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Daily Newsletter, Saturday, 4/6/2019

Table of Contents

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

Market Wrap

Inch by Inch

by Jim Brown

Click here to email Jim Brown

The equity market is slowly climbing the wall of worry towards the prior highs.

Weekly Statistics

Friday Statistics

The progress is "inch worm" slow with a steady rise, pause, repeat rhythm. Fortunately, the pauses have been minimal. The S&P actually managed to string together seven consecutive days of gains and the longest streak in 18 months. The index closed only about 37 points from its record high.

The Dow lagged the broader market on Friday but still managed to post a minor gain. The index is only about 192 points below the record high set in January 2018 before the market sank for the next seven months. This 26,616 level could be the left shoulder of a head and shoulders pattern if the index suddenly rolled over. While I am not expecting that, it remains a possibility.




The market waited patiently all week on worries over the Nonfarm Payrolls on Friday. Would they be a repeat of the 20,000 jobs in February or return to normal around 200,000? Fortunately, they returned to normal and proved the February number was a fluke.

The report showed a gain of 196,000 jobs in March and February was revised up slightly to 33,000. We still do not know what caused the abnormal reading, but it should not matter now. There will be another revision next month, but I doubt it will move much. The second revision is normally small. The first quarter average was 180,000 thanks to the +312,000 reading in January.

The unemployment rate was flat at 3.8% and participation rate declined slightly from 63.2% to 63.0%. The labor force declined by -224,000 and the third monthly decline after four months of huge gains. Average hourly earnings rose 4 cents to $27.70 increasing the year over year wage growth to 3.2%.

Education and health services added 70,000 jobs, professional and business services 37,000 and leisure and hospitality 33,200. Construction added 16,000, government 14,000, financial 11,000, information technology 10,000 and transportation 7,300. Manufacturing lost 6,000 jobs.

The weekly unemployment claims on Thursday fell to 202,000 and a 49-year low. This is another indication that employment is still strong with fewer people filing for unemployment.

The markets breathed a sigh of relief and opened sharply higher. For the Dow that was the high for the day.


Consumer credit for February was the only other report of note. The headline number of $15.2 billion was slightly less than the $17.0 billion consensus. January was revised higher to $17.7 billion. Credit typically declines into May and then increases over the summer months.

Revolving credit rose $3 billion and slightly higher than the $2.6 billion increase in January. Nonrevolving balanced rose $12.2 billion but less than the $15.1 billion increase in January. Nonrevolving balances have not declined since April 2011. Due to rising defaults on auto and credit card loans, banks have been tightening credit standards since early Q4. The growth of balances will slow as the availability of easy money dries up.

The economic calendar for next week has the inflation indexes with CPI and PPI. Neither are expected to show any material increase. Any increases are likely to be driven by the rising price of oil and gasoline. Oil prices have risen $20 or 47% since the late December low at $43. That will impact the price indexes.

The FOMC minutes on Wednesday will command attention especially with the Fed's flip flop on rate policy. Chairman Powell will speak on the economy at the House of Representatives Democratic Caucus retreat in Virginia. The times have not been released but the speeches will be of high interest.

Last but definitely not least is the Brexit on Friday. If there are no changes to the timeline this week, the UK will crash out of the EU on Friday in what is called a hard Brexit. Prime Minister May and multiple party heads are trying to come up with a compromise from adding a couple weeks or targeting a June 1st exit or even an exit a year from now. This is not just a moving target but a radically gyrating target, so anything is possible.


Friday starts the Q1 earnings cycle with JP Morgan and Wells Fargo leading the list of the big banks. The rest will report the following week with Goldman Sachs and Citigroup reporting on Monday the 15th.

The current Q1 forecast for earnings growth has fallen to a -2.2% decline. Some 23 companies have already reported and 82.6% have beaten estimates. Revenue is expected to rise 5.0% and 43.5% of those 23 companies have beaten estimates. The current forward PE is 16.6. Six S&P companies report earnings this coming week.


There was only one material earnings report on Friday. Greenbrier (GBX) reported a sharp drop in earnings from $1.02 to 22 cents and missed estimates for 24 cents. Net income fell from $61.64 million to $2.77 million. They guided for Q2 revenue of $658.67 million that beat estimates for $628.73 million. For the full year they guided for earnings of $3.60-$3.80 on revenue of $3.0 billion. Analysts were expecting $3.61 and $3.09 billion. The higher earnings guidance spiked the stock at the open, but the gains were short lived.


