Option Investor
Newsletter

Daily Newsletter, Sunday, 6/23/2019

Table of Contents

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

Market Wrap

Record High Week

by Jim Brown

Click here to email Jim Brown

Last week saw the S&P and many securities reach either record or multiyear levels.

Weekly Statistics

Friday Statistics

The Dow hit an 8-month intraday high at 26,907 on Friday with a 154-point intraday gain. Unfortunately, it did not hold, and the index declined -188 points to close with a 34-point loss. A record close would have been over 26,828 but it closed 109 points short.

The S&P closed at a new high at 2,954 on Thursday and slipped back to lose about 4 points on Friday. It was a very close call with the index in positive territory until an options related dive at the close.

The Nasdaq Composite closed at 8,051 on Thursday and 113 points below the May 3rd high with a 20-point drop on Friday.

The Russell 2000 remains the laggard with a close 190 points below its prior high with a 12.3% decline and still in correction territory.



There was only one material economic report on Friday. That was the existing home sales for May. Annualized sales rose from 5.21 million to 5.34 million. The 2.5% increase for the month is still -1.1% down from the same period in 2018. There were 670,000 homes sold in the Northeast, 1.22 million in the Midwest, 2.32 million in the South and 1.13 million in the West. Months of supply rose from 4.2 to 4.3 after a low of 3.6 in February. Single family home sales were 4.75 million and multifamily sales were 590,000.

The average home price rose from $266,900 to $277,700. That represents a 4.8% rise over the same period in 2018. Sales of homes under $100,000 declined -12.4%, $100,000-$250,000 were flat and sales of homes $250,000-$500,000 rose 10.5%. Sales from $500,000-$750,000 rose 11.5%, $750,000-$1 million rose 8.1% while sales over $1 million rose 2.3%. Cash purchases accounted for 19% of all sales. Sales should continue to grow with the 30-year mortgage rate around 4.0%.


There is now a 100% chance of a rate cut at the July 31st meeting. There is a 28.1% of a 50-basis point cut. Investors wondering why the Fed would cut 50 points in a booming market should think back to other rate cut events that started with 50-point cuts. In 1997 the Fed cut 50 points after the LTCM disaster and the Russian debt default. In 2001 and 2007 the Fed cut 50 points to try and head off recessions. Both times they were too late. This time the Fed is trying to be proactive and head off the global weakness and the impact of the Chinese tariffs. They do not want to be behind the curve again as US economics weaken in response to global events. As a result, the yield on the ten-year traded under 2.0% on Thursday and the lowest level since November 2016 just prior to the election.


The dollar declined -1.75 on the Dollar Index and a very unusual four day move. This is positive for earnings and for sales of US products overseas.


The falling dollar, fear of war with Iran, falling interest rates and yields all combined to lift gold to a 6-year high.


The next revision of the Q1 GDP is coming out this week. The recent economic reports have pushed the Atlanta Fed real time GDPNow forecast to 2.0% growth for Q2.


A couple weeks ago the PMI Services for May came in at 50.9. That is the lowest level since February 2016. That is a 39-month low. The Manufacturing PMI came in at 50.5 and a 117-month low. New orders were in correction under 50 and at ten-year lows.

While the normal weekly data is choppy and declining slightly, the longer-term data is in a very bearish trend. The trade war and tariffs are the cause of this deceleration. Whether or not the Fed can reverse this trend with another round of rate cuts is unknown.

The calendar for next week has an eclectic mix of data. Home sales are back again as well as the GDP and several regional Fed reports. The biggest item on the calendar is the G20 meeting and the potential for either an end to the trade war with China or an acceleration into a new round of tariffs. The new market highs would evaporate instantly if that was the case.


First quarter earnings are over. There are still three companies that have not reported but the early reporters for Q2 are already lining up. Earnings growth ended Q1 at 1.6% with 5.6% revenue growth.

There have been 82 earnings warnings for Q2 and nearing that critical 20% threshold. There have been 24 guidance upgrades. There are 12 S&P companies reporting next week. The expected earnings growth for Q2 is only 0.2% but early estimates are normally low. In Q1 the forecast fell to -2.0% but we ended the quarter positive.

Fedex is going to be important because the last two quarters they warned about a slowdown in global shipments. This is expected to have continued. Micron will be important because of the five additional Chinese companies that were blacklisted last week. Nike reports on Thursday and they are tariff bait. They have a lot of exposure to China. Constellation Brands reports on Friday and could take a hit from its exposure to Canopy Growth.


CarMax (KMX) reported earnings of $1.59 that rose 19.5% and easily beat estimates for $1.49. Revenue of $5.366 billion rose 12% and beat estimates for $5.179 billion. Overall same store sales rose 13% while used unit sales rose 9.5%. Used vehicle profits rose slightly to 13.1% with the average profit per vehicle at $2,215. Wholesale vehicle profits rose 9.8% to $1.043 and driven by a 6.6% increase in unit sales. They repurchased 3.0 million shares for $204.8 million during the quarter. They have $1.91 billion remaining under the existing authorization. Shares spiked over 5% at the open but faded to post a 3% gain.

