Option Investor

Daily Newsletter, Saturday, 3/30/2019

Table of Contents

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

Market Wrap

Thus Endeth The Quarter

by Thomas Hughes

Click here to email Thomas Hughes


The first quarter ended on a high note and that's a good sign. When the first quarter is good the rest of the year is usually pretty good too. This means the S&P 500 is likely to end the year at this level or higher, what it doesn't mean is that the market will keep moving up the rest of the year. The stock market has been in a giant, secular, rotation and I don't think that is over. As optimistic as the equities market is there is a lot of uncertainty and slowing growth is still a major theme.

Market Statistics

Trade is the #1 source of market uncertainty and trade relations with China are at the top of the list. With Mnuchin and Lighthizer in China this week I'm surprised there weren't more headlines on Friday. Regardless, the latest developments include China's 'historic' concessions on tech, Premier Li Keqiang's pledge to open China's financial markets, and comments from the Treasury Secretary to the effect his working-dinner with Vice Premier Liu He was productive. These events are positive, they point to a deal but still aren't yet a deal. Kudlow says the market shouldn't be focusing on a timeline, it could be weeks or months, and I think he's right.

In other trade news, the U.S. has still not reached a deal with the EU and the USMCA is yet to be ratified. A Trans-Atlantic trade deal is expected by the end of the year, the USMCA will get approved when Congress gets around to it. Because the USMCA still faces opposition it won't likely pass before late summer.

The yield on the 10-year Treasury fell to it's lowest level in years and inverted the yield curve for the first time in a decade. This is a warning sign of possible inflation but more a symptom of the environment than a cause of a recession. The signal it's flashing is a warning, a warning to the market and to world leaders that a recession is inevitable if trade relations can't be normalized. Until then the status quo reigns supreme and in that paradigm, the U.S. and global growth slow but remains positive well into the future.

The final revision for Q4 GDP came in a hair light at 2.2%. That, along with some light data this quarter, points to further slowing in the first quarter. The Atlanta Fed's GDPNow estimate concurs with this outlook but it has been rising over the past few weeks. The latest revision, Friday, March 29, has 1st quarter GDP near 1.75% and climbing. If this figure continues to climb, and the actual results come close to the estimate, the FOMC's 2.1% target for the year could be light.

Inflation data continues to remain tame. Last week we got the January read on PCE prices and they grew at a much weaker 1.4% than expected. At the headline level, consumer-level inflation has made a sharp retreat from its June 2018 high while core consumer inflation has subsided a bit less. Either way, you look at it though, consumer-level inflation is well below the FOMC's 2.0% target and does not indicate a need for a rate hike. If anything the consumer inflation data suggests the FOMC should cut rates.

Not surprisingly, Trump supporters like Larry Kudlow are calling for the FOMC to cut rates immediately. I doubt the FOMC will listen to the White House on this matter but they will likely cut rates before the end of the year unless the trajectory of inflation changes. According to the FedWatch Tool, Fed Futures are pricing in a near 70% chance rates will be cut by December.

The Economy

Last week's economic calendar wasn't too exciting. The labor data, jobless claims, shows flattening in the trend as labor market tightening stabilizes. The labor data may be throwing off a warning but for now, all looks well but I don't expect much more in the way of improvement. The market is still strong, wage gains are still good, but the days of tightening may be behind us.

In other data, the housing data was mixed but I will say mixed with signs this year could be a good year for the home builders. The existing sales, permits, and starts data was all a bit on the light side but mortgage apps and new homes sales were reported at 667,000. This is 4.9% above January's figure, 0.6% higher YOY, and the highest level in nearly a year. With mortgage apps hitting all-time highs (driven by lower interest rates) and growing strongly week over week for over a month we may see permits and starts improve, and new homes sales soar as pent up demand is unleashed.