On Thursday, Constellation Brands (STZ) reported earnings of $1.84 that beat estimates for $1.72. Revenue of $1.797 billion beat estimates for $1.732 billion. They guided for the full year for earnings of $8.50-$8.80 excluding any impact from their holdings in Canopy Growth (CGC). Analysts were expecting $9.36 but that included Canopy earnings. Beer sales rose 11.6% to $5.202 billion. Wine and spirit sales declined -0.2% to $2.914 billion.

The company said it was going to sell about 30 wine brands to Gallo for $1.7 billion. The average selling price for a bottle of the brands being sold was $11. Shares were up sharply on expectations for the Canopy business. The company has 35 patents and 195 patent applications. They plan to launch cannabis beverages in Canada this year. Constellation expects continued losses in its Canopy investment in 2019 but a run rate of $1 billion next year and significant profits in 2020. Shares spiked sharply from $178 to $193.

Deutsche Bank cut them to a hold on Friday. Goldman sees Constellation Brands as well-positioned in high-end beer and expects new flavored malt beverages such as Corona Refresca to contribute to growth.


McDonalds (MCD) was reiterated with an outperform rating at Telsey Advisory Group and the price target was raised from $195 to $210. At the same time McDonalds said it was launching a "simplified" late-night menu starting April 30th that will have only the favorite menu items. The stores have been fighting slow delivery times at night because of the complexity of the menus. The new menu will apply after midnight. The fake food will still be there. The "contains some chicken" nuggets will be on the list. I saw a documentary piece on those a couple weeks ago and I would never let one of my grandkids eat them. Go for the chicken strips instead. Shares closed at a new high.


Intel (INTC) was downgraded from outperform to market perform (buy to hold) by Wells Fargo. The analyst said, "weak semi demand data points in 2019 leave us to consider some downside risk for Intel shares." Intel does have some risk. AMD is making a new 7 nanometer processor that is well positioned compared to Intel's 10 nanometer processors. Intel has still not produced those, but AMD has passed that technical level and is already making the faster 7 nanometer versions. The long-time king of processor chips has been dethroned by a surging AMD.


Goldman Sachs cut Boston Beer (SAM) to a sell saying competition is intensifying in 2019 and the company is unlikely to repeat its innovation success. In 2018 the company had strong sales of its new flavored malt beverages and cider innovations. Competition has a way of copying anything that is successful and without a flurry of new flavors or products, their rise could be short lived. Goldman pointed out that Constellation Brands was launching a new line of flavored malt beverages. They highlighted the Corona Refresca as an example. Shares of SAM fell $16 on the downgrade.


While in this sector, Bank of America raised Anheuser Busch (BUD) from underperform to neutral because of a better debt outlook but said its "mainstream beer" sales are still going flat. The analyst raised the target from $68 to $91. He said the 1.8% organic growth is anemic but steady and dividends are "safe for now." He warned that beer volumes have been weak with increases mostly from M&A activities. The analyst also cited competition from Heineken overseas. Overall global beer volumes have stopped growing over the last five years. BUD controls 82% of volume in the mainstream beer category. Shares rose $1 on the upgrade.


Morgan Stanley upgraded Bed Bath and Beyond from underweight to equal-weight (sell to hold) on Friday with a $20 target. This followed an Citigroup upgrade on Monday from sell to neutral. Citi raised the price target from $11 to $18. The reason for the upgrades is the emergence of activist investors, Legion Partners. The firm has built a 3.4% stake in the company since March 25th and produced a 30% rise in the stock. This has not gone unnoticed with seven analysts upgrading the company over that period. Despite the upgrades only 2 of the 20 analysts covering the stock have it rated a buy. Bears are the largest shareholders with 35% of the stock sold short. This produces a great opportunity for a short squeeze. Legion is trying to replace the entire board and nominated 16 directors. Both co-founders are 80 years old and it is time for some new blood. The lead director is 88.


Align Technology (ALGN) continues to surge after Piper Jaffray reiterated an overweight rating and raised the price target from $250 to $200. Goldman Sachs said in a note that revenue is expected to rise 23% in 2019. Invisible braces are not going away and Align has a lock on this space. Piper Jaffray believes Align is "one of the med-tech world's most compelling growth stories." Earnings are on April 24th and consensus is 83 cents on $529.5 million in revenue.


