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Daily Newsletter, Saturday, 5/18/2019

Table of Contents

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

Market Wrap

Trade or No Trade?

by Jim Brown

Click here to email Jim Brown

Trade talks have come to a halt and hostile headlines are increasing.

Weekly Statistics

Friday Statistics

The market rebounded from a 204-point drop at Friday's open to +94 gain at 11:00. The futures were down hard over worries about China trade talks. News that President Trump was likely to push off a tariff decision on autos from the EU and other countries until November, helped diffuse some of the tension. Later in the morning there were rumors the steel and aluminum tariffs against Canada and Mexico would be lifted. These rumors allowed the Dow to rebound nearly 300 points from the lows.

Unfortunately, late in the day news broke there were no further talks scheduled. Hostile headlines were increasing from both sides and suggesting it could be a long time before talks resumed or made any progress. China was calling the US "insincere" and said President Trump was trying to "bully" China. President Trump tweeted that China was not negotiating in good faith and had broken prior agreements on points that put the talks back to the beginning. The Chinese government has suddenly shifted to a nationalism stance. On Saturday they preempted regular TV to run two documentary specials touting the Chinese fighting against the US in the Korean War. China abruptly cancelled purchases of 3,247 tons of American pork.

Before talks can be rescheduled, they first must agree on what to discuss. China has reportedly refused to discuss the points where the prior agreement had changed. They are clearly trying to buy time until they can gauge the outcome of the election. If it appears Trump is going to win again, they will probably come back to the table. If it appears someone else is going to win, they will endure the pain and wait out the election in hopes of getting a better deal with the new president.

The market was not happy with these revelations. Instead of a quick fix and back to the table with conditions as before, it looks like months of negative headlines and contentious meetings lay ahead. On Saturday White House officials tried to calm tensions saying talks could resume in 4-5 weeks. There have also been comments that President Trump would meet President Xi at the June 20th G20 meeting, but Chinese officials rebutted that saying there was no scheduled meeting between the two.

The bottom line is that the trade war is ramping up and there is nothing on the horizon for traders to focus on as a solution.



One factor influencing trade decisions is the sharp drop in the value of the Chinese yuan. The chart compares the Yuan to the dollar and 7:1 is a critical historical level. On this chart, higher is bad because it takes more yuan to buy a dollar. The currency fell so sharply over the last two weeks some analysts believe China has removed the supports and is letting the currency decline to offset the impact of the tariffs. A dollar will buy more goods priced in yuan which effectively means Chinese goods are on sale. Analysts were afraid China would lower the value of their currency to offset the tariffs and it appears to be happening whether the Chinese government is a motivator or not.


The US dollar rallied back to 98 on the Dollar Index and close to the two-year highs from April. The rising dollar compared to the falling yuan is going to be a benefit for China. Stronger dollars buy more yuan denominated goods. Unfortunately, it means less sales of dollar denominated goods to other nations. It makes our goods more expensive. This will be a serious headwind for Q2 earnings. Walmart said they would lose $1 billion in Q2 sales because of the strong dollar.


Consumer sentiment spiked more than 5 points to 102.4 in May. That is the highest level since January 2004. The present conditions component rose only fractionally from 112.3 to 112.4 but the expectations component spiked 9 points from 87.4 to 96.0 and a 15-year high. This survey was prior to the recent trade war conflict and the numbers are likely to decline sharply in the late month revision.

The strong job market is supporting sentiment and that shows no signs of ending. Jobs are plentiful, wages are rising and unemployment is at a 60 year low. The equity market was testing new highs when this survey was done.

The Conference Board's leading indicator report showed a +0.2% rise in April after similar gains in the prior two months. Employment, unemployment claims, retail sales, new manufacturing orders and equity prices all contributed to the rise. The steady gains suggest the economy is healthy and growing.

However, the Atlanta Fed real time GDPNow forecast for Q2 took a sudden turn for the worse on Wednesday when the retail sales for April fell unexpectedly by -0.2% from a +1.6% rise in March. The hit to sales came from building materials with a -1.9% drop due to the unseasonably cold wet weather seen on both coasts in April. This limited construction and remodeling activity to indoors. Electronics fell -1.3%. Gasoline stations rose 1.8% because of the rise in oil prices.

The hit from building materials will reverse in May as warmer weather arrived.


There is just enough weakness in the economic reports along with the trade disaster to cause the Fed funds futures to completely price out a rate hike through January. There is only a 21.6% chance that rates will not be lower by year end. There is a 37% chance of two cuts and 76% chance of one rate cut before the end of 2019.


