Apple's decline gave the market a much-needed rest after three days of strong gains. The tech leader became a tech laggard and the $15 decline knocked 100 points off the Dow and the index closed with a -110 point loss. Investors had a chance to take profits at the open and then establish new positions in the afternoon. We could now be poised for a decent start to next week.
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 position was closed 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
Apple shares crashed as expected but closed at the $207 level and the same closing low from Thursday's afterhours session. We exited the position at the open with a minor loss.
I am betting that Apple declines further from here. Ending the process of giving guidance on units sold was met with a lot of complaints and warnings from analysts. This almost guarantees that Apple is expecting slower growth or actual unit declines. This means we could have seen the peak in Apple shares.
Original Trade Description: Oct 6th
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.
Morgan initiated coverage with an outperform rating and the second highest price target on the street at $272. That would be a 21% gain from Friday's close. The analyst believes the service business is growing faster than people expect and the average selling price will also be higher. He thinks Apple Music will contribute $30 billion in revenue by 2025 and Apple Pay will contribute $6 billion. The average price target is $232.13.
Premiums are high because expectations are high. I am using two different entry triggers and strike prices in order to not be forced into a spread. ONLY enter whichever trigger is hit first. Do NOT enter both.
Update 10/20: Wedbush initiated coverage with an outperform rating and $310 price target. That is 40% over the current price. Apple also announced a new launch event for October 30th with no hint of what it is going to unveil. It could be any number of new product refreshes from iPads, laptops, Mac Mini, AirPods, etc. This announcement should be good for the stock price because it will keep Apple in the headlines.
Update 10/31: Apple shares rallied big with a $5.56 gain ahead of earnings. This stock could move $10 on Friday morning and it could move in either direction. We are fractionally profitable with the Dec $225 call and $6 OTM. The wise move would be to exit at Thursday's open since the futures are up strongly tonight. You could pocket some change but you would take the $7.15 premium out of play. If Apple crashes and burns on Friday, that premium will evaporate in a heartbeat. I am recommending we stay in the position but sell a December $240 call, currently $2.80. This will limit our upside to $7.85 but protect our premium if the stock crashes. Since the prior high was $233, the odds are good the stock will not move much over that level if at all. We will decide Thursday night if we are going to exit at the open on Friday or continue holding the position.
Update 11//1: Apple earnings are likely to tank the market on Friday. Apple shares represent around 20% of most tech ETFs and a significant weighting in the Dow and Nasdaq. Apple beat on earnings but missed on revenue, the number of phones sold and lowered guidance for Q4. In addition, they said they would no longer disclose the number of phones sold and that was very negative for sentiment.
Apple shares fell $15 in afterhours. After reading a dozen commentaries, mostly negative, I believe our first loss may be the smallest loss. Apple shares could easily continue lower. We sold a short call at the open to hedge against a decline but a $15 drop is still going to be painful. We know premiums are going to drop at the open but there may still be some investors expecting a rebound and holding their positions. I am recommending we close the long position at the open and the short position a minute later. We want to capture any remaining bullishness on the opening print but then let that expectation decline on the short call.
Closed 11/2: Long Dec $225 call @ $7.15, exit $3.49, -3.66 loss.
Closed 11/2: Short Dec $240 Call @ $2.86, exit .66, +2.20 gain.
Net loss $1.46.
Previously closed 10/10: Long Dec $235 Call @ $6.33, exit $5.21, -1.12 loss.
CAT - Caterpillar - Company Profile
No specific news. Excellent rebound from support at $112.50.
Original Trade Description: Oct 31st
Caterpillar Inc. manufactures and sells construction and mining equipment, diesel and natural gas engines, industrial gas turbines, and diesel-electric locomotives for construction, resource, and energy and transportation industries. Its Construction Industries segment offers asphalt pavers, backhoe loaders, compactors, cold planers, compact truck and multi-terrain loaders, forestry excavators, feller bunchers, harvesters, knuckleboom loaders, motorgraders, pipelayers, road reclaimers, site prep tractors, skidders, skid steer loaders, telehandlers, track-type loaders, wheel excavators, and track-type tractors. The company's Resource Industries segment provides electric rope and hydraulic shovels, draglines, track and rotary drills, hard rock vehicles, large track-type vehicles, large mining trucks, longwall miners, large wheel loaders, off-highway trucks, articulated trucks, wheel tractor scrapers, wheel dozers, landfill compactors, soil compactors, machinery components, electronics and control systems, select work tools, and hard rock continuous mining systems. Its Energy & Transportation segment offers reciprocating engine powered generator sets; reciprocating engines; integrated systems used in the electric power generation industry; turbines, centrifugal gas compressors, and related services; integrated systems and solutions for the marine and oil and gas industries; remanufactured reciprocating engines and components; and diesel-electric locomotives and components, and other rail-related products and services. Its All Other operating segments manufactures filters and fluids, undercarriage, tires, rims, ground engaging tools, fluid transfer products, precision seals, and rubber sealing and connecting components; parts distribution; and digital investments services. The company was formerly known as Caterpillar Tractor Co. and changed its name to Caterpillar Inc. in 1986. The company was founded in 1925 and is headquartered in Deerfield, Illinois. Company description from FinViz.com.
