill slide from there. Analysts blamed the afternoon crash on the banks, which imploded after the Fed Chairman said they did not see any signs of inflation. He was less aggressive in his tone than expected. The was no telling what really caused the decline and you can never pick market direction from the post fed meeting reaction. The majority of the time the market reverses the next day except for the time you bet in that direction.
Stop Loss Updates
Check the graphic below for any new stop losses in bright yellow.
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
AAPL - Apple Inc
The long position was entered at the open.
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Full updates on all plays on Wednesday and Saturday. Only closed plays are updated on other days.
BULLISH Play Updates
AAPL - Apple Inc - Company Profile
No specific news on Apple and shares were up $3 above the close intraday. The stock simply followed the market down.
Original Trade Description: Sept 25th
Apple Inc. designs, manufactures, and markets mobile communication and media devices, and personal computers to consumers, and 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. Company description from FinViz.com.
Support held and it is time to get long. We have been short Apple for the post announcement decline but support held and the Nasdaq looks like it wants to rally.
Apple earnings are Oct 30th and everyone will be looking for good news about the new iPhone products. Since support held, I a recommending we take a short term November position and try to catch the earnings run.
Premiums are high because expectations are high. We will have to make this a spread.
Long Nov $225 call @ $6.64, see portfolio graphic for stop loss.
Short Nov $240 call @ $1.81, see portfolio graphic for stop loss.
Net debit $4.88.
CGNX - Cognex - Company Profile
No specific news. Down with the market at the close.
Original Trade Description: Sept 19th
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, including DataMan barcode readers and barcode verifiers, as well as vision-enabled mobile terminals for industrial barcode reading applications; and barcode scanning software development kits. The company sells its products to customers in the consumer electronics and automotive industries, and semiconductor and electronics capital equipment markets through direct sales force, as well as through a network of distributors and integrators. Cognex Corporation was founded in 1981 and is headquartered in Natick, Massachusetts. Company description from FinViz.com.
Cognex is one of those companies that flies under the radar and rarely gets mentioned in the news. For 37 years they have been supplying products to the manufacturing sector that make it easier to automate the processes.
They reported earnings of 32 cents that beat estimates for 30 cents. Revenue of $211.26 million beat estimates for $204.86 million. Gross margin was a whopping 74% and roughly in line with estimates. Operating expenses rose from 55.8% to 58.6% but the margins remained high. The company has $755 million in cash and no debt.
They guided for current quarter revenue of $220-$230 million which would be more than a 10% decline. The key point is that they saw record demand for their products in the year ago quarter because they interfaced OLED displays into smartphones and that was the big selling point on the iPhone X last September. Obviously we know where those products went.
Revenue in Q2 was the second highest of any quarter in history thanks to growth in the logistics and automotive markets. They see continued growth in those sectors with new products in the pipeline.
Earnings Oct 29th.
Shares rallied on the earnings beat and traded sideways for a month. Over the last couple weeks, they have begun to tick higher even despite the weak Nasdaq. They are on the verge of a 6-month high.
Long Nov $60 call @ $1.50, see portfolio graphic for stop loss.
DLTR - Dollar Tree - Company Profile
No specific news. Shares declined with the Nasdaq and Russell.
