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Daily Newsletter, Saturday, 3/23/2019

Table of Contents

  1. Market Wrap
  2. Index Wrap
  3. New Option Plays
  4. In Play Updates and Reviews

Market Wrap

Bipolar Market

by Jim Brown

Click here to email Jim Brown

The last several days has seen the major indexes trade in alternating directions with increasing intensity.

Weekly Statistics

Friday Statistics

On Tuesday I wrote about the increasing volatility in the Russell 2000 implying we were nearing a top. Last weekend I wrote about the potential for a head and shoulders on the S&P and the potential for a double top as we move into the Q1 earnings cycle. The bipolar market may be proving those scenarios.

Friday the Russell was the biggest loser at -3.6% and closed at a lower low and dangerously close to breaking below support at 1,500. The ten days of intraday volatility turned into a collapse on Friday.


The Dow fought against the Boeing losses all week and lost the battle to close at a 2-week low and the low for the day.


The 2,815 resistance level on the S&P was broken last Friday and survived the Wednesday support test only to be broken again on Friday.


The Nasdaq big caps led the market higher but on increasingly narrow breadth. Eventually we ran out of tech buyers in an increasingly overbought market.


Friday's economics in the US were positive, but nobody was paying attention after the bad news from Europe. The existing home sales in the US rose 11.8% in February. That was a record one-month gain. The prior three months saw declines averaging -1.8%. The South and West powered the gains with +1.9% and +16.0% gains respectively. The Midwest rose 9.5% and the Northwest was flat. Inventory on hand fell to 3.5 months of supply and a multiyear low. The median home price was flat at $249,500. The annualized rate of sales was 5.51 million and that exceeded analyst estimates for 5.10 million. Analysts pointed out that the 30-year mortgage rate has declined from 4.87% in November to 4.37% today and still dropping. The end of the government shutdown was also a factor because the FHA was able to begin processing the backlog of applications that stacked up during the shutdown. It was not that there was a rush of people buying homes, but it was a surge of paperwork that pushed the home sales numbers higher.


Wholesale inventories for January rose 1.2% and well over the 0.2% analysts expected. That followed a 1.1% increase in December. Durable goods rose 0.9% and nondurables rose 1.6%. The inventory to sales ratio rose to 1.34 and the highest level since 2016. This report was ignored.

The bean counters at the Atlanta Fed did not ignore the inventory numbers. The combination of inventories and home sales caused a sharp uptick in the real time GDPNow forecast for Q1 GDP from 0.4% to 1.2% growth. Residential investment growth estimates rose from -4.8% to +0.6% thanks to the existing home sales report.


Causing our market jitters overnight was the decline in the Eurozone composite PMI from 51.9 to 51.3 and missing estimates for 52.0. The French and German PMI numbers also disappointed with German manufacturing contracting for the third consecutive month. The yield on the German Bund turned negative for the first time since 2016.

The declining yields in European debt sent investors racing into US treasuries. As of Friday, there was more than $10 trillion in overseas debt with a negative yield. That makes the US treasuries the only place to go for a safe yield.

The yield on the ten-year fell to 2.418% intraday and closed at 2.455% and a 14-month low. When the Fed said it was halting plans for any rate hikes in 2019 and would stop the quantitative tightening in September, they sealed the fate for treasuries. The Fed blamed a slowing outlook for economic activity for the rest of the year.

The sudden drop in yields caused the 3-month yield to invert with the ten-year and that caused a headline panic in the market even though it was not a material event.


The EU agreed to grant Britain an extension to the Brexit date from March 29th to May 22nd. However, that came with a contingency. Parliament must accept Theresa May's current Brexit deal. Otherwise the extension expires earlier, and Britain will be forced into a hard Brexit on April 12th, three weeks from now. Parliament has previously rejected this deal twice, the first time by a record number of votes. The odds are slim they will approve it the third time except this time they have a hard deadline imposed by the EU with no alternative.

This is another challenge for the European economy because a hard Brexit will cause severe economic disruptions. The UK Parliament petition website crashed with more than 2.1 million people signing a petition over just a few hours hoping to force Parliament to approve the Brexit deal. Parliament had said they would consider a debate if they got just 100,000 signatures. It was the highest rate of signing for any petition ever.