Next week's economic calendar is a little fuller. Being the start of the new month we'll get the labor-bundle which includes the ADP report, the Challenger report on planned layoffs, weekly jobless claims, and the NFP/unemployment/hourly wages. Along with this are the ISM services (employment index included), durable goods/core capex, construction spending, and retail sales. Most of the data is for February, some are for March, all is for the 1st quarter, and all are important in light of their impact on labor markets, the consumer, and general economic activity in the U.S

The earnings outlook is still in transition but it looks like, once we get past the first quarter, things will brighten up considerably. The first quarter estimate fell another -0.20% in the last week putting it at 3.9%. At this level, the best we can expect is for the final rate to be about 0.0% unless the S&P 500 pulls out some big surprises. So far 20 companies in the index have reported and the results are about average, 17 have beaten EPS consensus and 11 have beaten revenue consensus. The companies with the most exposure overseas will have the worst showing while those with the least the best, a situation likely to cause volatility and spark rotation.

Looking forward there are a couple of positives to keep in mind about earnings growth and this cycle's results. The first is that the 1st quarter is going to be the bottom of the earnings slowdown. After this quarter growth is expected to resume expansion and acceleration. The outlook for the 2nd quarter is still dangerously close to 0.0% and in danger of turning negative but, so long as it stays above 3.5% or so we can safely assume it will be positive when the smoke clears.

From that point on, post 2nd quarter cycle, earnings growth is expected to accelerate over the 4 to 6 quarters topping out above 12%. Estimates for future quarters, specifically in 2019, have weakened considerably from their highs but have stabilized in recent weeks which is a good sign. Along with that, the estimates for 4th quarter growth went up an average 0.2% over the past week which I think is a really good sign. The risk is that 1st quarter results will weigh on the outlook, if that happens stock prices could suffer. At current prices, the S&P is trading just shy of the 5-year P/E and about as highly-valued for the past 5 years, if the outlook for earnings growth takes a beating, stock prices could easily correct to the December lows.

The Gold Index

Gold prices fell pretty hard this week after testing resistance repeatedly along the 2019 uptrend line. The spot price gave up nearly -1.75% and broke through the $1,300 level in the process. The metal may be heading down to set new lows but support is likely near $1,280. One reason for gold's fall is this week's strengthening dollar but that support may be short-lived; the dollar is looking pretty range-bound with central banks around the world, including the FOMC, ratcheting down their 2019 growth outlooks one bank at a time. A break below $1,280 would be bearish for gold and may fall to $1,250, $1,225 and $1,200 in the near to short-term.

The Gold Miners ETF also fell in the last week shedding about -1.60%. The ETF didn't make it all the way to $23.50 before correcting and shows strong resistance at a lower level than before. The indicators are consistent with a peak in prices and suggest correction or consolidation will continue in the near to short-term. My targets for support are $22.00 and $21.50, a break below $21.50 would be bearish otherwise I expected range-bound trading.

The Oil Index

Oil prices moved higher this week despite fear of slowing global growth and demand worries. The OPEC tightening scheme, Russia's commitment to aid OPEC, sanctions against Iran and Venezuela, Venezuela's electricity problem were compounded by news from the U.S. The EIA says U.S. production edged lower in January, still 11.87 million barrels per day but lower, and Baker-Hughes says the rig count fell which are both bullish for oil prices. WTI spent most of the week within its near-term range but broke out on Friday to set a new high. The indicators are bullish and gaining strength so I do expect to see oil prices continue to rise.

The Oil Index did not move higher on Friday or for the week, really. The weekly candle is green with a long upper shadow showing resistance is still fierce at the 150-day EMA. The EMA may cap gains in the near-term but, with oil prices on the rise and earnings season at hand, I expect the outlook for earnings growth to rise and the index to rise with it. A break above 1,320/1,325 is the trigger I am looking for, once that is broken moves to 1,400 and 1,500 look likely.

In The News, Story Stocks and Earnings

Carmax was among the week's best performers after releasing earnings on Friday morning. The used-car dealer was able to post 5.9% YOY revenue growth despite a slowdown in auto markets. Revenue of $4.32 billion was shy of estimates but that didn't matter, pricing and conversion led to better than expected margins which more than offset the difference. EPS of $1.13 beat consensus by $0.10 and, along with plans for 2019, helped push the stock up 10% by the end of trading. The company is expecting to increase its Capex spending this year, open 13 new stores this year and next, and roll out the omnichannel experience to most customers by the end of next year.