Facebook (FB) is cursed. The new data breach exposed personal details of more than 540 million members. Everyone including Zuckerberg knows there will be more fines and regulation in the future. Zuckerberg even wrote an article last week calling for more regulation of the social sites on the internet. Despite the continued privacy issues, Facebook usage is not slowing. Guggenheim upgraded the stock from neutral to buy and raised the price target from $175 to $200. The analyst said Instagram has billions in untapped potential and could add $10 billion in revenue for Facebook by 2021. Of those with a rating 33 of 29 analysts have buy ratings. Shares rose to a new 6-month high on the upgrade.


Amazon (AMZN) rallied to a 5-month high after Jeff and MacKenzie Bezos agreed to an amicable divorce. MacKenzie will keep roughly 4% of Amazon's shares worth $35 billion and that will make her the fourth richest woman in the world. Jeff will keep a 12% stake in Amazon and MacKenzie gave him voting control over her shares, which leaves him firmly in charge of the company. She also gave up her stake in Blue Origin and the Washington Post. With $35 billion in stock, she clearly did not need to battle for the other assets.

The couple met in 1992 while both worked for a hedge fund. Jeff wrote the business plan for Amazon in the car while they were moving to Seattle. MacKenzie was driving. Investors were bracing for a nasty divorce given the tabloid news about his new girlfriend, but it worked out for the best and shares rose.

This shows just how rich Jeff is because after giving $35 billion to his wife he is still the richest person in the world.

Amazon also announced a major wave of price cuts approaching 20% at Whole Foods. Prices on hundreds of items have been slashed. Amazon is trying to create a Costco like following out of the 100 million Prime subscribers by giving them additional discounts. Costco has a 90.7% renewal rate and Prime subscribers are close to 100%. More than 16 analysts have price targets at $2,000 or above with Stifel the highest at $2,500.


Apple (AAPL) shares posted their 8th consecutive gain after news broke that Apple Music now has more subscribers at 28 million than Spotify (SPOT) at 26 million. The eight-day streak is the longest since the record 9-day streak ending Sept-4th 2018.

Apple's new PowerBeats wireless earbuds are said to be even better than the AirPods. Not only is the sound significantly better but they are 23% smaller and 17% lighter than the original version and provide 9 hours of listening on a single charge compared to 5 hours on the AirPods. They are more expensive at $250 compared to AirPods at $159 but Apple users tend to have a higher pain threshold for prices. With revenue from wearables up 50% quarter to quarter and 34% year over year, they are rapidly gaining market share. The prior version of PowerBeats were the top selling fitness headphones in the world. This current model will be even better and help power Apple's non-iPhone revenue.

Let's hope their Q1 earnings does not sour this uptrend.


Boeing shares declined again after the company said it was cutting production of the 737 Max from 52 to 42 planes per month. The prior plan had been to increase production to 57 planes later this year. The 42 planes will be the same level as they produced in 2016 with a rise to 47 planes in 2017 and 52 in 2018. The production cut suggests they do not expect the planes to be recertified in the near future. Originally they were expected to be grounded for two months but now it appears it could be a lot longer. The longer they are grounded the more orders could be cancelled.

In the latest data dump from the black boxes in Ethopia, the crew fought the MCAS anti-stall software, which was trying to push the plane's nose lower. They turned it off and that was the correct procedure but for some unexplained reason they turned it back on and it flew the plane into the ground. The software was being triggered by a defective sensor. It was not the software that was bad but the outside sensor. On the Lion Air plane that crashed, the same thing happened the day before the crash and an experienced pilot riding along in the cockpit told the plane's pilots how to fix the problem and the plane continued on its journey. The next day the same thing happened because of the defective sensor but there was nobody in the cockpit to save the day. In both cases, pilot training in dealing with the nose down issue was at fault.


Oil prices continue to rise as production in Venezuela and Libya was in doubt. Venezuela's production in March fell to 740,000 bpd, a 16-year low due to the country wide blackout and workers walking off the job. Vice President Pence announced a new round of sanctions against 34 PDVSA vessels and two firms that transport oil to nearby Cuba. He alluded that there were more sanctions coming against the financial sector. April 28th is the deadline for non-US entities to wind down their transactions with PDVSA or suffer sanctions by the USA. The 10-day blackout caused many oil facilities to shut down and analysts believe most will not reopen due to lack of workers and money.

OPEC cut 570,000 bpd from its production in March. Compliance to the 1.2 million bpd production cut announced in January rose from 79% in February to 124% in March due mostly to Saudi Arabia's excess cuts.