Caterpillar shares were crushed after earnings. They reported a 47% increase in profits but that was not good enough. In Q1 earnings rose 99% and 120% in Q2. Expectations were high. Earnings per share were $2.86, up from $1.95 but just barely over estimates for $2.85. The company affirmed their full year guidance of $11-$12 saying nothing had changed since the last quarter. That should be good news. Any changes would have been expected to be negative. They said the China market remained healthy and produced a 40% rise in excavators in 2018. They previously guided for a $100-$200 million hit from tariffs and said with the year 75% over it looked like the impact would be at the lower end of the range.
In any normal period a 47% increase in profits would be outstanding. Given the sharply declining market and the dumping of anything related to China and tariffs, CAT shares were crushed.
Deutsche Bank issued a buy rating because of a rising equipment upgrade cycle in mining and energy. The analyst said an above average upgrade cycle could lead to a 30% increase in revenues in coming quarters with oil and gas revenues rising 10%. The analyst said CAT was trading at a 45% discount to the S&P and the biggest discount in 20 years. This was BEFORE they reported earnings.
I think CAT has been severely oversold. The stock has found support at $112.50 and actually rallied 3% on Wednesday.
Earnings January 22nd.
I am recommending we buy a February option to get behind the earnings event and retain expectation premium.
Long Feb $130 Call @ $5.70, see portfolio graphic for stop loss.
CSCO - Cisco Systems - Company Profile
No specific news. Holding at resistance at $46 while Nasdaq remains volatile. The company said they would hold an investor event on Nov 27th at 3:PM ET.
Original Trade Description: Oct 13th
Cisco Systems, Inc. designs, manufactures, and sells Internet Protocol based networking and other products related to the communications and information technology industry worldwide. The company offers switching products; routing products that interconnect public and private wireline and mobile networks; data center products; and wireless access points for use in voice, video, and data applications. It also provides collaboration products comprising unified communications, TelePresence, and conferencing, as well as the Internet of Things and analytics software. In addition, the company offers security products, including network and data center security, advanced threat protection, Web and email security, access and policy, unified threat management, advisory, integration, and managed services; and other products, such as service provider video software and solutions, and cloud and system management products. Further, it offers technical support services and advanced services; and hyperconvergence software, cloud calling and contact center solutions, and AI-driven relationship intelligence platform. The company serves businesses of various sizes, public institutions, governments, and service providers. It sells its products directly, as well as through channel partners, such as systems integrators, service providers, other resellers, and distributors. The company was founded in 1984 and is headquartered in San Jose, California. Company description from FinViz.com.
Cisco shares made a new high on Oct 3rd then followed the Nasdaq lower for more than a 10% drop. There is nothing wrong with Cisco. This was strictly a market meltdown and prodit taking on the major tech stocks.
Earnings November 14th.
Long December $47 call @ $1.33, see portfolio graphic for stop loss.
MSFT - Microsoft - Company Profile
Shares are still weak after the company closed the Github acquisition for MSFT stock. Insiders at Github were dumping shares. On Tuesday, there was a 52 million share block being shopped and that depressed the price significantly. Those pressures appear to be continuing.