We have a very skinny economic calendar for next week with only two home sales reports and two regional Fed reports. The highlight will be the FOMC minutes on Wednesday. Analysts do not expect to find any undiscovered nuggets of wisdom regarding future rate cuts, but they will be looking. Given the futures forecast, they may be looking even harder than normal.


Dow component Home Depot reports earnings on Tuesday and quite a few analysts expect a miss and possibly lower guidance because of the weather-related weakness in building materials. Lowe's will follow up on Wednesday. Target will try to pull out of its dive when it reports on Wednesday. Shares have been in crash mode since Amazon announced one-day delivery to Prime members.

The Hewlett Packard twins will both report on Thursday and nobody expects any surprises. PC sales are down according to Gartner Group and enterprise cloud is becoming a crowded battleground.

Autodesk would be my favorite for the week. The stock has been very volatile of late and there should be a big move after they report. Autodesk and Adobe are the kings of the software as a service space.


460 S&P companies have reported earnings with a projected Q1 rate of 1.4% growth. This is significantly above the -2% decline forecast at the most bearish phase of this cycle. Some 75% of companies have beaten on earnings and 57% have beaten on revenue with a 5.6% projected growth rate for revenue. The projected growth rate for earnings in Q2 is 1.1% followed by 1.8% in Q3 and 8.1% in Q4. Revenue is expected to average about 4.5% across all three quarters. There have been 55 earnings warnings for Q2 and 17 companies issued positive guidance.

The three big events for last week included Cisco Systems, Walmart and Nvidia. Dow component Cisco reported earnings of 78 cents that beat estimates for 77 cents. Revenue of $13 billion rose 6% and beat estimates for $12.89 billion. For the current quarter they guided for earnings of 81 cents, in line with estimates. They guided for 5.5% revenue growth which beat estimates for 3.5%. As Cisco broadens its offerings from simply hardware to software and managed services it has become less dependent on the hardware cycles. The upgrade to 5G is expected to power an entirely new wave of data traffic and that will require larger and faster network equipment. Cisco said this would benefit sales of their Catalyst 9000 series of switches in future quarters. Shares spiked $4 on the news.


Dow component Walmart (WMT) reported earnings of $1.13 that easily beat estimates for $1.02. However, revenues rose only 1% to $123.925 billion and missed estimates for $124.51 billion. Excluding the impact from currencies they would have reported $125.8 billion. The company warned that currency issues would cost them about $1 billion in sales in Q2.

Same store sales rose 3.4% but e-commerce revenues rose 37%. That was down from 43% in the holiday quarter. They are definitely taking the battle to Amazon. Earlier in the week Walmart announced a free next day delivery service to combat the service from Amazon. Walmart will offer 220,000 frequently purchased items for next day delivery and buyers will not have to be members if the sale is over $35. They expect the service to be operational in 75% of the country by the end of the year.


Nvidia (NVDA) reported earnings of 88 cents that beat estimates for 81 cents. Revenue of $2.22 billion narrowly beat estimates for $2.196 billion. While they beat on both metrics that was a 30% decline in earnings on a 57% decline in revenue. They said they were working through excess inventory and the company was finally back on an upward trajectory. They guided for Q2 revenue in the range of $2.55 billion "plus or minus 2%." Analysts expected $2.537 billion. However, the chipmaker said they would no longer provide full year guidance because "visibility remains low." They will continue to supply current quarter guidance. They admitted a slowdown in the data-center market is not improving and the recovery cannot be forecast.

They said trade tensions with China would not prevent the acquisition of Mellanox (MLNX). This company provides the connections between multiple AI computers to create monster AI networks.

Nvidia shares rose 7% in the afterhours session until they announced the end of annual guidance and refused to affirm prior guidance due to the data-center weakness. Analysts are worried that the massive cloud buildout of the last several years has peaked. Shares collapsed to lose $3.66 for the day on Friday.

Readers know that I am always positive on Nvidia because I understand the impact their technology is having on the future. They may actually be too far advanced and the rest of the technology sector has not yet caught up enough to generate higher demand. They are so high performance that only the largest and most technically advanced applications can get full use out of their chips. They still make high performance video cards for gaming PCs but the move to browser-based gaming where PCs do not need high performance video cards, could dent demand on that level. Their cards will still be in demand for high performance workstations or CAD development but that is a much smaller niche. The chip sector is in decline because of warnings from several chip makers. Nvidia is declining with the sector. I would look to pick up some Nvidia shares or LEAPS around $140.