With auto sales remaining relatively strong, CarMax and AutoNation should continue to prosper. Lower interest rates are fueling a boom in sales. Lower fuel prices stimulate auto buying with high profit SUVs the preferred vehicle.


Red Hat (RHT) reported adjusted earnings of $1.00 that beat estimates for 87 cents. Revenue rose 15% to $934.0 million and beat estimates for $931.6 million. Revenue from application development and technology subscriptions rose 24% to $235 million. Red Hat is going to be a big plus for IBM when the acquisition is completed. IBM will be able to expand market share and profits despite the high $34 billion price they are paying.

IDC believes applications running on Red Hat Enterprise Linux (RHEL) will contribute more than $10 trillion in global business revenues in 2019. That compares to the IDC projection of $188 trillion for total business revenue. IDC said $81 trillion was IT revenue. Red Hat software accounts for 25% of all corporate Linux operating systems. This suggests IBM is buying the goose that will be laying golden eggs in the future.


Canopy Growth (CGC) reported a 312% rise in revenue to C$94.1 million compared to estimates for C$92.6 million. The company reported a loss before EBITDA of C$98 million and much larger than estimates for a C$64 million loss. Adjusted gross margin was 16% and missed estimates for 24%. The CEO said they expect 40% margins by the end of 2019. They are in extreme growth mode now and are spending huge sums of money on growing space and product development. He said Q1 would be the bottom on margins. They sold 9,326 kg (20,560 pounds) of cannabis in Q1. They now have 600,000 sqft of growing space.

They had previously announced they were acquiring skincare company The Works for C$73.8 million to add beauty and sleep products to their portfolio. They also said they had received shareholder approval for the $3.4 billion acquisition of Acreage Holdings, the largest grower in the US. The deal cannot complete until the federal laws change in the US and they said 2021 is the first chance of that coming to pass. They warned that the acquisitions would cause a materially significant non-cash charge in the current quarter.

Shares declined on the margin miss despite the 300% increase in revenue. This is short sighted in my opinion. I think everyone understands we are moving towards deregulation in the US. More than 30 states now have some form of legal use. Stifel analysts believe the market will reach $28 billion in Canada and $100 billion in the US once legalization occurs. Canopy's revenue in the quarter was only C$98 million (US $75 million). There is an opportunity for extreme growth over the next decade and possibly a lot sooner.


Kroger (KR) shares tanked after reporting earnings of 72 cents that beat estimates by a penny but also declined a penny from the year ago quarter. Revenue declined slightly from $37.72 billion to $37.25 billion but still beat estimates for $37.19 billion.

Investors should not have reacted negatively. This quarter reflected the 2018 sale of their convenience store business and the resulting loss of revenue. The $2.15 billion sale of 762 stores in 18 states removed $4 billion in annual revenue and expenses related to the 11,000 employees. Kroger used $1.2 billion of the proceeds to repurchase 36.1 million shares. The sale closed in April 2018.

Comparing Q1 2018 revenue to Q1 2019 is apples and oranges. I believe investors should have been excited that revenue only declined about $480 million despite a loss of $4 billion in convenience store revenue. That suggests they had a great quarter. Same store sales rose 1.5% and online sales rose a whopping 42%. They guided for the full year for same store sales of 2.00-2.25% and earnings of $2.15-$2.25. Now that they are free from those comparisons, I would expect good news on the next earnings report.


Bitcoin came back from the dead over the last two months with a surge from $3,232 in December to $11,030 this weekend. Part of the reason for the surge was the volatility in global currencies and the tariffs on China. Another reason was the pending announcement of Facebook's Libra coin. The company is planning on creating a "simple global financial infrastructure" using Zuckerberg's own words. The Libra currency will be a "stablecoin" which means its value will always be tied to the underlying currencies and not fluctuate like bitcoin. That makes it highly desirable for international trading and less desirable as a trading vehicle. For instance, nobody wants to sell a house in France for 1,000 bitcoins and find out several weeks later when you try to buy a house in the US that your bitcoins have each fallen a couple thousand dollars in value. Selling your house in Libra for the equivalent of $250,000 would still be worth $250,000 days, weeks or even years later and those coins could be used anywhere in the world.

Facebook will use a basket of currencies including the dollar and the euro to establish the underlying value. Initially transactions can be made "seamlessly" through WhatsApp and Messenger but will also be available on dozens of other messaging platforms around the world. The currency will be backed by a blockchain called the "Libra Protocol" and validated by multiple major corporations to provide transparency and stability. The coin will be managed by the "Libra Association" and run through the Libra Blockchain. The currency is expected to be launched in 2020 and Facebook will be the manager of the startup effort through 2019.

