Daily Newsletter, Wednesday, 3/13/2019
Boeing is facing increasing trouble as one country after another grounds the 747 Max-8. Canada, the U.S., and the EU have joined a growing global movement to control public risk. Regardless the reason for the crash the fact two jets of the same model were involved in incidents raises concern for public safety. More than one official including President Trump cited new information connecting the two crashes. Because the 737, Max-8, and Max-9 represent a lion's share of Boeing's business a hiccup in business is all but assured.
There were plenty of other events for the markets to focus on but the Boeing/737 issue topped the list. Another Brexit setback hit the market last night late when the UK Parliament voted down May's amended deal. This means the UK is faced with a no-deal Brexit, a hard-Brexit, or requesting an extension for them to figure out some other option. Parliament did manage to vote against a no-deal Brexit so there is some hope, slim as it is, a smooth transition is still possible. The bad news is, based on EU President Juncker's comments there is little chance a new deal can be struck, so parliament has a job cut out for it.
This week is quadruple witching, the week in which monthly and quarterly options for equities, indices, futures, and commodities expire simultaneously. This event may play a roll in today's upward market movement, it is also a possible target date for the market to alter course so caution is the name of the game.
We received three economic reports today and they are all for January. The first, Durable Goods, rose 0.4% and well above the expected -0.10%. The previous month was revised higher which adds some strength to the January data and helps get the first quarter off to a better than expected start. This is the third month of durable goods increases. Ex-transportation goods orders fell -0.1%, ex-defense orders rose 0.7% showing strength in private transportation investment. Shipments, however, fell -0.5% and the first time in three months as manufacturers struggle to keep up with demand.
Construction spending rose more than expected and blew away estimates. The headline spending figure rose 1.4% versus an expected 0.5% as government spending boosts the market. Spending is up only 0.3% YOY. Residential spending fell in January, down -0.3%, despite lower interest rates, rising wages and pent up demand and is down -5.7% from last year. Private spending posted a small increase, 0.20%, but is down -2.0% from last year.
The Producer Price Index was a bit weaker than expected which is both a good and bad thing. Headline PPI came in at 0.1% for the month versus an expected 0.2%. While good in terms of the FOMC and rates hikes it does confirm slowing in the economy. The 1.9% YOY rate will help keep the FOMC patient but the 2.3% core YOY rate is something that bears closer attention.
The Dollar Index
The Dollar Index extended its fall in today's session. The weak PPI data did nothing to support the dollar despite political unease in the EU. The index fell more than -0.42% on the news and created a large red candle. The candle has broken the short-term moving average, near the midpoint of the trading range, and looks like it will move down to the bottom of the range near $95.50. The indicators are consistent with a move toward the bottom of the range are not strongly bearish so support is expected near $96 or $95.50. With the FOMC meeting set for next week, I'd expect to see the index continue within the range of $9.50 to $97.50 over the next few days at least, maybe longer. A move below support or above resistance would be significant.
The Gold Index
Gold prices moved up on today's weak dollar. The spot price gained about 0.70% to form a medium-sized green candle. The candle is breaking above resistance at the $1,300 level, the short-term moving average, and an uptrend line so the move has some strength. Because the last downward move created an extreme bearish peak I expect to see the low at $1,280 retested sometime in the near to short-term, when exactly that will happen is hard to say. The next target for resistance is $1,320 but a move to $1,340 is possible with the dollar moving lower, either of those targets could produce strong enough resistance to send gold prices back to the low.
The Gold Miners ETF GDX advanced in today's session but the move wasn't strong and may not get much higher. The ETF closed with a gain near 0.65% to create a small doji candle. The doji shows resistance just below the $23.00 level and a possible peak within a consolidation range. The indicators are mixed showing signs of rising prices with a bearish bias overall. A move up, if it closes above $23.00, could retest $23.50 but higher than that is doubtful without gold setting a new high too. If resistance confirms at$23.00 a move back to $22.00 or $21.50 is likely.