Applied Materials (AMAT) reported earnings of $70 cents that beat estimates for 66 cents. Revenue of $3.54 billion, fell $1 billion but beat estimates for $3.50 billion. They guided for current quarter earnings of 67-75 cents and analysts were expecting 70 cents. Revenue guidance of $3.67 billion beat estimates for $3.5 billion.

The company said capital spending on wafer equipment would decline in 2019 but they expected business to rebound in 2020. Competitors KLA Tencor (KLAC) and Lam Research (LRCX) both gave similar guidance for 2019 and 2020. Applied Materials said they expect "good growth" in 2020. They said chip complexity is slowly rising and it takes more equipment to produce each succeeding version of a chip, especially DRAM and NAND memory. AMAT shares posted a decent gain on Friday despite a big decline in the Semiconductor Index.


Beyond Meat (BYND) shares finally took a breather after a surging to $90 from its IPO price of $25. The stock cooled after noted short seller Citron Research tweeted that Beyond Meat had become Beyond Stupid and should decline $30% from Thursday's close. In a tweet Citron said the market cap of Beyond now exceeded that of the entire industry. As of Friday's close the company has a $5 billion market cap and is expected to report only $40 million in sales for the quarter. They are also expected to post a 15-cent loss. They are trading at 31 times expected annual sales and they are a food company. A sector that normally trades in single digit multiples. They do have a good product that is likely to take market share from competitors and the meat industry BUT it is going to take a long time.

Options have begun trading, but the cost is prohibitive. With BYND at $90, the June, front month, $85 put is $10.20. The next available month is August and the same put is $19.80. This is crazy and it will fade.


Elon Musk sent a memo to employees saying the company only had 10 months of cash at the Q1 burn rate and he was going on a "hard core" cost cutting program. Tesla just raised $920 million in a bond sale in March to bring their cash balance up to $2.2 billion. That is a lot of money unless your cash burn rate is $3 billion a year.

Tesla may be flaming out. With 17 different EV models being released by competitors over the next 24 months, Tesla is no longer the only game in town. Other companies are not having delivery problems and their cars are sold in showrooms alongside gasoline powered cars. Every dealer is also a repair shop and there are no waits for multiple weeks for repairs and parts. Tesla demand is slowing and along with it cash flow is slowing.

Musk has blown his chance at being the leading EV manufacturer in a high-volume industry. Everybody knows he is an innovator but using his own words he sucks at being an auto manufacturer. With the potential to run out of cash ten months from now there will either be another massive capital raise, which may not go well, or he is going to be forced to look for deep pocket investors like his friends in Saudi Arabia. I would not be surprised to see Tesla acquired over the next couple of years. So when will the semi-truck, pickup and Model Y SUV become available? Don't forget the $250,000 Roadster with 0-60 in 1.9 seconds, 250 mph and 620-mile range. It was announced in November 2017 and I would not expect to see that in the near future. Full payment in advance to confirm reservation.


Musk said he was going to aggressively cut costs. Maybe he should start with his $530 million compensation package the board gave him. I believe we are going to see shares below $200 very soon. The October 2016 low was $180. That is the current target and a breakdown there would target $150. The bloom is definitely off this rose.


Lukin Coffee (LK) is a fast-rising competitor to Starbucks in China. The company is less than two years old and has 2,400 locations with plans to reach 5,000 locations in 2019. These are small format stores with very little seating. They do not accept cash. All orders are made and paid through an app. The drinks are highly discounted through coupons served through the app. One reporter said she got 14 coupons when she registered for the app. The discounts allowed her to buy a latte for the discounted price of 69 cents rather than the $4 Starbucks charges. The concept is for busy Chinese shoppers and business people to order a drink and pick it up in a takeout container. They also offer a lot of flavored teas, which is still the staple drink in China.

They priced their IPO at $17 and shares spiked to $26 at the open. They faded to $20 at the close in a negative market.


Uber shares recovered from the $9 post IPO plunge but now that options have begun trading, we could see a longer-term trend appear. Unlike BYND the options on Uber are reasonable for a June $40 put at $2.05 with UBER shares at $41.91. Nothing has changed since last week. The company is still losing billions of dollars and their only way to boost revenue is to raise prices and cut driver pay. That is a recipe for disaster, but it is the only one they have. While they may succeed in offering additional services like Uber Freight, they are a long way from making money on it. I look for Uber to retest its lows soon.