Another headline weighing on the market was tariffs. President Trump warned the US would keep tariffs in place on $50 billion of Chinese goods even if a trade deal was reached. This is toughening the stance with China and a warning that compliance would be required or else. China's goal is to see as many of the $250 billion in tariffs removed as possible. The US does not trust China to follow through on their commitments. China does not trust the US to remove the tariffs. These comments seem to indicate Trump is reluctant to remove all of the pressure points until there is compliance. Trump said he thought we were getting close to a deal. "That does not mean we get there, but I think we are getting very close." Many analysts feel that China is making broad promises that will be nearly impossible to enforce.

The US is insisting we can reinstate any tariffs at any time without any input or retaliation from China if we believe they are not in compliance. China is rejecting this claiming it would compromise their sovereignty. Larry Kudlow suggested the tariffs would be removed a piece at a time as China complied with some portion of the agreement.

We have European economics declining, the Brexit disaster racing towards us and China backing away from an agreement with enough teeth that could force compliance. Those are some big bricks in the wall of worry.

We have a very busy calendar next week. We have four more regional Fed reports and three more housing reports. Add in the GDP report and personal income/spending and there is something for everyone.


There are some large companies reporting next week led by RedHat, Carnival, Lululemon, Paychex, McCormick and Accenture. KB Homes and Lennar also report. BlackBerry is not large, but they report on Friday.

For Q1 there have been 79 guidance warnings and 30 guidance upgrades. Earnings estimates for Q1 are projecting a decline of -1.7% and the low for this forecasting cycle. Estimates for Q2 are 3.0%, Q3 2.7% and Q4 9.1%.


Friday was a slow day for stock news with everyone focused on global economics and falling interest rates. There were a couple bright spots. Hibbett Sports (HIBB) reported earnings of 57 cents that easily beat estimates for 39 cents. Revenue of $306 million beat estimates for $280 million. Same store sales rose 3.8% compared to estimates for zero. They are planning on closing 95 stores in fiscal 2020 while opening 10-15 new stores. They guided for full year earnings of $1.80-$2.00 that easily beat estimates for $1.74. Shares soared 20% in a bad market.


Tiffany & Co. (TIF) reported earnings of $1.67 that beat estimates for $1.60. Revenue declined -1% to $1.32 billion and missed estimates for $1.33 billion. Same store sales declined -1%. Japan rose 3.0%, the US was flat, Asia-Pacific declined -3% and Europe fell -5%. Shares initially fell -5% but rebounded to post a gain after the company said it expected sales to improve in the second half of the year. They are launching an online sales program for China and expect e-commerce to rise from 7% of the total to as much as 15%. Shares rallied on the positive guidance.


Dow component Nike (NKE) was an anchor dragging the index lower after disappointing on earnings. Shares fell $6 and subtracted about 39 Dow points. Earnings of 68 cents beat estimates for 66 cents. Revenue of $9.6 billion rose 7% and matched estimates. North American sales rose 7% to $3.81 billion and missed estimates for $3.87 billion. A decline in sales of the Converse brand was also blamed. The company guided for "low single digit" revenue growth in the current quarter and analysts were expecting 6.1% growth. Their competitor Adidas warned they were suffering supply chain issues in the first half of the year and that should help Nike. Shares fell -6.6%.


Pinterest (PINS) filed for an IPO and is using an interesting ploy for share classes. The 184-page S1 said they had revenue of $273 million in Q4 with net income of $47 million. That was up from $173.3 million and $3.4 million in the year ago quarter. Full year revenue in 2018 rose 60% to $755.9 million but a net loss of 17 cents.

The company is going to have a dual class share structure with Class A shares sold in the IPO. Class B stock will be owned by the co-founder Ben Silbermann, president, CEO and several other executives and early investors. There was no description of how many votes are vested in Class B shares but there is a sunset provision. All Class B shares will convert to Class A shares 7 years after the IPO date with the exception of anyone who still owns at least 50% of Class B shares. That would be Silberman. In another twist, class B shares convert to Class A shares in the event of Silberman's death. The IPO did not list the amount of funds Pinterest is seeking to raise but there was a $100 million place holder, which will be changed later. The last round of funding valued Pinterest at $12 billion. I am surprised Facebook or a competitor of Facebook has not bought the company. There are more than 250 million "Pinners" and two thirds are women. That is a powerful consumer group.