Original Trade Description: Sept 12th
Dollar Tree, Inc. operates discount variety retail stores in the United States and Canada. It operates through two segments, Dollar Tree and Family Dollar. The Dollar Tree segment offers merchandise at the fixed price of $1.00. It provides consumable merchandise, including candy and food, and health and beauty care products, as well as everyday consumables, such as household paper and chemicals, and frozen and refrigerated food; various merchandise comprising toys, durable housewares, gifts, stationery, party goods, greeting cards, softlines, and other items; and seasonal goods, which include Valentine's Day, Easter, Halloween, and Christmas merchandise. This segment operates 6,650 stores under the Dollar Tree and Dollar Tree Canada brands, as well as 11 distribution centers in the United States and 2 in Canada, and a store support center in Chesapeake, Virginia. The Family Dollar segment operates general merchandise discount retail stores that offer consumable merchandise, which comprise food, tobacco, health and beauty aids, household chemicals, paper products, hardware and automotive supplies, diapers, batteries, and pet food and supplies; and home products, including housewares, home decor, and giftware, as well as domestics, such as comforters, sheets, and towels. It also provides apparel and accessories merchandise comprising clothing, fashion accessories, and shoes; and seasonal and electronics merchandise, which include Valentine's Day, Easter, Halloween, and Christmas merchandise, as well as personal electronics that comprise pre-paid cellular phones and services, stationery and school supplies, and toys. This segment operates 8,185 stores under the Family Dollar brand, 11 distribution centers, and a store support center in Matthews, North Carolina. Dollar Tree, Inc. was founded in 1986 and is headquartered in Chesapeake, Virginia. Company description from FinViz.com.
Dollar Tree posted earnings with a minor hiccup and the stock was crushed. They reported earnings of $1.15 that missed estimates by a penny. Revenue of $5.525 billion narrowly missed estimates for $5.536 billion. Same store sales rose 1.8% to match estimates.
Guidance for the current quarter earnings was $1.11-$1.18 and estimates were $1.16 just barely over the midpoint of $1.15. They guided for revenue of $5.53-$5.64 billion and analysts were expecting $5.58 billon and right at the midpoint. Full year guidance narrowed from $4.80-$5.10 to $4.85-$5.05 and analysts were expecting $5.55. This was the major problem.
However, look at the company's guidance. They had previously $4.80-$5.10 and and they narrowed that same range. It was the analysts that got it wrong. When a company gives guidance and 3-months later reiterates that same guidance, analysts should not be trying to bid up estimates just to play the "mine are bigger than yours" game.
DLTR did what they said they were going to do and they are still forecasting decent earnings for the current quarter. I think they were unjustly the victim of analyst creep. We see this all the time.
I previously recommended this on a longer-term play in the Ultimate Investor Newsletter.
Long Nov $87.50 call @ 2.45, see portfolio graphic for stop loss.
HD - Home Depot - Company Profile
No specific news. Shares were higher intraday but fell with the market at the close.
Original Trade Description: Sept 8th
The Home Depot, Inc. operates as a home improvement retailer. It operates The Home Depot stores that sell various building materials, home improvement products, lawn and garden products, and decor products, as well as provide installation, home maintenance, and professional service programs to do-it-yourself and professional customers. The company also offers installation programs that include flooring, cabinets, countertops, water heaters, and sheds; and professional installation in various categories sold through its in-home sales programs, such as roofing, siding, windows, cabinet refacing, furnaces, and central air systems, as well as acts as a contractor to provide installation services to its do-it-for-me customers through third-party installers. In addition, it provides tool and equipment rental services. The company primarily serves home owners; and professional renovators/remodelers, general contractors, handymen, property managers, building service contractors, and specialty tradesmen, such as installers. It also sells its products through online. As of January 28, 2018, the company operated 2,284 stores, including 1,980 in the United States, including the Commonwealth of Puerto Rico, and the territories of the U.S. Virgin Islands and Guam; 182 in Canada; and 122 in Mexico. The Home Depot, Inc. was founded in 1978 and is based in Atlanta, Georgia. Company description from FinViz.com.
The country dodged a bullet when tropical storm Gordon evaporated as it went ashore. There was a lot of rain and wind but there was no material damage compared to Hurricane Harvey.
However, next week tropical storm Florence is expected to make landfall in North Carolina or worse it could turn north and brush the East Coast all the way up to New York. Hurricane Sandy was a major hurricane that came ashore in New Jersey and caused $62 billion in damages.