Apple (AAPL) shares are holding just above $185 and $30 below their high for May at $215. The China trade disaster is weighing on Apple shares. Their market share in China is falling. The nationalism against American companies is rising. The import tariff on Chinese made iPhones rose from 10% to 25% on May 10th. The impact is estimated to be as much as $160 per phone. With the summer doldrums ahead and six more weeks of China trade headlines, we could easily see Apple retest $175. Nomura agrees with my outlook and cut their price target to $175 on Friday. They said tariffs could cut Apple's earnings by 20%. Apple would have to raise prices in the US by 17% to recover the 25% tariff. With iPhones already at the upper bound on US pricing they do not have room to raise prices close to $1,300. The market will not support it.


Oil prices were relatively calm last week despite the Iranian headlines. There was a minor bounce on Thursday but faded slightly on Friday. Contrary to historical trends inventories are not declining and refinery utilization just barely broke 90% for the second time this year. We should be approaching 95% only two weeks before Memorial Day and prices should be rising.

Active rigs declined -1 with oil rigs falling -3 and gas rigs gaining one. All quiet in the energy sector.

Drilled but uncompleted (DUC) wells declined by 43 in April but remain at record levels. There is no reason for producers to drill lots of new wells when their backlog remains so high. That is why the rig count has been in decline.






Markets

Whenever there is a big decline, we should always expect a material rebound before another decline to lower lows. Those investors looking for a buying opportunity see the first decline and buy the dip. Seeing the rebound, shorts are forced to cover. Normally after a couple days the rebound falters for lack of volume and the shorts become brave again and begin selling stock. Prior holders who did not want to take a big loss on the first decline have had time to reconsider market direction and begin to unload when the rebound fizzles out.

Obviously, I could describe that scenario in a variety of ways but that is the most likely outcome of our present situation. I believe we are in the "eye of the storm" and future headlines or lack thereof will lead to another decline to lower lows. The fury of the first crash has passed and last week was rather tame. Resistance was met on Thursday and Friday saw traders moving to the exits on negative trade news.

While the president will try to put some lipstick on the trade pig, it is still a stinky pig and until a positive outcome is seen forming, the market should react negatively.

Add to that the sell in May trend and the beginning of the summer doldrums on June 1st. Schools will be out, family vacations will be starting and investors will be focused elsewhere. Nobody wants to go on vacation with a portfolio full of longs when the geopolitical situation is so negative.

The S&P has multiple levels of strong resistance from 2,868 through 2,900. The index has failed at 2,885 on each of the last two days. The obligatory rebound has occurred and we could be in the process of rolling over. Support is 2,800 and 2,776 and the 200-day.


The Dow dropped to the 100-day average where it tested that level on three consecutive days. Thursday's gap open propelled it to resistance at 25,950 where it failed on Thursday and Friday. The 50-day is 26,066 with resistance from late 2018 at 25,826. There are multiple resistance levels from where we are now to the very strong resistance at 26,616. We are not likely to suddenly charge higher and bust through all those levels.



The Nasdaq performed a perfect rebound from support at 7,645 and surged to resistance at 7,945. On Friday the index tried to return to that resistance and failed. The Nasdaq closed back below the 50-day and presents a perfect picture of a normal bear market rebound. The big caps normally supporting a rally were seriously negative on Friday. The falling chip stocks were dragging the tech sector lower.



The key question this weekend is "would you buy this chart?" Since the small caps normally lead the broader market and they closed just above the 7-week low from Monday, the path of least resistance is down. The 200-day average was solid resistance over the last two days. The odds are good the Russell is going to break below the 100-day and retest 1,500. That is the critical line in the sand.


While I am bearish on the market, that outlook and $4 will only buy you a bad cup of coffee at Starbucks. Nobody knows where the market is going but the negative geopolitical events seem to be growing. At any time, we are only one tweet away from a major rally or a major crash. With most of the macro issues pointing to further weakness I would recommend buying the dips only for trading positions. We could get lucky and have a tweet or White House headline predict a swift resolution but until you hear that from a Chinese official, I would have a hard time believing it. Expect continued weakness and be thankful if a rally appears.

Enter passively and exit aggressively!

Jim Brown

Send Jim an email

 

"To be successful, you simply have to put one foot in front of the other and keep going. Put blinders on and plow right ahead."