Boeing was crushed again for a $10 loss after Garuda Indonesia said it had requested cancellation of an order for 49 737-Max jets. The order is worth $4.9 billion. Lion Air has also talked about cancelling their remaining orders.

The three US airlines that have 737 planes are sending representatives to Boeing this weekend to study a software patch that Boeing says is nearing completion. Southwest, United and American Airlines operate 737 planes. American pilots were scheduled to test the software fix using two simulators in Renton Washington. Southwest began moving all its 737s to a facility on the edge of the Mohave Desert. They said having all the planes in the same place would make it easier to perform maintenance and install the future software upgrades. The FAA has to approve the software update and new pilot training on the new procedures. This process will take weeks. Boeing shares erased 71 Dow points on Friday. Shares closed at a two-month post-crash low. I have wanted to buy Boeing shares but kept feeling there was another shoe to drop. There will be plenty of time once the planes are certified again.


Crude prices traded above $60 for three consecutive days but traders took profits on Friday in a weak market. When the broad market collapses you sell what you can to raise money to add to longer term positions. Oil rarely has any emotional attachment like shares of Apple or Nvidia might have for investors. That makes it an easy candidate for a quick sale, especially when it is trading at a 5-month high.

Inventories of both crude and refined products plunged last week. Refined products should continue declining because refiners are trying to reduce winter blend fuels in preparation for producing summer blend fuels. They need to empty those tanks so they can fill them with new blends.

Active rigs fell by 10 last week to 1,016 and the lowest level since April 20th. Producers are probably slowing down on drilling until the new pipelines from the Permian open later this year. They have already drilled hundreds of wells that are not yet completed because there is no way to transport new production out of the basin.

The IEA shows 4,004 drilled but uncompleted wells in the Permian at the end of February. That was an increase of 88 from January. This is a huge amount of production ready to come online once the pipelines open for business. Even more amazing is the 8,576 uncompleted wells nationwide. If they did not drill another well it would be a long time before they could frac and complete all of those wells. This also shows you how much oil production is going to spike in 2020 with two million bpd of new pipelines coming online over the next 24 months.






Markets

There was no joy on Wall Street at the close on Friday. There were dozens of analysts bring out their charts and predicting doom and gloom. The recession calls were constant. Everyone was whining about the inverted yield curve and how it always predicts a recession. They are right, it has predicted 15 of the last 9 recessions. If you got that joke you realize that an inverted yield curve is not infallible. Yes, there is normally an inverted curve before a recession but there are inverted curves that do not lead to a recession.

Just having an inversion for a couple hours on a particular day is not a signal. An inverted curve for a couple months would be a strong signal. We are a long way from that point in this economy. The curve inverted because the Fed took a pause on rate hikes for 2019 due to the global economy, not the US economy. Obviously, we all know that the US cannot disconnect from the global economy in the long term, but it can for short periods. The US economy is showing the impact of the trade war with China and weakness in Europe, but it is still growing. An orderly Brexit would help and the successful end to the Chinese trade talks would also help. However, even if the talks drag on, China is going to stimulate its way out of its current problem. They have unlimited cash and they are not afraid to use it. Mario Draghi is going to do the same with the Brexit problem. He is not going to let that exit collapse all of Europe.

I think investors are overly concerned about the recent headlines. Plus, the markets are very overbought. The big cap tech stocks led the rally from the Christmas bottom and the Nasdaq 100 is up 16% for the year. In any market that is overbought. The Nasaq Composite is up 15%, chip sector 21%, housing 17% and energy 16%. The Dow is the laggard with a 9% gain because Boeing has erased nearly 600 Dow points since March 1st. It is a miracle the Dow is not significantly lower.

The S&P fell back to round number support at 2,800. The 200-day at 2,755 and the consensus end of year target at 2,750 will also be support. We really do not need to worry until the dip low from March 8th at 2,743 is broken. That is the critical level.