Home Depot has a complete hurricane response center where they track storms from the time they form in the Atlantic until they evaporate over land. The center determines where the most damage might be and they route hundreds of trucks into that area in advance of the storm with materials normally used to prepare for the storm. That is plywood, generators, building materials, emergency materials, etc. In some cases these materials are sold right off the trucks without ever being stocked. After the storm, Home Depot sends hundreds of additional trucks filled with supplies they have learned from experience will be desperately needed.
Hurricanes are big business for Home Depot. When Hurricane Sandy hit in 2012, Home Depot saw hundreds of millions of dollars in additional revenue immediately after the storm passed and for the next 12-18 months as the rebuilding process began and continued for the next two years. In reality, they are still benefitting from the storm because the rebuilding process is still underway.
The storm track for Florence is textbook for either a dead center hit on North Carolina or a glancing blow all the way up the East Coast. This could be a major storm and the benefit to Home Depot could be enormous.
Shares are at the prior highs and have plateaued for the last week after tropical storm Gordon failed to cause any real damage. As Florence strengthens and the track solidifies, investors will buy Home Depot shares. This is a repeatable trade because it happens again with every hurricane.
Earnings Nov 13th.
Long Nov $210 call @ $7.15, see portfolio graphic for stop loss.
Short Nov $220 call @ $2.35, see portfolio graphic for stop loss.
Net debit $4.85.
QCOM - Qualcomm - Company Profile
No specific news. Weakness in tech stocks and chip sector pulled QCOM lower.
Original Trade Description: Sept 5th
QUALCOMM Incorporated designs, develops, manufactures, and markets digital communication products worldwide. It operates through three segments: Qualcomm CDMA Technologies (QCT); Qualcomm Technology Licensing (QTL); and Qualcomm Strategic Initiatives (QSI). The QCT segment develops and supplies integrated circuits and system software based on code division multiple access (CDMA), orthogonal frequency division multiple access, and other technologies for use in wireless voice and data communications, networking, application processing, multimedia, and global positioning system products. The QTL segment grants licenses or provides rights to use portions of its intellectual property portfolio, which include various patent rights useful in the manufacture and sale of wireless products comprising products implementing CDMA2000, wideband CDMA, CDMA time division duplex, and/or long term evolution standards and their derivatives. The QSI segment invests in early-stage companies in various industries, including automotive, Internet of things, mobile, data center, and healthcare for supporting the design and introduction of new products and services for voice and data communications, and new industry segments. The company also provides products and services for mobile health; products designed for the implementation of small cells; development, and other services and related products to the United States government agencies and their contractors; and software products, and content and push-to-talk enablement services to wireless operators. In addition, it licenses chipset technology, and products and services for use in data centers. QUALCOMM Incorporated was founded in 1985 and is headquartered in San Diego, California. Company description from FinViz.com.
The last 12 months have been turbulent for Qualcomm. First they tried to acquire NXP Semiconductor (NXPI). They received approvals from 7 of the 8 countries that needed to approve the transaction. While they were waiting on China's approval, Broadcom (AVGO) made a hostile offer to acquire Qualcomm for $121 billion. Qualcomm would be forced to drop the bid for NXPI if they accepted the Broadcom bid. Qualcomm fought Broadcom and finally got the government to veto the deal under a national security rationale.
Broadcom quickly made a big show of becoming a U.S. company by changing its domicile to the U.S. That was not enough to convince CFIUS they were not a threat. Eventually Broadcom dropped its bid.
Qualcomm tried to continue its acquisition of NXPI but China refused to approve the acquisition and Qualcomm was forced to abandon the acquisition attempt and pay a $2 billion breakup fee.
While Qualcomm and NXPI would have been stronger together, Qualcomm is not sitting still. They are rapidly moving forward on 5G communications, automotive chips, internet connectivity, Internet of Things, network processing, etc.
The company just announced a $30 billion stock buyback. That is one-third of the company using the funds they had set aside for the NXPI acquisition. They completed $5.1 billion in a dutch auction last week.