Libya had the biggest production increase in OPEC as the Sharara field restarted. However, that is likely to be temporary as the country begins a new round of military conflict. The militant Libyan National Army, led by Khakifa Haftar, is marching towards the capital to evict the government leaders and take control.

The turmoil in Venezuela and Libya combined to lift oil prices to $63.34 on Friday. Surprisingly, there was a huge surge in active rigs with 19 rigs going back to work after declining by 41 rigs over the prior five weeks. Was it the sudden breakout of oil prices over $57 that put rigs back to work? There is also the possibility of some event in the fields that kept rigs from moving to new locations after completing a well. There are a dozen potential reasons for the temporary decline in active wells.

Crude prices tend to peak around Memorial Day and then wander in a range until after July 4th when prices start to fade ahead of the end of summer. This suggests we will see prices over $65 soon.





Markets

The S&P is only 37 points away from a new high. There is no material resistance between Friday's close and that 2,930 level. The final 2,872 level has been decisively broken and should now act as support.

The positive comments on the China trade talks plus the rebound in jobs on Friday, have eliminated the last two barriers to further gains. However, it is the unknown events that appear out of the blue that cause the most trouble.

While the new 4-6-week target date for a completed trade deal is far longer than the earlier targets, it managed to move the carrot a little farther into the future and that could keep investors involved that much longer. As long as the commentary remains positive the market could remain positive.

However, once the old high is touched, we could see some volatility appear. With earnings expected to be weak, we could see some investors decide to take profits and move to the sidelines ahead of the summer doldrums.


Friday was relatively calm with only six Dow components moving more than $1 for the day. Boeing was the only loser of more than a buck and erased 18 Dow points but that was minimal. News after the bell that Boeing was going to cut production of the 737 caused the shares to decline another $9 in afterhours. That means Monday's open will have a 63 point drag on the Dow and possibly more since this has been big news over the weekend.

Like the S&P the Dow has moved over the final major resistance before reaching the record high at 26,828. There is some congestion between Friday's close and the high but nothing material. That prior high should be a tractor beam for the index in the days ahead. The January 2018 high of 26,616 could be a temporary problem.



Amazon was by far the leader of the tech sector although Tesla bounced back after the judge gave Elon Musk two more weeks to reach another settlement with the SEC. The tech sector is also nearing a new high with only 71 points separating the index from the record high at 8,109. The FANG stocks have been hit or miss but Apple has been doing the heavy lifting with 8 consecutive gains.

The 8,000 level could be round number resistance but that close to 8,109 it would be hard to tell which number was controlling the move. It would take a material event to keep the Nasdaq from touching that high. With tech earnings still two weeks away, there "should" be nothing in the way unless somebody big drops an earnings warning.



The Russell surged through resistance at 1,566 and the 200-day at 1,574. There is one hurdle left and it is a big one at 1,600. If the small caps can punch through that level the entire market would get a boost.


I am positive on the market given all the broken resistance and the nearness to the historic highs. Those highs tend to pull the indexes up and investors catch the new high fever. I know this is boring, but I have to remind you that sometimes reaching those new high levels can be the equivalent of a dog catching a car. It can be dangerous for the dog. Even if the dog is not crushed, the goal has been achieved and there are no other near-term targets, so he peels away to wander back to his yard. Investors are the same way. Once a big target is reached, they don't know what to do. If there is no obvious target ahead, they lose interest and start to take profits. Nobody can tell you in advance if that will be the case this time, but you should be aware and watch for the sudden appearance of volatility.

Enter passively and exit aggressively!

Jim Brown

Send Jim an email

 

"By failing to prepare, you are preparing to fail."

Benjamin Franklin


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Index Wrap

Are We There Yet?

by Jim Brown

Click here to email Jim Brown
While we may not be at the new highs yet, we are very close. After six months of volatility and blunted expectations investors are like a kid in the backseat on a long trip. Are we there yet? No, but we are close. The S&P is only 37 points away and the Nasdaq 71 points. It is entirely possible we could touch those prior highs this week.

Investor sentiment has improved significantly despite the expected 2% decline in earnings for Q1. Nobody seems to care and out of the first 25 S&P companies to report, 82% of them have beaten those reduced estimates. This suggests the actual numbers could show positive earnings by the time the cycle is over.

The A/D line on the S&P has gone vertical and very bullish. That record high level is acting like a tractor beam that is pulling investor sentiment higher. This is typically the case, until that level is actually touched and reality returns. Profits are taken then investors wait to see if the market is going to continue higher or fall back to give them another entry point.