We have a new line of resistance on the Dow at 26,000. Prior resistance was 26,191 but the lower high last week gave us a new plot point. Support is 25,180 followed by 25,000. Boeing will continue to be the single stock driver. With earnings over for the Dow components, there will be less of a supporting cast to offset Boeing's decline. The best thing that could happen to the Dow would be a quick software fix by Boeing.



The big cap tech stocks took it hard on Friday after a spectacular spike on short covering on Thursday. The market breadth has been narrow with these stocks leading so once sentiment changed they also led on the way down. Three of the FANG stocks sold off especially hard as did Apple. This was simply a sentiment reversal as investors were quick to pull the ripcord when Thursday's rally failed to continue.



This is the worst chart of the major indexes. The Russell made a lower low with a 3.6% decline. I wrote on Tuesday that the intraday volatility on the Russell was similar to that at market tops and bottoms. Friday's decline was confirmation and a break below 1,500 could quickly test 1,470 and threaten to take us back to the December lows. The Russell is supposed to lead the market both up and down and it has definitely taken the lead lower.


I am concerned about the health of the market. I have repeatedly warned about a potential head and shoulders or double top in the 2,870 - 2,930 range based on a sell the news event of a China trade agreement or a retest of the prior highs. Q1 earnings are just around the corner in three weeks and cautious portfolio managers may be ready to trim positions rather than wait for the possibility of retesting the highs. The summer doldrums begin after the Q1 earnings and that is about seven weeks away. That suggests we are moving into a period where fund managers will be faced with the annual "why buy" decision ahead of summer. I thought the lure of the prior highs would be enough to pull the markets higher for a retest but now that the China talks are dragging out and Brexit could happen as soon as April 12th, caution could win out over bullish sentiment.

Enter passively and exit aggressively!

Jim Brown

Send Jim an email

 

"What you do today can improve all your tomorrows."

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Index Wrap

Massive Imbalance

by Jim Brown

Click here to email Jim Brown
Market breadth took a significant turn for the worse on Friday. I reported on breadth several times over the last couple of weeks and remarked how breadth was shrinking and the market was being led higher by a smaller number of big cap stocks. Those few leaders finally ran into trouble and the declines in the smaller stocks were too broad for the big caps to support.

On Friday the small cap decliners overwhelmed advancers by 496 to 25 or roughly 20:1. I do not recall ever seeing that large of an imbalance before but that does not mean it did not happen. Thursday's short squeeze was 4:1 in favor of advancers. Given the significant imbalance I would have expected a bigger drop on the chart. The magnitude of the swing in Dec/Jan has thrown off the scale on the chart, which means Friday's decline is under represented.

Small caps are supposed to lead the broader market higher and lower. On Friday they seized the lead and declined nearly -4%. This is a bad omen for next week but as you know it is still possible for the market to reverse with a monster short squeeze like it did on Thursday. The end of the Muller investigation could have a positive impact on the market if there were no findings of wrong doing by the president. As of Saturday evening, there has not been any release of the data.





Last week I speculated there was a potential for a head and shoulders pattern to form at 2,872. The high for the week was 2,860 but these patterns do not have to be exact and 12 points is close enough. If that H&S pattern completes the target would be somewhere in the 2,600 range.

The A/D line on the S&P was much better than the small caps at 6:1 in favor of decliners. That was not as large an imbalance as the 8:1 imbalance in favor of advancers on Thursday. These are huge numbers. 2:1 or 3:1 is the norm and sometimes 4:1 but the imbalance over the last two days has been huge.




While the A/D line on the S&P did not show a major decline the percentage of S&P stocks over their 50-day average has fallen from 92% to 62.8%. That is a material decline and again shows that only a few stocks were leading the market higher while the rest were sagging.


The Nasdaq A/D line declined only slightly despite all the big caps turning negative on Friday. The Nasdaq chart could be interpreted as a H&S but it is not as pronounced as the S&P. I would not call it that and I am only showing the pattern as a comparison.



The volatility in the FANG stocks is increasing with major declines on Friday. Analysts are calling them very overbought.


The Dow pattern is showing strong resistance with two tops at 26,616 and 26,951. The nearly 600 point hit from the Boeing decline kept the Dow from testing those upper levels and could continue holding it back. For me this is a bearish chart. Even if the Dow does continue higher to test those levels it has been damaged by the Boeing drop. It no longer has Boeing adding 50-70 points a week as we saw in the prior six weeks.