The initial management consortium consists of 27 high profile companies including Visa, MasterCard, Paypal, Booking Holdings, Uber, Lyft, Stripe, Ebay, etc.


Facebook claims the Libra initiative is aimed at the unbanked around the world starting with its nearly 3 billion Facebook members. Worldwide there are billions of people without bank accounts or credit cards. They do have smartphones. This opens up a world of opportunities for them such as online shopping that we take for granted in the US.

The coming of Libra has rekindled interest in bitcoin over the last two months. There is no way Facebook could have generated commitments from that number of sponsors above and kept the project a secret. Because Libra will validate stable blockchain currency for the working class, bitcoin found new life. In the end, Libra could kill bitcoin through ease of use and wide acceptance but for today there is new life.

Bitcoin is confidential and can be used for things that are not always legal. Libra will not be confidential, and Zuckerberg made a point of saying that transaction records would be available for police in the event of illegal transactions. Sell drugs, go to jail, or at least that is the theory.


The US Commerce Dept said it was adding five more Chinese companies to the sales blacklist. The dept said these companies did not operate in the best interests of the US and chip sales to them were now banned. The goal is to prevent China from using our own technology against us. These companies are developing super computers, AI and numerous military applications. It makes no sense to sell China's military chips to be used in military satellites, missiles and military equipment. US technology is the highest in the world and that gives us an edge over hostile powers without it.

The ban prevents Intel and AMD from selling high performance multicore processors to entities building super computers to simulate nuclear explosions and military simulation activities. Since 2015 China's National University of Defense Technology (NUDT) has been blacklisted for these reasons. The US recently discovered that NUDT had been using four separate companies and shipping addresses to circumvent the ban.

The Commerce Dept said the companies added to the list "pose a significant risk of being or becoming involved in activities contrary to the national security and foreign policy interests of the US." Chip stocks declined again on Friday after the announcement.

Over the weekend Eldorado Resorts (ERI) and Caesars Entertainment Corp (CZ) reportedly agreed to merge in a cash and stock deal worth about $18 billion including debt. Caesars closed at $9.99 and the deal values them around $13. Caesars operates 67 properties in six countries. Eldorado operates 26 domestic properties and is valued at $4 billion. The deal is expected to be announced on Monday.



The conflict with Iran caused crude prices to rocket higher. Just because President Trump called off a missile attack because of expected casualties, it does not mean the conflict will not lead to further military involvement. Iran said it could have shot down a Navy P-8 patrol aircraft with 35 personnel aboard, but they decided to let it pass. Obviously had they shot down that plane the military reaction would have been significantly worse. That is always a threat now that Iran believe the US is weak because they did not respond. Until the US military strikes back hard, Iran will be tempted to cause more trouble.

Iran only understands force. They have threatened to declare war around the world using their various proxies if the US strikes back. If we do not respond to their aggression, they will press the envelope.

Oil prices moved over $57 after hovering just over $50 the prior week. If there is a shooting war in the Persian Gulf, prices will move a lot higher. Iran also launched cruise missiles into Saudi Arabia and hit a power plant. There has not been a Saudi response but that does not mean there will not be one. If those two countries decide to fight, the oil facilities will be the main targets.

Active rigs declined by 2 last week with gas rigs falling by -4. A sustained crude price for several weeks could trigger the activation of some dormant oil rigs.

We finally got the Drilled but Uncompleted report from the EIA for May. The number of DUC wells rose by 41 in the Permian but declined in all other areas. The total is still well over 8,000 and that is a lot of completions to be scheduled when prices and pipeline capacity permit.






Markets

Analysts believe far too many bridges were burned in the negotiations between the US and China when they walked away from the table in May. While President Trump and President Xi will meet next week at the G20 there is not likely to be a deal. Even if both agreed to move forward it would still take weeks to put the deal on paper and then have a big signing party in a neutral location.

Analysts believe that regardless of the outcome of the meeting, Trump will increase tariffs on Chinese goods in order to apply more pressure. China will retaliate. Since agreeing to a deal after the imposition of new tariffs would look like Xi caved into pressure from the US, this would be shaky ground for Trump to cross.

IF, they do decide to begin talks again the meeting will probably break up with both sides proclaiming common ground and progress in the ongoing trade talks. Since Trump needs a quick resolution and a deal he can use in his reelection campaign, he may be more interested in getting something accomplished than coming out a big winner. If he gets any deal now, he can always come back again in 2021 and apply pressure again.

Unless the meeting ends in another walkout, the market will likely see the results as optimistic and indexes rise. A positive comment would be Trump saying we made good progress and there is no need for additional tariffs. An outstanding event would be Trump agreeing to cancel existing tariffs because of good progress. Nobody expects that to happen. Trump will want to keep the pressure on until a deal is signed.