George Lucas


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Index Wrap

Eye of the Storm

by Jim Brown

Click here to email Jim Brown
In a hurricane the leading edge can be very damaging but the first bit of calm does not mean the storm is over. A hurricane has a calm spot in the center of the storm called the eye. The leading edges of the storm can pound an area for hours before the eye moves over the area. Many times residents come out of hiding to survey the damage and pick up some pieces before going back indoors as the eye moves away from them. The backside of the storm arrives and they are hit all over again.

A market decline can be similar to a storm. The first decline is a surprise and can be dramatic. As the market becomes severely oversold, buyers appear and the selling pressure eases. The eye of the market storm can last 2-5 days before the trailing edge arrives and pushed the market to new lows.

We could be in the eye of the current market storm. The initial week of declines was brutal but was followed by a nice rebound of nearly 50% before losing traction. This is a very common type of oversold rebound before the market rolls over under the weight of the second wave of selling.


Volume was very anemic at 6.5 billion shares on average over the last three days. This compares to 8.3 billion shares on Monday's steep decline. Decliners were 6:2 over advancers on Monday. On Friday decliners were nearly 3:1 over advancers.

The A/D chart on the S&P posted a major decline we one would expect. The Wednesday/Thursday rebound helped to recover some lost sentiment, but the chart is still bearish.


The Nasdaq A/D is starting to breakdown after plateauing for a month. The A/D is very close to the low made on Monday. The A/D on Friday was nearly 3:1 decliners over advancers with 90 new 52-week lows.


The three days of relative calm mid-week helped to lower the VIX back closer to neutral territory. The two-week spike would appear to be over but a second leg down in equities could push the VIX right back over 20 again.


I know you get tired of hearing this but the chip sector does control the direction of the Nasdaq. Weak earnings and guidance for the rest of 2019 is depressing the sector and that has put the Nasdaq on a slippery slope. The correlation is returning and the $SOX is moving back to a more normal relationship with the Nasdaq.



The big cap FANG stocks moved down in unison with the exception of Google. That stock is well out of the group and has been a major drag on the Nasdaq. Apple, not shown, is an even bigger drag with a $30 decline over the last three weeks.


The Nasdaq came within 27 points of touching critical support at 7,600. The Nasdaq had declined more than 500 points at that low. The rebound has been just enough to satisfy the technical traders and we could be looking for another leg down next week.


The triple top formation on the Dow is intact and the target on a continued decline would be 24,000.


I am bearish on the market short term, but I do realize that the market exists solely to confuse and humiliate analysts. While I do not expect a continued rebound it is always possible. I continue to recommend that you buy the dip only for trading positions. There are too many unsent tweets for us to believe the battle is over. Sell in May is alive and well in 2019.

Enter passively and exit aggressively!

Jim Brown

Send Jim an email


New Option Plays

Avoiding Trade Issues

by Jim Brown

Click here to email Jim Brown

Editors Note:

Our first stock this week is immune from the China trade issues. Centene has no exposure to China. Uber is immune from rational thought or at least it has been up until this point.



NEW DIRECTIONAL CALL PLAYS

CNC - Centene Corp - Company Profile

Centene Corporation operates as a diversified and multi-national healthcare enterprise that provides programs and services to under-insured and uninsured individuals in the United States. The company's Managed Care segment offers health plan coverage to individuals through government subsidized programs, including Medicaid, the State children's health insurance program, long-term services and support, foster care, and medicare-medicaid plans, which covers dually eligible individuals, as well as aged, blind, or disabled programs. Its health plans include primary and specialty physician care, inpatient and outpatient hospital care, emergency and urgent care, prenatal care, laboratory and X-ray, home-based primary care, transportation assistance, vision care, dental care, telehealth, immunization, specialty pharmacy, therapy, social work, nurse advisory, and care coordination services, as well as prescriptions, limited over-the-counter drugs, medical equipment, and behavioral health and abuse services. This segment also offers various individual, small group, and large group commercial healthcare products to employers and directly to members in the Managed Care segment. Its Specialty Services segment provides pharmacy benefits management services; health, triage, wellness, and disease management services; and vision and dental, and management services, as well as care management software that automate the clinical, administrative, and technical components of care management programs. This segment offers its services and products to state programs, correctional facilities, healthcare organizations, employer groups, and other commercial organizations. The company provides its services through primary and specialty care physicians, hospitals, and ancillary providers. Centene Corporation was founded in 1984 and is headquartered in St. Louis, Missouri. Company description from FinViz.com.

Centene has had a rocky six months and shares were recovering in early April until the sector was caught in the Medicare for All downdraft. Since then they reported strong earnings and guidance and are moving up again.