Wells Fargo had an active on Friday after the announced retirement of Tim Sloan. Sloan has been with the bank for more than three decades and took over as CEO after the bogus-bank-account scandal in 2016. He says his retirement is effective June 31st but he's stepping down as CEO and board member immediately. Shares of the stock initially surged on the news but uncertainty outweighed any benefit the company may see. Wells Fargo says it will look outside the company for its new CEO. A flurry of up and downgrades followed the announcement, all citing how a new CEO from outside the company will help with regulatory issues. Those downgrading the stock say fundamental weakness makes it an inferior investment. Shares opened on Friday with a small gap and then fell hard to close with a loss of -1.5%.

Shares of Boeing have begun to move higher following the crash-induced correction. The stock advanced nearly 2.0% on Friday and set an almost-three-week high in the process. The company has a tentative agreement with the FAA on a fix for the anti-stall issue at the root of the 737 MAX problem. While a fix is good news for the future of 737 sales it does not protect the company from civil liability. The first of what are sure to be many lawsuits pertaining to the Ethiopa Air crash have already been filed and could cost the company billions.

The VIX moved lower on Friday and may move lower, but I still don't like the way it looks. The pattern traced out during March is a sign to me that something is up in the market and I am not sure what it is. At current levels, the index is consistent with rising index prices for the S&P 500 but there is a support target very close to Friday's low that could spark a rebound for fear. This level is near 13.40 and if confirmed as support could lead to a sharp increase in a near-term kind of way. A fall to new lows would be bullish.

The Indices

Despite my apprehensions, the indices had a good week; all the major indices were able to post gains and one posted gains above 3.5%. Even so, no index posted a new high and all show signs of resistance at established resistance targets.

The Dow Jones Transportation Average posted the largest weekly advance at 3.54%. The transports formed a strong weekly candle moving up from the 10,000 resistance. The move looks bullish and confirms support at a key level but met resistance near 10,450 where it has failed to advance for the past three weeks. The indicators are mixed, momentum is bullish but stochastic is moving lower following a bearish crossover, so the best I would expect in the next week is more sideways action with a possible test of resistance at or just above 10,450.

The Transports look a little better on the daily chart but only just. The index is moving up off of support and is supported by the indicators although the signal is less than perfect. While stochastic is firing what I would call an almost strong bullish crossover the index is still below resistance and MACD has yet to confirm. The upward movement could continue and surpass 10,450 but 10,500 and 10,650 are resistance targets that also need to be overcome.

The Dow Jones Industrial Average posted the second largest advance with a gain of 1.67%. The blue-chip index created a medium-sized weekly candle if you count the small gap that formed with Monday's open. The candle is moving up from support but the move doesn't look strong. The indicators are mixed, consistent with a peak, and suggest choppy range-bound trading in the near-term. If I were more bullish I might say they were set up to fire signals that would indicate a continuation of the V-Bottom rally. In the near-term resistance is at 26,000 and may cap gains. A move above that would be bullish but face additional resistance at the all-time high.

The blue-chips daily chart is likewise bullish but in a way that looks suspicious. The indicators are mixed and do not confirm last weeks advance which, along with the presence of resistance suggests range-bound trading. The index may continue to move higher but I'd like to see it close above 26,000 and more like 26,200 before getting bullish.

The S&P 500 advanced 1.20% in the last week forming a green candle to the side of several weeks price action. The index looks like it could go higher but choppy day to day action and the indicators suggest a top is forming. The indicators are consistent with consolidation if not correction and point to more sideways trading in the absence of market-moving news. If the index is able to move higher I would not chase prices, the next targets for resistance are very close at 2,875 and the all-time high.

The S&P 500 daily charts look about the same. The index is drifting higher but indications of weakness persist. The indicators are not bullish on this chart, at best stochastic shows a bounce from support within downtrend while MACD hovers in bear territory. If the index does move higher I would expect for resistance in the range of 2,850 to 2,875 to be strong.

The NASDAQ Composite gained 1.13% in today's trading. The tech-heavy index created a medium-sized green candle that, not counting last week's long upper shadow, forms an outside day pattern. This pattern is a sign of market exhaustion which is what I'm seeing in chart after chart. A move higher is possible but it would likely be the last gasp of the Vee-Bottom reversal that began in December. If the outside day is confirmed, a move to 7,500, 7,350 and 7,000 is possible.