The Oil Index
Oil prices rose nearly 3.0% after U.S. inventory data shows a much bigger draw than expected. WTI advanced $1.32 on news inventories fell by 3.9 million barrels in the last week. The draw isn't large but is more than expected and compounded by a 4.62 million barrel drawdown in gasoline. The weak data is due to a variety of factors including OPEC's tightening efforts and sanctions on two key exporting nations. Now that WTI is moving to new highs I expect to see it continue higher for the near to short-term. My next target for resistance is $60 where is may enter consolidation.
The Oil Index gained about 1.5% on the strength in oil prices and looks like it may move higher. The caveat is that the index is still below potentially strong resistance at the 1,300 level and then the long-term moving average. The indicators are mixed but turning weakly bullish and the move is supported by rising oil prices so a touch to 1,300 or the 150-day EMA is possible. A break above the 150-day EMA would be bullish.
In The News, Story Stocks and Earnings
JP Morgan made waves in the banking sector when it announced plans to open 90 new branches in its competitors back yards. The bank says it will open locations in and around Washington D.C., Boston, Philadelphia and key markets in North Carolina, Tennessee, Missouri, and other mid-western states. Branches are planned near large universities as well as lower to middle-income areas with plans to broaden exposure in those areas next year. Shares of the stock were flat in today's session.
Aurora Cannabis announced a deal that will help seal it's position as the top pot stock this year. The company has entered into a strategic partnership with Nelson Peltz to formulate plans for future expansion. Mr. Peltz was awarded options to buy 20 million shares of the stock, shares which gained more than 10% on today's news. Aurora is one of Canada's top-three cultivator/producers and working aggressively to dominate markets at home, in the U.S. and overseas. One example is the companies purchase of Whistler Medical Marijuana, Whistler is one of Canada's oldest brands and the only cultivator with an organic license.
The VIX fell in today's session and is now at a semi-critical level. Today's low is consistent with the recent low where support has so far been present. This level may produce a reversal in fear and an increase in overall market volatility but the indicators so far do not indicate that. The indicators are both consistent with falling prices so I would expect to see the VIX trend sideways or test support in the near-term. A move below today's low, near 13.50, would be bearish for fear and bullish for the broader market.
The indices extended their bounces in today's session but the moves aren't convincingly bullish. Resistance is evident in most cases. Today's leader is the Dow Jones Transportation Average with a gain of 1.02%. The transports created a medium-sized green candle with a long upper shadow that points to resistance at the 10,500 level. The indicators are consistent with a bullish swing in momentum but not yet firing a bullish signal so upward movement is questionable. If the index does move up resistance is likely at 10,500, a move above that would be bullish.
The NASDAQ Composite posted the second largest advance at 0.69%. The tech-heavy index set a new high with today's action but the candle is small and the upper shadow reveals resistance is present. The indicators are consistent with upward drift but not yet showing a strong signal so I am cautious with this one. A move up may reach 7,800 but there is potential for resistance from today's close all through that target.
The S&P 500 also advanced 0.69% in today's session. The broad market index created a small green candle with long upper shadow showing resistance at my uptrend line and the 2820 level. This is potentially a very important level as it may keep the S&P 500 in bear-market conditions in the near to short-term. A fall from this level may confirm the top of a trading range with the December low as a target for support. A move up would confirm bull market intent if not an actual bull market, my target would then be 2,870 and the January 2018 all-time high.
The Dow Jones Industrial Average posted the smallest gain and formed the smallest candle in today's session. The index advanced 0.58% to form a small green candle with visible upper and lower shadows. The candle is above support targets at the short-term moving average and long-term uptrend line so looks bullish. The indicators are still mixed so caution is warranted. A move up may find resistance near 26,050, a move above that would be bullish.
The market moved up, again and again, I am skeptical, there just isn't anything to drive the market higher right now. The updraft may be caused by a lack of bad news, it may be caused by dwindling fear, it may be caused by fundamentals but it's hard to say, there is just too much clouding the market right now to be sure. With the FOMC meeting next week, the Brexit falling apart, slowing global growth, and trade uncertainty lingering in the air it's a good time to sit on the sidelines until a little more certainty arises. I am firmly bullish for the long-term but neutral for the near-term.
Until then, remember the trend!