Even more positive for the market, the A/D on the small cap stocks has also returned to a new high. This is very bullish because the small cap sector is the sentiment indicator for fund managers. If small caps are rising, fund managers are buying because they are not worried about an impending decline.


The correlation between the Dow and the Russell confirms the bullishness building in the small caps after Friday's resistance breakout.


We are probably seeing the beginning stages of a fear of missing out or FOMO rally. When stocks rally to new highs, TV, newspapers and investing newsletters all tout that fact and anyone with cash to spare tends to rush into the market. That is why late stage gains can be strong.

Evidence of this is the recovery in the Bullish Percent Index. The index is now showing that 75.2% of S&P stocks have a buy signal on a point and figure chart. This is even higher than when the last market high was made back in October. Cash is flowing into the market.


Volatility is collapsing and that is both good and bad. While volatility can stay low for long periods, it does represent complacency in the market and very low expectations for future negative events. In this case, there are multiple events that could be very negative. A hard Brexit next Friday and a collapse in the China trade talks could easily upset the markets. Investors do not seem to be worried today.


The Semiconductor Index has risen 38% in 2019 and the S&P has gained 23%. The rise in the chip sector has lifted the Nasdaq with the help of the FANG stocks. The FANG stocks have been choppy overall, but they are gravitating slowly higher. Apple has been a major supporter with 8-days of gains. Apple's earnings are going to be a key event on April 30th and could be a market turning point.




The Nasdaq has one minor resistance hump between it and the 8,109-high back in August. The 8,070 level is close enough to the high it may not matter but time will tell.


The S&P has no material resistance between it and a new high at 2,930. Reaching a new high on the S&P should be a foregone conclusion.


I believe the markets will remain positive until those new highs are reached. What happens at that point is anyone's guess. Do investors take profits ahead of the summer doldrums or hold positions in hopes of a China trade deal? I have thought for weeks that the announcement of a deal could cause a short-term spike but then turn into a sell the news event ahead of the summer. It will be interesting to see how long the negotiations drag out and how long investors remain interested.

Enter passively and exit aggressively!

Jim Brown

Send Jim an email


New Option Plays

5G Winner

by Jim Brown

Click here to email Jim Brown

Editors Note:

The current rollout of 5G wireless communications is going to produce multiple winners. Skyworks has already installed base stations across Europe and will be a big winner in this technology revolution.

 

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


NEW DIRECTIONAL CALL PLAYS

SWKS - Skyworks - Company Profile

Skyworks Solutions, Inc., together with its subsidiaries, designs, develops, manufactures, and markets proprietary semiconductor products, including intellectual property worldwide. Its product portfolio includes amplifiers, antenna tuners, attenuators, circulators/isolators, DC/DC converters, demodulators, detectors, diodes, directional couplers, diversity receive modules, filters, front-end modules, hybrids, LED drivers, low noise amplifiers, mixers, modulators, optocouplers/optoisolators, phase locked loops, phase shifters, power dividers/combiners, receivers, switches, synthesizers, technical ceramics, voltage controlled oscillators/synthesizers, and voltage regulators. The company provides its products for use in the aerospace, automotive, broadband, cellular infrastructure, connected home, industrial, medical, military, smartphone, tablet, and wearable markets. It sells its products through direct sales force, electronic component distributors, and independent sales representatives. Skyworks Solutions, Inc. has a collaboration agreement with MediaTek Incorporated to deliver standards-based 5G solution. The company was founded in 1962 and is headquartered in Woburn, Massachusetts. Company description from FinViz.com.

The chip sector has rallied 38% in 2019 compared to 23% for the S&P. However, some chip stocks have not participated. Skyworks spiked to $85 after its earnings in February then traded sideways until last week. Friday's close was a 5-month high and a breakout of the recent range.

They reported earnings of $1.83 that missed estimates for $1.84. Revenue of $972 million missed estimates for $973 million. The generated a record $549 million in free cash flow from operations and ended the quarter with more than $1 billion in cash. Obviously, those misses were minor, and shares spiked on their strong guidance. They guided for Q2 for earnings of $1.43 and revenue of $800-$820 million. Q1/Q2 are normally light quarters for chip stocks because the surge in smartphone building occurs in Q3/Q4.