The NASDAQ Composite bounced up on Friday but formed a weak candle within the recent consolidation range. It may move higher but the indicators are not bullish and resistance at 7,800 looks strong. A move above 7,800 could be bullish but if so, see paragraph above.

The market may move higher next week but that will depend on the news. The most important news will be on trade, after that bond rates maybe, and then economic data for sure. Regardless, there are a lot of reasons for the market to make some wild, possibly knee-jerk, moves in the next week so extra caution is a good idea. I still think the economy is fundamentally sound but the market is getting to be highly valued in a time of uncertainty. I remain firmly bullish for the long-term, we'll get a trade deal (maybe this year) and the global economy will continue to expand. In the near-term I think there is an underlying weakness in the market tied to earnings and signs of slowing economic growth so I am neutral, leaning toward bearish.

Remember, a hot first quarter usually means the year ends strong too, but it doesn't mean the market moves straight up all year. The major indices are up about 20% for the year and ripe for profit-taking.

Until then, remember the trend!

Thomas Hughes

Index Wrap

Consolidation Pause

by Jim Brown

Click here to email Jim Brown
After a bad Friday on the 22nd the markets took a week off to consolidate. The headlines cooperated without any material events to push the markets in either direction. The China trade talks are still progressing although very slowly. Europe is melting down slowly ahead of the potential for a hard Brexit on April 12th. The US economics are fading from their recent highs but there is still no recession in sight.

The biggest challenge for the week was the yield on treasuries. The ten-year yield fell to 2.35% intraday on Wednesday that produce weakness in equities. When that 15-month low held we began to see equities firm up on Thursday, but volume was the lowest day of the year at 6.3 billion shares. Friday was better at 7.3 billion and internals were 2:1 advancers to decliners.

While falling interest rates are good for earnings the sharply rising dollar is negative. This is becoming a routine event for companies to complain about currency headwinds knocking 3-8% off their revenue. S&P companies derive 45% of their revenue from overseas and this is going to be a cloud over the Q1 earnings cycle.

Analysts are running around like their hair is on fire worried about the coming recession. While we will have one, it could still be years away. One indicator suggesting it will not come soon is the Dow Transports. The index bounced off support at 10,000 on Monday and never looked back. It the transportation sector is not in trouble; the economy is not in trouble.

Another indicator is the high yield market. The HYG ETF typically leads the equity market and we all hope that is the case today because the HYG is on fire. After a hiccup in December when the Fed was unsure of rate direction, the HYG ETF has exploded higher and is about to close at a 15-month high. That is bullish for equities.

Oil prices have held at $60 for the last week. They typically peak around Memorial Day and the trade sideways into early August. Crude cannot seem to break convincingly above the $60 level, but it will happen. It is only a matter of time. When this happens the energy sector will also move sharply higher.

Active rigs declined sharply for the fourth consecutive week with a drop of 10 rigs. Over the last four weeks rigs has declined by 10 or more three times. This will lift sentiment for oil prices. With Venezuelan exports racing to zero that will remove another 900,000 bpd from the market over the next couple months.

With the S&P finally blowing through resistance at 2,815 on Friday, it should be no surprise that the A/D line set a new high. This strength is very bullish for sentiment even if the indexes are still a little choppy.

The chip sector hit a 52-week high the prior Thursday then crashed on Friday. The Semiconductor Index was unable to mount a rally all week and hit a two-week low on Thursday. There was some short covering on Friday but resistance at 1,400 is holding firm. Without the chip sector contributing the Nasdaq is going to be struggling to move higher. The FANG stocks were also lackluster for the week and that was a drag on the Nasdaq.

The small cap Russell 2000 tried to rally the last three days, but Friday was a weak 4 points. The small caps are supposed to lead the market, but they are in a very bearish pattern of lower highs, lower lows and below downtrend resistance.

The Dow is facing an uphill battle with resistance that corresponds with the same pattern on the Russell. Fortunately, the selling in Boeing may be over and that is the one stock that could power the Dow through the 26,000-26,191 resistance range. Boeing is high dollar and moves in big surges. Boeing subtracted more than 500 points from the Dow in its latest crash and could easily add 250-300 points back very quickly.