The Russell 2000 is also a bearish chart with a clear failure at critical resistance of 1,600. The shorter-term daily charts simply show the struggle under 1,600 and the pending retest of 1,500. The actual failure at resistance was 4-weeks ago.



The Volatility Index has gained 4 points over the last week. This is still not in the buy zone at 20 but it represents a danger zone for holders of long equity positions. A good rule of thumb is to buy at 20 or above and sell at 11 or below. Since the VIX can remain at both extremes for a long time that is a long-term rule.


I am cautious on the market until Brexit passes and a trade agreement is reached with China. Those problems would not be so important if we were expecting 15% earnings growth in Q1. Investors would ignore those events. With growth expected to decline -1.7% there is no margin for error. Every headline counts. Be patient. There is always another opportunity to buy.

Enter passively and exit aggressively!

Jim Brown

Send Jim an email


New Option Plays

Reluctantly

by Jim Brown

Click here to email Jim Brown

Editors Note:

It is with great reluctance that I recommend a long position this weekend. I have a chart list with about 800 of the most tradable stocks in the market. Only 42 posted a gain on Friday, which is not a big surprise. However, only about 20 of the 800 stocks had charts that I would even remotely consider buying. There are two things you can look at after a big market drop. The first is, "which stocks did not drop" and the second is "which declines are worthwhile to buy." Sometimes a big decline is just a prelude to a bigger decline. Buying a one day dip will make you feel like a hero if the market reverses like it did on Thursday. Buying a dip that keeps falling will make you kick yourself for not waiting for a rebound.

I did not want to recommend anything but I chose Microsoft because the trend is strong and the dip gave us a buying opportunity. Options are cheap so the risk is minimal.

 

New positions are only added on Wednesday and Saturday except in special circumstances.


NEW DIRECTIONAL CALL PLAYS

MSFT - Microsoft - Company Profile

Microsoft Corporation develops, licenses, and supports software, services, devices, and solutions worldwide. Its company's Productivity and Business Processes segment offers Office 365 commercial products and services, 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 company's 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; and 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 provides training and certification to developers and IT professionals. Its 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 its products through original equipment manufacturers, distributors, and resellers; and online and Microsoft retail stores. Microsoft Corporation has collaboration with E.ON; strategic alliance with Nielsen Holdings plc and PAREXEL International Corp.; collaboration with NIIT Technologies Ltd.; and a strategic collaboration with Mastercard Incorporated. The company was founded in 1975 and is headquartered in Redmond, Washington. Company description from FinViz.com.

Microsoft is closing in on one billion Windows 10 installations. This is a money printing machine. Their server software, Office 365, SQL Server, Azure cloud service, are all money printers. They are very close to killing the video game market and putting Gamestop out of business by releasing a download only video game console. They are going to put the Xbox in the cloud. This is called Project XCloud. The idea is to be able to play any game on any device at any time without a controller or software CD. This took some of the excitement out of the Google Stadia announcement.

This is a simple recommendation. Shares closed at a new high on Thursday and pulled back to short-term support on Friday. "IF" the market recovers, Microsoft should make new highs again.

Earnings May 1st.

Buy May $120 call, currently $2.95, stop loss $112.85.


NEW DIRECTIONAL PUT PLAYS

No New Bearish Plays



In Play Updates and Reviews

Whiplash

by Jim Brown

Click here to email Jim Brown

Editors Note:

Down hard on Wednesday, sudden reversal higher on Thursday and implosion on Friday. This is not investing, this is headline hysteria. While the inverted yield curve got the blame on Friday, that was not the problem. The problem was everything I have been warning about for several weeks. The weak global economy, weak Q1 earnings, critical resistance levels, narrow market breadth and sharply overbought stocks. We were due for a material decline. I just thought it would happen higher when the S&P and Nasdaq began to test their prior highs. We got within 2% of those highs but the headline storm prevented it from happening.



Current Portfolio


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.


Profit Targets

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


CAT - Caterpillar
The long position was stopped at $129.85.


Full updates on all plays on Wednesday and Saturday. Only closed plays are updated on other days.