The company reported earnings for $1.39 that beat estimates for $1.35. Revenue rose 40% to $18.44 billion and easily beat estimates for $17.46 billion. Medicare revenue rose 19% to $1.38 billion and commercial policy revenue rose 19% to $3.65 billion.

They raised full year guidance from $4.11-$4.31 to $4.24-$4.44. Revenue guidance rose from $70.3-$71.1 billion to $72.8-$73.6 billion.

Given the decline from the mid $70s in November, our risk should be minimal on an earnings beat and guidance raise. They should outperform the sector.

Earnings July 23rd.

Since Centene has nothing to do with imports or exports the China trade issues should not be a factor.

Shares are facing resistance at $57-$58 but should be clear sailing after that.

Buy July $60 call, currently $2.30, stop loss $52.50.


NEW DIRECTIONAL PUT PLAYS

UBER - Uber - Company Profile

Uber Technologies, Inc. develops and supports proprietary technology applications that enable independent providers of ridesharing, and meal preparation and delivery services to transact with riders and eaters worldwide. The company operates in two segments, Core Platform and Other Bets. Its driver partners provide ridesharing services through a range of vehicles, such as cars, auto rickshaws, motorbikes, minibuses, or taxis, as well as based on the number of riders under the UberBLACK, UberX, UberPOOL, Express POOL, and Uber Bus names; and restaurant and delivery partners provide meal preparation and delivery services under the Uber Eats name. The company also offers Uber Central, a tool that enables companies to request, manage, and pay for rides for their employees, customers, or partners; and Uber Health, which allows healthcare professionals to arrange rides for patients going to and from the care destinations. In addition, it provides freight transportation services to shippers in the freight industry under the Uber Freight name; leases vehicles to third-parties that use the vehicles to provide ridesharing or eats services through the platforms; and provides access to rides through personal mobility products, including dockless e-bikes and e-scooters under the JUMP name. The company was formerly known as Ubercab, Inc. and changed its name to Uber Technologies, Inc. in February 2011. Uber Technologies, Inc. was founded in 2009 and is headquartered in San Francisco, California. Company description from FinViz.com.

Now that Uber is public and the initial volatility is over, investors should begin to focus on fundamentals. Losing $1 billion or more a quarter is not a big selling point. While Uber has a lot of other businesses in development the majority of their revenue comes from ride hailing. They have stated they are going to raise prices and pay their drivers less and that is going to be a disaster. Drivers are already protesting about the low wages and no benefits. If their commissions are cut again, many will quit. Response times will rise. If Uber raises prices they will be in a price war with Lyft. The service with the lowest prices will win. Analysts believe ride prices would have to double for Uber to break even. That would be the kiss of death to market share.

Uber has received so much bad press since the IPO that plenty of frustrated investors have exited. Others, not wanting to take a big loss probably waited for the rebound and will be exiting soon.

Buy July $45 put, currently $2.95, no initial stop loss.



In Play Updates and Reviews

Temporary Pause

by Jim Brown

Click here to email Jim Brown

Editors Note:

The S&P rebounded from support at 2,815 but failed at resistance at 2,885. Nothing goes straight up or straight down. The major sell off of the prior week was overdone and due for a bounce. The rebound to 2,885 failed three times and traders ran to the exits at the close on Friday. Sunday nights have had a bad habit of double-digit futures losses and nobody wanted to be long over the weekend.



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


LYFT - Lyft
The short position was entered at the open on Monday.

TSLA - Tesla Inc
The long position was entered at the open on Monday.


BULLISH Play Updates

TDOC - Teledoc Health - Company Profile

Comments:

No specific news. This was one the best performing stock of the week with no material decline despite the weak market.

Original Trade Description: May 4th

Teladoc Health, Inc. provides telehealth services. It offers a portfolio of services and solutions covering 450 medical subspecialties, such as flu and upper respiratory infections, cancer, and congestive heart failure. The company provides its services through mobile devices, the Internet, video, and phone. It serves employers, health plans, health systems, and other entities in approximately 100 countries worldwide. Teladoc Health, Inc. has a collaboration with Cincinnati Children's Hospital Medical Center to develop a consumer pediatric telehealth platform. The company was formerly known as Teladoc, Inc. and changed its name to Teladoc Health, Inc. in August 2018. Teladoc Health, Inc. was founded in 2002 and is headquartered in Purchase, New York. Company description from FinViz.com.

Teladoc is a subscription medical service where you can access a live doctor almost at will for $49 a month. Business is booming.