Volatility is fading after the sharp spike the prior Friday. This will calm investor nerves even though it suggests complacency. The market is typically positive over the next three weeks and we could see a new 5-month low.

I remain cautious on the broader market because we cannot seem to maintain a positive trend. There are too many headlines for investors to remain bullish in front of a weak quarter for earnings. The current forecast is for a decline of -1.9%. That is not the end of the world and as usual everything will depend on guidance for Q2 and the rest of the year.

Watch the Russell and Boeing for directional clues.

Enter passively and exit aggressively!

Jim Brown

Send Jim an email

New Option Plays

Spring is the Season

by Jim Brown

Click here to email Jim Brown

Editors Note:

Snow disappears, grass turns green and homeowners awake from their winter slumber. Home repair and remodeling along with a serious dose of yard work will power Lowes higher.


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


LOW - Lowes Companies - Company Profile

Lowe's Companies, Inc., together with its subsidiaries, operates as a home improvement retailer in the United States, Canada, and Mexico. It offers a line of products for maintenance, repair, remodeling, and decorating. The company provides home improvement products in various categories, such as lumber and building materials, tools and hardware, appliances, fashion fixtures, rough plumbing and electrical, seasonal and outdoor living, lawn and garden, paint, millwork, flooring, and kitchens, as well as outdoor power equipment. It also offers installation services through independent contractors in various product categories; extended protection plans; and in-warranty and out-of-warranty repair services. The company sells its national brand-name merchandise and private branded products to homeowners, renters, and professional customers. As of November 5, 2018, it operated 2,390 home improvement and hardware stores. The company also sells its products through online sites comprising Lowes.com and Lowesforpros.com; and through mobile applications. Lowe's Companies, Inc. was founded in 1946 and is based in Mooresville, North Carolina. Company description from FinViz.com.

Earnings May 29th.

Lowes is in the midst of a restructuring and the new CEO, Marvin Ellison took over in July. Since then he has closed stores all across the country and hired thousands of IT workers to improve online sales. As a result, Lowes is closing the gap with Home Depot.

In the last quarter the company posted earnings of 80 cents that beat estimates by a penny. Overall revenue rose 1% to $15.65 billion. The slower revenue growth was due to the store closures.

The CEO said the hard work has now been done over the last six months and they are fully prepared for a strong spring and summer selling season. In January alone, same store sales rose 5.8%.

Shares closed at a 6-month high on Friday and appear poised to retest the peak of $117 from September. I am using the June option to retain premium ahead of the May earnings. We will exit before the earnings.

Buy June $115 call, currently $2.57, stop loss $103.85.


No New Bearish Plays

In Play Updates and Reviews


by Jim Brown

Click here to email Jim Brown

Editors Note:

Finally, a really bullish day with a breakout over that resistance at 2,815. While there is new resistance at 2,855 it is refreshing to break free of that 2800-2815 range that held us captive for the last week. The recent 5-month high close is 2,854.88 and that is going to be the next challenge. If we do move over 2,855 the S&P will be only 2.6% from a new high and the tractor beam will be at full power. With the approach of Q1 earnings only two-weeks from now we have a good chance of hitting that high.

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

No Changes

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

BULLISH Play Updates

INTC - Intel - Company Profile


Intel confirmed it was laying off personnel in the IT department but would not give any details as to numbers. The company said it was evolving in the needs and priorities of the business. Outside sources said the layoffs were in the hundreds and Intel employs 107,000.

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.

MSFT - Microsoft - Company Profile


JP Morgan reiterated a buy on Microsoft citing recent conversations with the company over software and cloud offerings. "Channel checks indicate a consistent and healthy demand environment with no degradation, especially for Azure. We detected more long-term Azure contracts and consistent commercial demand."

Original Trade Description: March 23rd

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.

Position 3/25/19:
Long May $120 call @ $2.99, see portfolio graphic for stop loss.

NTNX - Nutanix - Company Profile


All the cloud stocks rebounded on Friday, so the decline was just a temporary event. Nutanix gained 3.1%. No specific news.

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