Trump is also meeting with President Vladamir Putin at the G20. Nothing is expected to develop from that visit.

This is the risk for the market next week. Since the G20 meeting is Friday and Saturday for the heads of state, the market will trade on expectations or lack thereof all week. The speech by Powell on Tuesday will also be a pivotal point. If he tries to walk back some of the dovish comments the market could react negatively.

The S&P closed only 5 points over the May 3rd high of 2,945. This could be seen as strong resistance until we move significantly higher. Support is well below at 2,872 so there is a wide range for the index to run without impacting overall market direction. Volume is expected to be weak ahead of the July 4th holiday but once the bulls begin to stampede, anything is possible.


The Dow is struggling to close at a new high. The index traded over the 26,828 level on Friday with a brief print over 29,000 but then closed -182 points below the intraday high. The index was up +154 at the high of the day.

There were only a handful of stocks with moves over $1 with the rest of the components only fractionally changed. Most of the movement was more than likely related to option expiration.



The Nasdaq remains about 135 points below the May high at 8,164. The big cap techs were slightly negative overall but were helped by big gains in Google and Bookings. That kept the Nasdaq 100 to only a loss of 9 points.

The FAANG stocks were all positive for the week and that helped produce the 3% gain in the Nasdaq 100. Facebook was a big contributor with the Libra announcement. With a weak chip sector and big gains in June, the Nasdaq is going to have a tough road higher.



The Russell was again the weakest index. After failing at the 10% resistance level at 1,566 on Thursday the index retraced its gains with nearly a 1% decline on Friday. Fund managers are still not convinced they should be buying small caps ahead of the summer doldrums and potential G20 disaster.


We have had a great run in June after a terrible May. That is a trend that repeats quite often. However, there is another trend and that is the summer doldrums when the market suffers from lack of interest. Investors do not want to be heavily invested while they are on vacation. Volume tends to die and were it not for the Q2 earnings in late July, the market would be a ghost town. I continue to recommend not being overly long ahead of the G20 showdown. We could more 5% in either direction after the event. Given the strong gains in June, the path of least resistance is lower.

Enter passively and exit aggressively!

Jim Brown

Send Jim an email

 

"We are all born ignorant, but one must work hard to remain stupid."

Benjamin Franklin


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Index Wrap

Quadruple Witching

by Jim Brown

Click here to email Jim Brown
Volume exploded higher over the last two days as a result of expiration. A quadruple witching options expiration always increases volume significantly. The entire week was strong with bearish positions being closed because of the short squeeze, traders exiting covered calls to keep their stock from being called away and from price chasers hoping to board the train before it leaves the station for new highs.

The S&P was the only index to make a new high, but the other indexes also had a good week. On Thursday when the S&P hit new high territory there were 827 new highs on individual stocks compared to only 102 new 52-week lows.

The surge in volume was strong but internals turned negative on Friday. The broad market A/D was 2:1 in favor of decliners but the major indexes were barely negative. It appeared to be the small caps fading while the mid and large caps were holding their gains.


The month of June has been kind to the S&P, and it would be great to see next week continue the gains. The choppy A/D turned into a smooth uptrend as we end the quarter and the first half of the year.

With the Dow up 15%, Nasdaq 21% and S&P 18% for the year, we could be reaching a point where fund managers take some chips off the table before the summer doldrums. Remember, hedge fund managers cash in at the highs while retail investors buy the highs.


In contrast the small cap A/D line has been positive for June but looks a lot like a head and shoulders formation in progress. Small caps are normally weak during the summer doldrums when volume is light. They begin to move higher in September and throughout Q4. The weakness in small caps is being led by financials and chips but the weakness is widespread.


The correlation of the Dow and the Russell is diverging sharply. Both tried to rally but the Russell continues to lag. The Russell 2000 is a broad index of 2000 mid and small cap stocks. In this chart the 30 big caps are leading while the 2,000 "other" caps are fading.


The percentage of S&P stocks with a buy signal on a Point and Figure chart has risen 20% in June. Some 68% of S&P stocks are showing buy signals but still 10% below the April highs. While the market is overbought, there is still room to run.


The major indexes are testing uptrend resistance from each of the prior highs. The Dow is the most visible with the 26,828 as the new high level from October and the intraday high at 26,951. With the potential for a negative outcome from the G20 meeting, the Dow should have a tough time moving over 27,000 but anything is possible.

Multiple analysts have Dow 30,000 targets but those are just guesstimates. There are far too many geopolitical factors at play to project a high at that level at this time. We all hope their guesses come true.


The S&P has a similar pattern but has already closed at a new high. The favorable component mix for the S&P could lift it higher. The gains from June will be a drag once the option expiration volume passes.


The Nasdaq has serious resistance at 8109-8164. This was a solid top in April/May. With the big cap techs, especially chips, reacting to the trade issues and social stocks worried about regulation, this could be a real hurdle.