Q1 revenue rose 43% from $89.6 million to $128.6 million. They still posted an earnings loss because they are in customer acquisition mode. Long-term the subscription model will be a money maker. US paid memberships rose 28% to 26.7 million.

Subscription revenue in the US grew 33% to $81 million. International revenue more than doubled to $30 million. Gross margins were 65.3%. The cash on hand at the end of the quarter was $480 million.

Some insurance companies cover the Teledoc fees. An individual pays $49 a month for a suite of services that includes unlimited doctor consultations. US visit-fee-only access, which are users not covered by insurance, rose 7% to 10.2 million. Total global visits rose 75% to 1.06 million.

When you consider all the hassle of making an appointment with your regular doctor, driving to the appointment and back and waiting an hour in the office to see the doctor for 5 minutes, this seems like a bargain. A patient can pick up their phone and be talking to a doctor in minutes. If they have a video camera on their phone or computer, they can talk face to face, which is handy if you have some external affliction.

What does a normal doctor visit consist of other than blood pressure, pulse, sometimes temperature and a lot of waiting for the doctor to walk in for 5 minutes and write a prescription and leave.

The company affirmed full year guidance of $535-$545 million, a 29% boost in revenue. Adjusted EBITDA of $25-$35 million.

Position 5/6:
Long July $65 Call @ $3.30, see portfolio graphic for stop loss.
Optional: Short July $75 Call @ $1.40, see portfolio graphic for stop loss.
Net debit $1.90.


USO - US Oil Fund - ETF Profile

Comments:

Sabre rattling over Iran caused a minor rebound in crude prices. Never fear, Memorial day driving demand is coming.

Original Trade Description: May 4th

The United States Oil Fund LP (USO) is an exchange-traded security designed to track the daily price movements of West Texas Intermediate (WTI) light, sweet crude oil. USO issues shares that may be purchased and sold on the NYSE Arca.

The investment objective of USO is for the daily changes in percentage terms of its shares' NAV to reflect the daily changes in percentage terms of the spot price of light, sweet crude oil delivered to Cushing, Oklahoma, as measured by the daily changes in price of USO's Benchmark Oil Futures Contract, less USO's expenses.

USO's Benchmark is the near month crude oil futures contract traded on the NYMEX. If the near month futures contract is within two weeks of expiration, the Benchmark will be the next month contract to expire. The crude oil contract is WTI light, sweet crude oil delivered to Cushing, Oklahoma.

USO invests primarily in listed crude oil futures contracts and other oil-related futures contracts, and may invest in forwards and swap contracts. These investments will be collateralized by cash, cash equivalents, and US government obligations with remaining maturities of two years or less.

The USO rallied to nearly $14 in mid-April as WTI prices moved to $65. Oil prices tend to peak around Memorial Day and hold that level or slightly higher into the July 4th weekend.

We found out this weekend that one million bpd of Russian oil will be offline for the next couple weeks and that will squeeze global supply. We are also only two weeks past the elimination of waivers on Iranian oil and that removed another million barrels from the market. Turkey and China are the only two countries to defy the sanctions and continue purchases.

The stage is set for a potential oil rally back over $65. That would put the USO back near $14 or higher depending on what kind of ramp we get into Memorial Day and the beginning of the driving season.

I am recommending we buy an inexpensive July call option and target a 100% return over the next couple weeks.

Position 5/6:
Long July $13.50 call @ 39 cents, no initial stop loss. Target 85-cents to exit.


BEARISH Play Updates

LYFT - Lyft Inc - Company Profile

Comments:

Lyft was sued by investors who lost money after the IPO in hopes of getting some recovery. Shares rebounded $9 intraweek but began to decline again on Friday after resistance held. With Uber and Lyft hemorrhaging cash, no sane investors is going to hold long term until earnings improve and the cash drain slows.

Original Trade Description: May 11th

Lyft, Inc. operates a peer-to-peer marketplace for on-demand ridesharing in the United States and Canada. It provides Ridesharing Marketplace, which facilitates lead generation, billing and settlement, support, and related activities to enable drivers to provide their transportation services to riders. The company also offers a network of shared bikes and scooters in various cities to address the needs of riders for shorter routes; Express Drive program, a flexible car rentals program which connects drivers who need access to a car with third-party rental car companies; and concierge for organizations to manage the transportation needs of their customers and employees. In addition, it integrates third-party public transit data into the Lyft app to offer various enterprise programs, including monthly ride credits for daily commutes, supplementing public transit by providing rides for the first and last leg of commute trips, late-night rides home, and shuttle replacement rides. The company was formerly known as Zimride, Inc. and changed its name to Lyft, Inc. in 2013. Lyft, Inc. was incorporated in 2007 and is headquartered in San Francisco, California. Company description from FinViz.com.