Bad news does not last forever. Companies correct, conditions improve. An earnings mistake can last only one quarter. Shares are spanked and management races to correct the problems. Investors buy the dips.
New positions are only added on Wednesday and Saturday except in special circumstances.
NEW DIRECTIONAL CALL PLAYS
NTNX - Nutanix - Company Profile
Nutanix, Inc., together with its subsidiaries, develops and provides an enterprise cloud platform in North America, Europe, the Asia Pacific, the Middle East, Latin America, and Africa. Its solution addresses a range of workloads, including enterprise applications, databases, virtual desktop infrastructure, unified communications, and big data analytics. The company offers Acropolis, an open platform comprising hyperconvergence, native virtualization, enterprise storage, virtual networking, and platform services; and Prism, an end-to-end consumer-grade management plane providing management and analytics across its software products and services. It also provides Nutanix Calm that offers native application orchestration, automation, and lifecycle management to its enterprise cloud platform. In addition, the company offers Beam, a multi-cloud optimization service; and Frame, a desktop-as-a-service. It serves customers in a range of industries, including automotive, consumer goods, education, energy, financial services, healthcare, manufacturing, media, public sector, retail, technology, and telecommunications, as well as service providers. The company was founded in 2009 and is headquartered in San Jose, California. Company description from FinViz.com.
Nutanix shares were crushed on March 1st after they posted an adjusted loss of 14 cents. Analysts were expecting 25 cents, so this was a beat. Revenue of $335.4 million beat estimates for $331 million. However, billings rose from $355.9 million to $413.4 million. Analysts were expecting $416.5 million and not a big miss.
The problem came from guidance. They guided for the current quarter for a loss of 60 cents on revenue of $290-$300 million and billings of $360-$370 million. Analysts were expecting 28 cents on revenue of $348 million and billings of $430.2 million. That was a major miss.
The CFO said, "The guidance reflects the impact of inadequate marketing spending for pipeline generation and slower than expected sales hiring." "We took a critical look at these areas and have taken actions to address them."
Shares fell $17 to $33 on the news. After a week of sideways consolidation shares have started to move higher. The CFO said they corrected the problem. That may not mean there will be a recovery in the current quarter but there will be a recovery. I am recommending we buy the dip.
The first option cycle out of the 30-day premium depreciation window is July. We can buy time, but we do not have to use it.
Buy July $42.50 call, currently $2.80, stop loss $33.65.
NEW DIRECTIONAL PUT PLAYS
No New Bearish Plays
In Play Updates and Reviews
The major indexes shook off Brexit and Boeing to post a decent gain. The market is climbing the wall of worry and today's rally was important. The S&P surged over 2,815 intraday to touch 2,821 but then fell back to 2,810 on news that Boeing's 737 was being grounded in the US as well. If the markets can shake off this latest headline and move back over 2,815 on Thursday, we could see a surge of short covering.
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
Full updates on all plays on Wednesday and Saturday. Only closed plays are updated on other days.
BULLISH Play Updates
CAT - Caterpillar - Company Profile
No specific news. Shares up slightly with the market.
Original Trade Description: March 2nd
Caterpillar Inc. manufactures and sells construction and mining equipment, diesel and natural gas engines, and industrial gas turbines. Its Construction Industries segment offers asphalt pavers, compactors, cold planers, feller bunchers, harvesters, motorgraders, pipelayers, road reclaimers, skidders, telehandlers, and utility vehicles; backhoe, knuckleboom, compact track, multi-terrain, skid steer, and track-type loaders; forestry and wheel excavators; and site prep and track-type tractors. The company's Resource Industries segment provides electric rope and hydraulic shovels, draglines, rotary drills, hard rock vehicles, track-type tractors, mining trucks, longwall miners, wheel loaders, off-highway and articulated trucks, wheel tractor scrapers, wheel dozers, landfill and 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 and integrated systems for the power generation, marine, oil, and gas industries; turbines, centrifugal gas compressors, and related services; remanufactured reciprocating engines and components; and diesel-electric locomotives and components, and other rail-related products. The company's Financial Products segment provides operating and finance leases, installment sale contracts, working capital loans, and wholesale financing; and insurance and risk management products. Its All Other operating segment manufactures filters and fluids, undercarriage, ground engaging tools, fluid transfer products, precision seals, and rubber sealing and connecting components; parts distribution; integrated logistics solutions and distribution services; 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 has had a rough five months. Shares were testing $160 when the China tariff problem began, and they have languished as low as $112 in the aftermath. Every time it looks like the China talks are progressing, shares run up to about $140. Every time it looks like talks are breaking down, they pullback to $130 or lower. If we ever get an actual agreement, they should blast higher to the $150-$160 level once again.