The FANG stocks are finally moving in the same direction and that is a strong positive if it continues. Google remains the laggard but there is a good rally underway. These stocks, when grouped with Amazon, represent more than 35% of the Nasdaq 100. Where they go the index will follow.


There is increased volatility in the market. The VIX rose sharply back to 15.48 late in the day when the market began to roll over. There is fear that the rally will not continue and that is actually good for the market at this point because it provides for the diversity of trade. If everyone was betting on a rally, we could quickly become over extended and then collapse.


I continue to warn not to be overly long ahead of the G20 meeting. The uneducated and blissfully ignorant price chasers believe Trump will pull a deal out of his pocket and the market will zoom higher. While that is certainly possible, it is not probably and there could be some serious disappointment. Be patient. The summer doldrums are coming.

Enter passively and exit aggressively!

Jim Brown

Send Jim an email


New Option Plays

Overdosing on Drugs

by Jim Brown

Click here to email Jim Brown

Editors Note:

The biotech sector is suddenly hot, and we need drugs. I am adding Gilead Sciences and Bristol-Myers Squibb.



NEW DIRECTIONAL CALL PLAYS

GILD - Gilead Sciences - Company Profile

Gilead Sciences, Inc., a research-based biopharmaceutical company, discovers, develops, and commercializes medicines in the areas of unmet medical needs in the United States, Europe, and internationally. The company's products include Biktarvy, Descovy, Odefsey, Genvoya, Stribild, Complera/Eviplera, Atripla, and Truvada for the treatment of human immunodeficiency virus (HIV) infection in adults; and Vosevi, Vemlidy, Epclusa, Harvoni, and Viread products for treating liver diseases. It also provides Yescarta, a chimeric antigen receptor T cell therapy for adult patients with relapsed or refractory large B-cell lymphoma; Zydelig, a kinase inhibitor; Letairis, an oral formulation of an endothelin receptor antagonist for pulmonary arterial hypertension; Ranexa, a tablet to treat chronic angina; and AmBisome, an antifungal agent to treat serious invasive fungal infections. In addition, the company offers its products under the name Cayston, Emtriva, Hepsera, Sovaldi, and Tybost. Further, it develops product candidates for the treatment of HIV/AIDS and liver diseases, hematology/oncology, inflammation/respiratory diseases, and others. The company markets its products through its commercial teams; and in conjunction with third-party distributors and corporate partners. Gilead Sciences, Inc. has collaboration agreements with Bristol-Myers Squibb Company; Janssen Sciences Ireland UC; Japan Tobacco Inc.; Galapagos NV; Scholar Rock Holding Corporation; Tango Therapeutics; National Cancer Institute; Pfizer, Inc.; Sangamo Therapeutics, Inc.; Gadeta B.V.; HiFiBiO Therapeutics; Agenus Inc.; HOOKIPA Pharma Inc.; Goldfinch Bio, Inc.; and insitro Inc. The company was founded in 1987 and is headquartered in Foster City, California. Company description from FinViz.com.

Gilead just announced a partnership with Nurix Therapeutics to develop new ways to attack cancers and hematology. Nurix has developed a novel approach to destroy disease causing proteins. Gilead said there are many molecular targets involved in a disease pathway that have traditionally been challenging to manipulate using conventional approaches. Nurix has developed a protein degradation technology that will allow Gilead to target these diseases with that new technology. Nurix received an up front payment of $45 million and is eligible to receive up to $2.3 billion in progress payments as the drugs are developed. They will also share in future costs and sales. This is a good deal for both companies.

Shares are moving higher after six months of base building.

Earnings August 1st.

Buy August $72.50 call, currently $1.54, stop loss $66.00.


BMY - Bristol-Myers Squibb - Company Profile

Bristol-Myers Squibb Company discovers, develops, licenses, manufactures, markets, distributes, and sells biopharmaceutical products worldwide. The company offers drugs in oncology, immunoscience, cardiovascular, and fibrotic diseases. The company's products include Opdivo, a biological product for anti-cancer indications; Eliquis, an oral inhibitor targeted at stroke prevention in adult patients with non-valvular atrial fibrillation, and the prevention and treatment of venous thromboembolic disorders; and Orencia, a biological product for adult patients with moderately to severely active RA and prostate-specific antigen, as well as reducing signs and symptoms in certain pediatric patients with moderately to severely active polyarticular juvenile idiopathic arthritis. It also provides Sprycel, a tyrosine kinase inhibitor for the treatment of Philadelphia chromosome-positive chronic myeloid leukemia; Yervoy, a monoclonal antibody for the treatment of patients with unresectable or metastatic melanoma; Empliciti, a humanized monoclonal antibody for the treatment of multiple myeloma; and Baraclude, an oral antiviral agent for the treatment of chronic hepatitis B. In addition, the company offers Reyataz, a protease inhibitor for the treatment of human immunodeficiency virus (HIV) and Evotaz; Sustiva franchise, a non-nucleoside reverse transcriptase inhibitor for the treatment of HIV; and Daklinza NS5A replication complex inhibitor, Sunvepra NS3 protease inhibitor, and Beclabuvir NS5B inhibitor. It sells products to wholesalers, retail pharmacies, hospitals, government entities, and medical profession. It has collaboration agreements with Nektar Therapeutics; Janssen Pharmaceuticals, Inc.; Biocartis Group NV.; and FameWave Ltd. The company was formerly known as Bristol-Myers Company and changed its name to Bristol-Myers Squibb Company in 1989. Bristol-Myers Squibb Company was founded in 1887 and is headquartered in New York, New York. Company description from FinViz.com.