The next challenge for Qualcomm is settling the patent dispute with Apple. The phone company has protested the way Qualcomm collects royalties on its products. Instead of only charging a royalty on the specific parts in the phone, Qualcomm has always charged a royalty on the entire cost of the phone. In the beginning companies did not balk because without Qualcomm's parts the phone would not have been possible. After paying royalties to Qualcomm for years, Apple decided they were paying too much money to Qualcomm and sued them to change the patent. Since Apple and every other phone manufacturer had been paying Qualcomm under this structure for years, Apple does not have a very good chance of winning. They do have a lot of money and the best lawyers in the world but the law is the law and signed agreements are tough to fight.
This suit is expected to be settled later this year. Investors should be looking at Qualcomm as an outstanding investment now that the clouds have cleared.
Qualcomm said it expects $1 billion in revenue this year from chips used in smart watches, connected speakers and other IoT devices and that amount will increase significantly in the future.
With a 4% dividend and buying back 33% of the stock, there is no reason for Qualcomm shares not to rise in the coming months. The stock should also be somewhat immune to market movement over the coming weeks thanks to the monster buyback.
Earnings October 24th.
We exited the long position last week after the Dutch auction ended. Shares were trying to decline and we exited for a nice gain. The decline only lasted a couple days and shares are now back at a new high in a very bad tech market. The 33% buyback is critical as is the rumors of an impending settlement with Apple. I am recommending we reload this position.
Update 9/8: Qualcomm and Ericsson announced a successful 5G test from a smartphone form factor using over-the-air millimeter wave in the 39 Ghz band. The device used the Qualcomm Snapdragon X50 5G modem. When 5G is actually implemented Qualcomm is going to be making a lot of money because nearly all the smartphones in the world will use the Qualcomm modem.
Update 9/14: Barclay's resumed coverage with an overweight weighting and $95 price target. Qualcomm said it had entered into an accelerated share repurchase program with BAC, C and MS for a minimum of 178 million shares worth an estimated $16 billion. This is part of their previously announced $30 billion repurchase program. They expect to complete the $30 billion in FY 2019.
Update 9/18: The Qualcomm CEO said he expects to see a settlement with Apple later this year. There are multiple suits i progress because Apple quit paying Qualcomm royalties on chips used in iPhones. Apple hopes to challenge the royalty rate in court and force Qualcomm to take a lesser amount. Most analysts believe Apple does not have a chance and will have to make years of back payments.
Long Nov $75.00 call @ $1.90, see portfolio graphic for stop loss.
XLC - S&P Communication Services ETF - ETF Profile
No specific news. Shares were up slightly but closed off the highs.
Original Trade Description: Sept 22nd
The Communication Services Select Sector SPDR Fund seeks to provide investment results that, before expenses, correspond generally to the price and yield performance of the Communication Services Select Sector Index (the "Index"). The Index seeks to provide an effective representation of the communication services sector of the S&P 500 Index. Seeks to provide precise exposure to companies from the media, retailing, and software & services industries in the U.S. and allows investors to take strategic or tactical positions at a more targeted level than traditional style based investing. Description from State Street Global Advisors.
With FB, Alphabet, ATVI, NFLX, EA, TWTR, TTWO and TRIP all moving to the previously dormant XLC sector ETF, the odds are good that a lot of portfolio managers will shift investments to the ETF in order to be exposed to those stocks.
The downside to this theory is the 15 or so unwanted telephone, newspaper and TV stations in the same ETF. Fortunately, those stocks I listed above make up 59.5% of the ETF so they should control the direction. After seeing the big cap techs decline for no particular reason over the last two weeks it seems obvious now that they were victims of the S&P/MSCI index/ETF restructuring.
I am going to recommend an inexpensive November option because a rebound, if it is going to happen, should be relatively quickly.
Long Nov $50 Call @ $1.30, see portfolio graphic for stop loss.
BEARISH Play Updates
No Current Puts