Shares fell from $142 to $130 over the last two weeks on the latest headlines about negotiations. With the president continually saying there will be a meeting with President Xi in March, that gives us a short-term window for success. CAT also has reasonably priced options.
Earnings April 29th.
Long May $140 Call @ $3.25 , see portfolio graphic for stop loss.
INTC - Intel - Company Profile
Nvidia outbid Intel for Mellanox at $6.8 billion but Intel investors do not seem to mind. Shares rose to a new 8-month high.
Original Trade Description: Feb 16th
Intel Corporation designs, manufactures, and sells computer, networking, data storage, and communication platforms worldwide. The company operates through Client Computing Group, Data Center Group, Internet of Things Group, Non-Volatile Memory Solutions Group, Programmable Solutions Group, and All Other segments. Its platforms are used in notebooks, desktops, and wireless and wired connectivity products; enterprise, cloud, and communication infrastructure market segments; and retail, automotive, industrial, and various other embedded applications. The company offers microprocessors, and system-on-chip and multichip packaging products. It also provides NAND flash memory products primarily used in solid-state drives; and programmable semiconductors and related products for communications, data center, industrial, military, and automotive markets. In addition, the company develops computer vision and machine learning, data analysis, localization, and mapping for advanced driver assistance systems and autonomous driving. It serves original equipment manufacturers, original design manufacturers, industrial and communication equipment manufacturers, and cloud service providers. Intel Corporation has collaboration with Tata Consultancy Services to set up a center for advanced computing that develops solutions in the areas of high performance computing, high performance data analytics, and artificial intelligence. The company was founded in 1968 and is based in Santa Clara, California. Company description from FinViz.com.
In November Intel announced a $15 billion share buyback program. Intel had $4.7 billion remaining under a prior authorization putting them just shy of $20 billion. This represents almost 10% of the outstanding shares. Six years ago, Intel had 6.5 billion shares outstanding. If they complete this buyback program, they will have just over 4 billion shares outstanding.
Intel is poised to profit from the coming 5G revolution. Apple has already said they are going to use Intel's 5G model in their 2020 phones. Intel has participated in more than 25 5G trials with potential partners. In the last quarter Intel said revenue from communications service providers rose 30%. The company said in August it is pursuing the $24 billion communications infrastructure segment of the market and expects to gain significant market share by 2022. Intel is not just a PC and server processor company any more.
Intel reported Q4 earnings of $1.28 that beat estimates for $1.22. However, revenue of $18.66 billion missed estimates for $19.02. Their biggest problem was guidance for Q1 of 87 cents on $16 billion in revenue. Analysts were expecting $1 on $17.29 billion.
Intel is poised to benefit from a trade agreement with China. They currently get 24% of their revenue from China. With the advent of 5G, Intel is poised to be a leading player. They bill themselves as an "end to end" provider. The 5G revolution is not only going to replace nearly every piece of networking gear on the planet, every cellphone owner will be upgrading to a new 5G phone, many with an Intel modem. Remember the old commercials from the 2000's, "Intel Inside?" With Intel's new push into the internet of things (IoT), smartphone communications and self-driving vehicles, they really will be inside most electronic products.
Intel is expected to grow revenue by 5% in 2019. That is better than the sector forecast for 2% growth.
Earnings April 25th.
We have to reach out to the June option cycle to get a strike that comes after earnings and will keep the premiums inflated. We can buy time, but we do not have to use it.
Long June $55 call @ $1.53, see portfolio graphic for stop loss.
BEARISH Play Updates
No Current Puts