Bristol Myers is acquiring Celgene (CELG) for one share plus $50 and a $9 CVR. The CVR is a lottery ticket that only pays off if three high profile Celgene drugs are approved by the FDA by March 31st, 2021. All three drugs have a good chance of approval. If they are approved Bristol Myers hits the billion dollar lotto with three new revenue screens.

Bristol Myers is buying a winner here with Celgene earnings of $2.55 beating estimates for $2.49 in Q1. Celgene is expected to earn $10.72 for the year and $17.12 billion in revenues. That is a 20.86% rise in earnings and a 12.08% rise in revenue. For next year Celgene expects to earn $12.45 per share on $19.23 in revenue. That is another 16.1% and 12.3% rise respectively.

Bristol is not doing badly on its own. They reported earnings of $1.10 for Q1 compared to estimates for 94 cents. Revenue of $5.92 billion increased 14% and beat estimates for $5.8 billion.

The combination of these two companies will create an earnings juggernaut with huge free cash flow.

The Celgene acquisition is expected to close in Q3 but Bristol was forced to extend the offer date because not enough people had tendered their shares. It could blow up at any time or they might have to sweeten the deal.

I considered playing Celgene as it makes 52-week highs but should the deal blow up and that $50 cash premium evaporate, Celgene would implode. Meanwhile, Bristol could rally on a canceled deal because there would be no debt incurred. If the deal concludes, BMY will be a stronger company. If the deal dies, BMY will still have strong earnings and less debt.

Earnings July 25th.

Buy September $50 call, currently $1.97, stop loss $46.85.


NEW DIRECTIONAL PUT PLAYS

No New Bearish Plays



In Play Updates and Reviews

No Fear

by Jim Brown

Click here to email Jim Brown

Editors Note:

Investors do not seem to be worried about the G20 outcome. Price chasing was in full bloom on Thursday after the Fed set the stage for a rate cut in July. There are no guarantees, but the chances are now 100%. An agreement with China next week could derail that hike. Likewise, a disaster at the G20 could derail the market. Time will tell but I would not be an active buyer until after the G20.



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


BG - Bunge Ltd
The long position was entered at the open on Monday.

BOOT - Boot Barn
The long position was entered at the open on Monday.


BULLISH Play Updates

AJRD - Aerojet Rocketdyne - Company Profile

Comments:

Aerojet said it has delivered the jettison motor to NASA for the upcoming test of the Orion crew capsule on the Artemis 1 launch. The company also announced upcoming tests of a non-toxic rocket fuel in its Green propellant propulsion system. The future test will provide propulsion for a 13-month test flight of a new satellite. The launch will be on June 24th. Shares hit a new high on Thursday.

Original Trade Description: May 31st.

Aerojet Rocketdyne Holdings, Inc. designs, develops, manufactures, and sells aerospace and defense products and systems in the United States. The company operates through two segments, Aerospace and Defense, and Real Estate. The Aerospace and Defense segment offers aerospace and defense products and systems for the United States government, including the Department of Defense, the National Aeronautics and Space Administration, and aerospace and defense prime contractors. This segment provides propulsion systems, such as liquid, solid, air-breathing, and electric propulsion systems for space, defense, civil, and commercial applications; and armament systems. The Real Estate segment engages in the re-zoning, entitlement, sale, and leasing of the company's excess real estate assets. It owns 11,451 acres of land adjacent to the United States Highway 50 between Rancho Cordova and Folsom, California east of Sacramento. The company was formerly known as GenCorp Inc. and changed its name to Aerojet Rocketdyne Holdings, Inc. in April 2015. Aerojet Rocketdyne Holdings, Inc. was founded in 1915 and is headquartered in El Segundo, California. Company description from FinViz.com.

Earnings July 30th.

Aerojet reported earnings of 44 cents that beat estimates for 27 cents. Revenue of $491.7 million also beat estimates for $478.2 million. Revenue was flat year over year because of the phase out of the AJ60 solid rocket motor. However, the uptick in Patriot missile components offset that end of life product. Order backlogs were $3.8 billion.