We were stopped out of our Lyft put position a week ago and I am reinstating it. The monster earnings loss of $1.138 billon in Q1 is just a preview of things to come.

Lyft reported an adjusted loss of $9.02 per share. That is a small improvement from the loss of $11.40 in the year ago quarter, but it is a huge amount of money. Revenue was $776 million compared to the loss of $1.138 billion. They guided for revenue of $800-$810 million for Q2 and $3.275-$3.3 billion for the full year. Active users rose to 20.5 million, up from 14 million. Average revenue per rider rose from $28.27 to $37.86.

The big question now that Lyft is public is how long can it continue to lose $1 billion per quarter with total revenue at $800 million? With Uber and Lyft both losing tons of cash, cheap rides are going to end. If ride prices double to an average of $75 as needed to breakeven, riders will disappear.

Earnings August 6th.

Position 5/13:
Long July $45 put @ $3.50, see portfolio graphic for stop loss.


TSLA - Tesla Inc - Company Profile

Comments:

We got a horrible fill when the market gapped down on Monday and Tesla fell with it. However, continued negative news is pushing shares lower and we are profitable. Evercore ISI reiterated a sell rating and $200 price target, down from $240.

Elon Musk sent a memo to employees saying the company only had 10 months of cash at the Q1 burn rate and he was going on a "hard core" cost cutting program. Tesla just raised $920 million in a bond sale in March to bring their cash balance up to $2.2 billion. That is a lot of money unless your cash burn rate is $3 billion a year.

Original Trade Description: May 11th

Tesla, Inc. designs, develops, manufactures, and sells electric vehicles, and energy generation and storage systems in the United States, China, Netherlands, Norway, and internationally. The company operates in two segments, Automotive, and Energy Generation and Storage. The Automotive segment offers sedans and sport utility vehicles. It also provides electric vehicle powertrain components and systems to other manufacturers; and services for electric vehicles through its company-owned service centers, Service Plus locations, and Tesla mobile technicians. This segment sells its products through a network of company-owned stores and galleries. The Energy Generation and Storage segment offers energy storage products, such as rechargeable lithium-ion battery systems for use in homes, commercial facilities, and utility grids; designs, manufactures, installs, maintains, leases, and sells solar energy systems to residential and commercial customers; and sell renewable energy to residential and commercial customers. The company was formerly known as Tesla Motors, Inc. and changed its name to Tesla, Inc. in February 2017. Tesla, Inc. was founded in 2003 and is headquartered in Palo Alto, California. Company description from FinViz.com.

Tesla has so many headwinds you could not list them all. They are short on cash. They have multiple gigafactory construction projects underway at the same time. They have multiple models from sedans to semi trucks in pre production planning. Each one could consume $1 billion or more in manufacturing start up costs. The gigafactory in China is multiple billions to construct and populate with equipment and inventory. Sales of the Model S and Model 3 are slowing. Competition is heating up with Mercedes, Volkswagen, Jaguar and BMW starting to deliver new models of electric cars and in large quantities. GM is prepping to deliver multiple models of reasonably priced cars.

Even worse, there is suddenly a large number of used Teslas for sale. For instance TrueCar has more than 940 used Teslas for sale. The electric car fad is now over and they are becoming common place. Instead of only one car maker to choose from now there are six or more with all price ranges. I have seen the Jaguar and I would much rather have that than a Tesla. The Tesla brand is over priced and over hyped.

The constant headlines of Elon Musk in trouble with the law, the SEC, the courts, individual suits, etc, is tarnishing the brand. Musk used to be the wonder kid that could do anything. As his recent promises become even more unbelievable and undeliverable, he is being written off as a spoiled rich kid and the Tesla brand is losing its luster. He has a coming trial date on his comments calling a British cave rescue diver a pedophile and a child rapist. The diver sued him for defamation.

Goldman has a price target of $210. RBC $210 and Cowen $200. Bank of America just resumed coverage with an underperform rating (sell). Evercore has an underperform.

Shares are slowly slipping away after breaking strong support at $249.

Unfortunately, options are expensive and this will have to be a spread.

Position 5/13:
Long July $225 put @ $17.61, see portfolio graphic for stop loss.
Short July $205 put @ $10.40, see portfolio graphic for stop loss.
Net debit $7.21.