They also announced a $2 billion stock buyback program that replaced their expiring $1 billion program that had $129 million left to spend. They also announced a quarterly dividend of 38 cents that was paid on March 19th.

Skyworks will be a major beneficiary of the 5G rollout. They have already installed 5G base stations all across Europe and have secured contracts with multiple vendors for 5G chips. They are also a major supplier for Apple and Samsung and those new phones will begin hitting the market in August.

Skyworks said a typical 3G smartphone had about $8 of Skyworks content, a figure that grew to $18 for a 4G smartphone. The company claims that number is set to rise again to $25 for a typical 5G smartphone.

Earnings May 7th.

I am using a short-term May option because we will exit before the May earnings.

Buy May $90 call, currently $2.65, stop loss $83.65.


NEW DIRECTIONAL PUT PLAYS

No New Bearish Plays



In Play Updates and Reviews

Great Day!

by Jim Brown

Click here to email Jim Brown

Editors Note:

Despite the relative weakness in the Dow, Friday was a great day. The S&P gained another 13 points to stretch its freedom from the 2,871 resistance and is now only 38 points from a new high. This was the 7th consecutive daily gain for the S&P and with the new high beckoning, the move should continue. The Dow was weak because of Boeing but otherwise a calm but positive day. Even the Russell gained 15 points to close above near-term resistance.



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

Comments:

Intel was downgraded to market perform (hold) at Wells Fargo and shares declined slightly in a positive market. They closed near a new high on Thursday.

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.


LOW - Lowes Companies - Company Profile

Comments:

No specific news. New 6-month high close.

Original Trade Description: March 30th

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.

Position 4/1/19:
Long June $115 call @ $2.51, see portfolio graphic for stop loss.


MSFT - Microsoft - Company Profile

Comments:

Oppenheimer said Microsoft was well positioned to take on SalesForce.com and be a strong competitor.

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

Comments:

No specific news. $36.50 has appeared as support and I raised the stop to just below that level.

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.


XRAY - Dentsply Sirona - Company Profile

Comments:

No specific news. Testing resistance at $51.

Original Trade Description: April 3rd

DENTSPLY SIRONA Inc. designs, develops, manufactures, and markets various dental and oral health products, and other consumable healthcare products primarily for the professional dental market worldwide. The company operates in two segments, Technologies & Equipment; and Consumables. Its dental supplies include endodontic instruments and materials, dental anesthetics, prophylaxis pastes, dental sealants, impression materials, restorative materials, tooth whiteners, and topical fluoride products; and small equipment products comprise dental hand pieces, intraoral curing light systems, dental diagnostic systems, and ultrasonic scalers and polishers. The company also offers dental laboratory products, such as dental prosthetics that include artificial teeth, precious metal dental alloys, dental ceramics, and crown and bridge materials. In addition, it provides dental technology products, including dental implants and related scanning equipment, treatment software, and orthodontic appliances for dental practitioners and specialist, and dental laboratories; and dental equipment, such as treatment centers, imaging equipment, and computer aided design and machining systems for dental practitioners and laboratories. Further, the company offers healthcare consumable products, such as urology catheters, medical drills, and other non-medical products. It markets and sells dental products through distributors, dealers, and importers to dentists, dental hygienists, dental assistants, dental laboratories, and dental schools; and urology products directly to patients, as well as through distributors to urologists, urology nurses, and general practitioners. The company was formerly known as DENTSPLY International Inc. and changed its name to DENTSPLY SIRONA Inc. in February 2016. DENTSPLY SIRONA Inc. was founded in 1899 and is headquartered in York, Pennsylvania. Company description from FinViz.com.

XRAY was one of the three worst performing healthcare stocks in 2018. Things are looking up now that they are well into their restructuring program. The company reported earnings of 58 cents that beat estimates for 54 cents. Revenues of $1.06 billion beat estimates for $1.03 billion. Both metrics were down from the year ago quarter.

However, the company projected for earnings to rise 15.5% in 2019 with revenue of $3.95-$4.05 billion, which beat estimates for $3.94 billion. They guided for 2019 earnings of $2.25-$2.40 with a midpoint of $2.32 that easily beat estimates for $2.15.

Shares spiked sharply after the report and have traded sideways for the last month. There is an uptick in progress and Today's close was a 12-month high.

Earnings May 31st.

If XRAY can move over current resistance they have room to run.

Position 4/4/19:
Long July $55 call @ $1.40, see portfolio graphic for stop loss.


BEARISH Play Updates

No Current Puts