I am sure everyone has noticed the increase in launches by dozens of companies and everyone needs rocket motors. SpaceX, Blue Origin, NASA and other countries all around the world are adding to the 4,091 satellites in orbit. Every satellite requires a rocket. In addition, Aerojet has numerous contracts with the government to supply defense contracts. With the defense sector seeing increased orders from around the globe, the outlook for Aerojet is strong.

Shares rose over prior resistance at $38 on the strength of their earnings. New high resistance is $40 and only $1.50 away.

Position 6/3:
Long August $40 Call @ $2.00, see portfolio graphic for stop loss.


BG - Bunge Ltd - Company Profile

Comments:

Shares of BG rolled over slightly after the huge spike in corn prices appeared to fade. The floods are ongoing so prices should not decline. I tightened the stop loss.

Original Trade Description: June 16th

Bunge Limited operates as an agribusiness and food company worldwide. It operates in five segments: Agribusiness, Edible Oil Products, Milling Products, Sugar and Bioenergy, and Fertilizer. The Agribusiness segment purchases, stores, transports, processes, and sells agricultural commodities and commodity products, including oilseeds primarily soybeans, rapeseed, canola, and sunflower seeds, as well as grains primarily wheat and corn; and vegetable oils and protein meals. It provides its products for animal feed manufacturers, livestock producers, wheat and corn millers, and other oilseed processors, as well as third-party edible oil processing companies; and for industrial and biodiesel production applications. The Edible Oil Products segment provides packaged and bulk oils and fats, including cooking oils, shortenings, margarines, mayonnaise, and others for baked goods companies, snack food producers, confectioners, restaurant chains, foodservice operators, infant nutrition companies, and other food manufacturers, as well as grocery chains, wholesalers, distributors, and other retailers. The Milling Products segment offers wheat flours and bakery mixes; corn milling products that include dry-milled corn meals and flours, wet-milled masa and flours, and flaking and brewer's grits, as well as soy-fortified corn meal, corn-soy blends, and other products; whole grain and fiber ingredients; and milled rice products. The Sugar and Bioenergy segment produces sugar and ethanol; and generates electricity from burning sugarcane bagasse. As of December 31, 2018, it had a total installed cogeneration capacity of approximately 322 megawatts. The Fertilizer segment offers nitrogen, phosphate, and potassium fertilizers; and SSP, ammonia, ammonium thiosulfate, monoammonium phosphate, diammonium phosphate, triple supersphosphate, urea, urea-ammonium nitrate, ammonium sulfate, and potassium chloride. The company was founded in 1818 and is headquartered in White Plains, New York. Company description from FinViz.com.

Bunge suffered for months from a decline in the US grain market. Since late May the floods have decimated the Midwest and grain prices have skyrocketed. Bunge will benefit from these high prices.

The new CEO said he was focused on slimming down the company and focusing on only those areas that were profitable. "We need to slim down in order to earn the right to grow again." This emphasis on profitability along with the spike in grain prices has lifted Bunge shares.

The CEO also said he preferred the stability an agreement with China would bring but they would continue to deal with the market they are given and would remain profitable.

Earnings August 7th.

The stock broke over resistance at $57.25 and the 200-day at $57.07 on Friday. The next resistance is just over $60 but I think they can regain the October highs around $70 if there is good news from the G20.

Position 6/17:
Long October $60 call @ $2.87, see portfolio graphic for stop loss.


BOOT - Boot Barn - Company Profile

Comments:

No specific news but shares continued higher to close at a new high on Friday.

Original Trade Description: June 16th

Boot Barn Holdings, Inc., a lifestyle retail chain, operates specialty retail stores in the United States. The company's specialty retail stores offer western and work-related footwear, apparel, and accessories for men, women, and kids. It offers boots, shirts, jackets, hats, belts and belt buckles, handbags, western-style jewelry, rugged footwear, outerwear, overalls, denim, and flame-resistant and high-visibility clothing. The company also provides gifts and home merchandise. As of March 30, 2019, it operated 240 stores in 33 states. Boot Barn Holdings, Inc. also sells its products through e-commerce Websites, including bootbarn.com; sheplers.com; and countryoutfitter.com. The company was formerly known as WW Top Investment Corporation and changed its name to Boot Barn Holdings, Inc. in June 2014. Boot Barn Holdings, Inc. was founded in 1978 and is based in Irvine, California. Company description from FinViz.com.

Boot Barn is a niche retailer and appears to be doing well. They reported earnings of 28 cents that beat estimates for 27 cents. They reported revenue of $192.8 million that beat estimates for $189.1 million. They guided for Q2 for revenue of $178-$180 million.