BULLISH Play Updates

CAT - Caterpillar - Company Profile

Comments:

No specific news. Shares fell with the market after President Trump said tariffs may be in place for a long time is there is no deal with China. We were stopped on the market drop.

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.

Position 3/11/19:
Closed 3/22: Long May $140 Call @ $3.25, exit $2.12, -1.13 loss.


CRM - SalesForce.com - Company Profile

Comments:

No specific news. New high close on Thursday, monster drop with the market today.

Original Trade Description: March 16th

Salesforce.com, Inc. develops enterprise cloud computing solutions with a focus on customer relationship management. The company offers Sales Cloud to store data, monitor leads and progress, forecast opportunities, and gain insights through analytics and relationship intelligence, as well as deliver quotes, contracts, and invoices. It also provides Service Cloud, which enables companies to deliver personalized customer service and support, as well as a field service solution that enables companies to connect agents, dispatchers, and mobile employees through a centralized platform, which helps to schedule and dispatch work, and track and manage jobs in real-time. In addition, the company offers Marketing Cloud to plan, personalize, and optimize one-to-one customer marketing interactions; Commerce Cloud, which enables companies to enhance engagement, conversion, revenue, and loyalty from their customers; and Community Cloud that enables companies to create and manage branded digital destinations for customers, partners, and employees. Further, it provides Quip collaboration platform, which combines documents, spreadsheets, apps, and chat with live CRM data; Salesforce Platform for building enterprise apps, as well as artificial intelligence (AI), no-code, low-code, and code development and integration services, including Trailhead, Einstein AI, Lightning, Internet of Things, Heroku, Analytics, and AppExchange; and solutions for financial services, healthcare, and government. Additionally, the company offers cloud services, such as consulting and implementation services; training services, including instructor-led and online courses; and support and adoption programs. It provides its services through direct sales; and consulting firms, systems integrators, and other partners. salesforce.com, inc. has a partnership with Apple Inc. to develop customer relationship management platform. The company was founded in 1999 and is headquartered in San Francisco, California. Company description from FinViz.com.

Shares fell from $165 to $150 after the company reported earnings of 70 cents that beat estimates for 55 cents. Revenue of $3.6 billion beat estimates for $3.56 billion. The problem came on the guidance. They projected earnings of 60-61 cents on $3.67-$3.68 billion. Analysts were expecting 63 cents on $3.69 billion. For the full year the company projected $2.74-$2.76 on a 20% increase in revenue to $15.95-$16.05 billion. Analysts expected $2.75 and $15.97 billion. SalesForce also projected revenue of $26-$28 billion in 2023.

The company said it was fighting headwinds because of the strong dollar. However, billings rose 22% to $6.79 billion and beat estimates for $6.43 billion. Their future unearned contract revenue rose 25% to $25.7 billion. This is money that will become due in future months. If a customer signs a 24 month deal for $1,000 a month, SalesForce only gets to count that revenue as it is earned at $1,000 a month. They have $25.7 billion in contracted but unearned revenue. Their RPO, contracted revenue expected to be earned within 12 months, rose 24% to $11.9 billion. They also expect that number to be up 24% at the end of the April quarter.

The "SalesForce Platform and Other" segment saw revenue grow 54% to $825 million. Revenue from the EMEA region rose 25%. Revenue from Asia-Pacific rose 25%. Contracts over $20 million rose 48%. There were two deals over $100 million signed last quarter.

Yes, shares fell after earnings but who would not want to own a business that is growing this fast? It was just a knee jerk reaction and I wish I had recommended it again the prior week.

Position 3/18/19:
Long May $170 call @ $3.00, see portfolio graphic for stop loss.


INTC - Intel - Company Profile

Comments:

No specific news. Shares down with the market.

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.

Position 2/19:
Long June $55 call @ $1.53, see portfolio graphic for stop loss.


NTNX - Nutanix - Company Profile

Comments:

Big gain for the week after a successful analyst day but big decline with the market on Friday.

Original Trade Description: March 13th

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.

Position 3/14/19:
Long July $42.50 call @ $3.25, see portfolio graphic for stop loss.


BEARISH Play Updates

No Current Puts