Original Trade Description: Sept 29th
Microsoft Corporation develops, licenses, and supports software, services, devices, and solutions worldwide. The company operates through Productivity and Business Processes, Intelligent Cloud, and More Personal Computing segments. The Productivity and Business Processes segment offers Office 365 commercial products and services for businesses, such as Office, Exchange, SharePoint, Skype for Business, Microsoft Teams, and related Client Access Licenses (CALs); Office 365 consumer services, including Skype, Outlook.com, and OneDrive; LinkedIn online professional network; and Dynamics business solutions comprising financial management, enterprise resource planning, customer relationship management, supply chain management, and analytics applications for small and medium businesses, large organizations, and divisions of enterprises. The Intelligent Cloud segment licenses server products and cloud services, such as SQL Server, Windows Server, Visual Studio, System Center, and related CALs, as well as Azure, a cloud platform; enterprise services, including premier support and Microsoft consulting services to assist customers in developing, deploying, and managing Microsoft server and desktop solutions, as well as providing training and certification to developers and IT professionals on Microsoft products. The More Personal Computing segment offers Windows OEM, volume, and other non-volume licensing of the Windows operating system; patent licensing, Windows Internet of Things, and MSN display advertising; devices comprising Surface, PC accessories, and other intelligent devices; Xbox hardware and software and services; and Bing and Bing Ads search advertising. The company markets and distributes its products through original equipment manufacturers, distributors, and resellers, as well as through online and Microsoft retail stores. The company was founded in 1975 and is headquartered in Redmond, Washington. Company description from FinViz.com.
This is a no brainer recommendation. If the market is going to rise over the next two months, the Nasdaq is likely to be the leader. Microsoft has no skeletons in the earnings closet and hardly a day goes by without some new announcement.
Earnings are Oct 22nd and we will exit the day before.
Shares have been consolidating at the recent highs just under $115. A breakout in a positive market should hit $120 relatively easy. In theory we should wait and buy a dip to the 30-day but with a market rally potentially imminent we should take a chance now.
Update 10/13: Microsoft was upgraded by Macquarie from hold to outperform. They raised the price target from $106 to $121. The analyst said after two quarters of robust earnings they expect the trend to continue. Sarah Hindlian said the cloud would be a $277 billion market by 2021 and gaming would rise to $180 billion. Both will offer significant opportunities for Microsoft. Shares rallied $3.66 on Friday.
Update 10/24: Microsoft reported earnings of $1.14 that beat estimates for 94 cents. Revenue of $29.08 billion beat estimates for $27.89 billion. All the major segments reported huge revenue and earnings gains. Shares recovered from the $6 drop in the normal session to rebound to $104.40 in afterhours.
Long Dec $120 Call @ $1.98, see portfolio graphic for stop loss.
Long Dec $110 Call @3.20, see portfolio graphic for stop loss.
Previously closed 10/4: Long Dec $120 call @ $2.27, exit $1.98, -0.29.
QQQ - Nasdaq 100 ETF - ETF Profile
Shares are still holding at $170 thanks to Friday's weak Nasdaq. The 200-day is $172.18
Original Trade Description: Oct 6th.
Invesco QQQ is an exchange-traded fund based on the Nasdaq-100 IndexÂ®. 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.
The Nasdaq declined -3.2% or -257 points last week. The Nasdaq Composite broke through the support of the 50-day but honored the 100-day when it came within 2 cents at the low for the day.
I believe investors will buy this dip just like they bought the multiple dips over the last six months. Tech stocks are the highest growth stocks and the least impacted by tariffs.
Long Dec $187 Call @ $3.00, see portfolio graphic for stop loss.
Long Dec $177 Call @ 4.18, see portfolio graphic for stop loss.
SPY - S&P SPDR ETF - ETF Profile
The SPY faded on Friday thanks to Apple and China. The market was due for a rest and those were convenient excuses.
The 200-day average is now 276.19 and should be resistance.
Original Trade Description: Sept 26th
The SPDR S&P 500 trust is an exchange-traded fund which trades on the NYSE Arca under the symbol SPY. SPDR is an acronym for the Standard & Poor's Depositary Receipts, the former name of the ETF. It is designed to track the S&P 500 stock market index. This fund is the largest ETF in the world.
The SPY has pulled back to the 30-day average and actually a steeper decline than the S&P-500. The SPY is near support at the 30-day average.
I believe the market is going to move higher during the Q3 earnings cycle. Once we are out of this quarter after Friday's close, we could see the market begin to turn higher with just two weeks before the Q3 cycle begins.
This may seem counter intuitive with the market weak over the last several days but the fundamentals remain strong. We just need to get past the various headlines and out of the quarter. Thursday will be an especially bad headline day so expect some volatility.
Long Dec $295 Call @ $3.97, see portfolio graphic for stop loss.
Long Dec $285 Call @ $4.18, see portfolio graphic for stop loss.
Previously closed 10/4: Long Dec $295 Call @ $4.38, exit $3.65, -.73 loss.
XLC - S&P Communication Services ETF - ETF Profile
No specific news. The XLC floundered with the Nasdaq with a log of help from Google posting big losses.
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.
Long (2) Nov $50 Calls @ .40 each.
Average cost in position = 70 cents.
BEARISH Play Updates
No Current Puts