Boot Barn said full year same store sales rose 10% with e-commerce sales up 12.2%. Retail store front sales rose 9.5%. Last quarter consolidates same store sales rose 12.1% and held despite Q1 normally being a down quarter for retail. Store sales rose 9.8% and 20% growth on a two-year basis. Profitable store brands rose to 18.1% of sales in Q1 compared to 16.2% in Q1-2018. They added 17 stores over the last year and six in the last quarter.

Earnings August 14th.

Shares broke out to a new high on Friday and could be poised for a new leg higher.

Position 6/17:
Long August $35 Call @ $2.70, see portfolio graphic for stop loss.


SWKS - Skyworks - Company Profile

Comments:

I am recommending we close the Skyworks position. On Friday the US announced five more companies had been added to the blacklist and US companies can no longer sell them chip components. The new companies supply parts to the Chinese military and the US does not want them to benefit from the highly advanced US chip technology.

Close the position at the open on Monday.

Original Trade Description: May 25th

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.

Skyworks shares have been crushed in the tariff war and the resulting chip-wreck. Many of the companies that buy from Skyworks have been hit by tariffs that depress their sales. However, this could be n ideal buying opportunity.

Other than Qualcomm, Skyworks probably has the most to gain from the 5G revolution. They said the amount of Skyworks chips in 5G phones will be 40% more than in a 4G phone. Skyworks recently provided a graphic showing all the components they will be supplying for most 5G phones. Their revenue per phone will increase from $18 to $25 per phone.

5G is also going to revolutionize the Internet of Things (IoT) devices because the greater speed will allow them to perform more functions an be in more places. Skyworks will be selling those chipsets as well. Literally billions of 5G IoT devices will be sold over the next several years.

They do have risk. Huawei is on the verge of being blacklisted by the USA and the EU. They will have a hard time selling phones outside of China. Huawei is currently a large customer of Skyworks. However, just because Huawei will not be able to sell phones in the US or EU it does not mean people in those areas will not be buying phones. They will simply be buying different phones from other manufacturers and they will still contain Skyworks chips.

Skyworks rallied 36% off the December lows to close at $93.56 in April. They gave back 29% in the chip-wreck since May 1st to trade at support at $68. This is a monster drop to support and should be a buying opportunity. While we cannot foresee the future headlines, the drop back to support should prevent them from a continued decline unless the headlines are severe.

Earnings August 1st.

Position 5/28:
Long July $75 call @ $2.00, see portfolio graphic for stop loss.


WMT - Walmart - Company Profile

Comments:

Walmart said it was paying $282 million to settle a long running six-year probe into bribery of foreign officials in Brazil, China, India and Mexico. The payments were made by third party intermediaries and did Walmart did not know about the payments until after the fact. They blamed delayed accounting and lack of internal controls for third party payments in foreign countries. Bribery is a way of life in those countries.

Shares closed at another new high.

Original Trade Description: June 9th

Walmart Inc. engages in the retail and wholesale operations in various formats worldwide. The company operates through three segments: Walmart U.S., Walmart International, and Sam's Club. It operates supercenters, supermarkets, hypermarkets, warehouse clubs, cash and carry stores, discount stores, drugstores, and convenience stores; membership-only warehouse clubs; e-commerce Websites, such as walmart.com, jet.com, shoes.com, and samsclub.com; and mobile commerce applications. The company offers grocery products, including meat, produce, natural and organics, deli and bakery, dairy, frozen foods, alcoholic and nonalcoholic beverages, floral and dry grocery, as well as consumables, such as health and beauty aids, baby products, household chemicals, paper goods, and pet supplies; and health and wellness products. It also provides electronics, cameras and supplies, photo processing services, wireless, movies, music, video games, and books; stationery, automotive, hardware and paint, sporting goods, and outdoor living and horticulture; apparel for women, girls, men, boys, and infants, as well as shoes, jewelry, and accessories; and home furnishings, housewares and small appliances, bedding, home decor, toys, fabrics, crafts, and seasonal merchandise, as well as brand name merchandise. In addition, the company offers fuel and financial services and related products, including money orders, prepaid cards, wire and money transfers, check cashing, and bill payment. It operates approximately 11,300 stores and various e-commerce Websites under the 58 banners in 27 countries. The company was formerly known as Wal-Mart Stores, Inc. and changed its name to Walmart Inc. in February 2018. Walmart Inc. was founded in 1945 and is based in Bentonville, Arkansas. Company description from FinViz.com.

Walmart has fought its way back to the prior highs after a 20% decline in Nov/Dec. They are hitting on all cylinders and no longer look like Amazon roadkill. They are fleshing out their online ordering, store pickup and next day delivery and showing no signs of losing market share to Amazon.

This is a technical position. The stock has risen to the prior highs and could be positioned to break out for a new leg higher. Options are cheap and the August option expires one day after earnings so it should hold its value. We will exit before earnings.

Earnings August 15th.

Position 6/10:
Long August $110 call @ $2.10, see portfolio graphic for stop loss.


BEARISH Play Updates

No Current Puts