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Newsletter

Daily Newsletter, Sunday, 6/30/2019

Table of Contents

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

Market Wrap

Calm Before the Storm

by Jim Brown

Click here to email Jim Brown

After weeks of gains the market rested before the G20 meeting on Saturday.

Weekly Statistics

Friday Statistics

The first six months of 2019 set some records. This was the best month for the Dow since October 2015 and the best June since 1938. For the S&P it was the best first half since 1997 and the best June since 1955. There has been a lot of months/years since those dates so that should emphasize how strong the market has been since the June 3rd bottom.

With the Trump/Xi meeting somewhat successful the market should be positive on Monday. How positive for how long is the question? S&P futures were up +29 at the open on Sunday evening.

Removing the ban on selling to Huawei should help the chip sector. Not adding additional tariffs should help the overall market. Unfortunately, the result of the meeting was a temporary truce rather than an agreement. There is no path to an actual deal. All the roadblocks are still in place and intellectual property concerns and forced technology transfers are still a taboo subject as far as China is concerned.

The market is moving higher simply because the outcome was not negative. I give the win to China in this round. They got a reprieve for Huawei and gave up nothing. They are still demanding an end to tariffs before they agree to any deal and Trump is not going to give up that card.

China is an expert at the "rope-a-dope" maneuver. If you have 20 points you want to get done, they will fight on each one for months at a time. Once you think you have an agreement on 15 of them, and are pressing on the final five, they will say "those are too harsh" if you want to negotiate on those then we have to revisit the first 15 and the process starts all over. This is exactly what they did to Trump in May. By backing out of the talks with a hard line that the deal was not balanced, and the US must rethink its positions, they effectively nuked a year's worth of talks and reset the board again.

One of the key provisions is that the US wants China to pass laws against intellectual property theft and forced technology transfer. They are not going to do it. That would be the equivalent of asking the US to change its constitution to favor the Chinese economy. IP theft and forced transfer is how China has built its economy. This is a communist country and they are never going to play fair. It is them against the world and they will do anything they can to win.

Investors must decide if they are willing to hold for another three months while the new round of talks progress to yet another stalemate. Or, will they leave the market in frustration ahead of the summer doldrums. I believe they will chase prices despite the lack of earnings and slowing economic growth. The lure of new highs is too strong.

The lack of a disaster at the meeting could provide a temporary lift. Unfortunately, Q2 earnings are fading back to negative growth and that should be a longer term drag. The factor that will overcome everything discussed above is the prospect of a Fed rate cut in July. That is the new rally cry now the China trade problem has been put on the back burner to simmer. China should not be a drag on the market in July. All eyes will be on the Fed instead.

I believe China has decided to wait out the Trump presidency. They know any democratic successor will be much easier to deal with and will drop significant requests in order to be seen making a deal. That means China will try to low key any future talks while investors focus on the Fed.

The Dow traded over 26,828 intraday but had not closed at a new high. The Nasdaq Composite has not made a new high and remains -162 points below that level. The Nasdaq 100 is nearly 200 points below the prior high at 7,845. The S&P closed at a new high at 2,854 but pulled back to 2,941. It is close enough to be at a new high on Monday. The Russell 2000 came to another dead stop at the 10% correction level and is well below the prior highs.

The Russell 3000 was reconstituted on Friday. That is the combination of the Russell 1000 and the Russell 2000. This is the market of tradable stocks. That index is very close to prior high resistance at 1,740 and could generate significant technical buying and price chasing if we were to break over that level.


I cannot chart the A/D line on the Russell 3000. The closest I can come is the NYSE common stock only A/D line. That eliminates ETFs and REITS. The "stock" market is positive with the A/D line at a new high on Friday. That should continue at Monday's open. This is our early warning indicator. If the NYC Stock A/D line begins to fade, then we should be concerned about the health of the market. I do not anticipate that ahead of the Fed. This indicator was strongly positive on Friday due to the reconstitution of the Russell indexes that added about 5 billion shares of extra volume.


On Friday the BEA released the personal income and spending numbers for May. Income rose 0.5% for the second consecutive month and that is very bullish. Consensus estimates were 0.3%. Unfortunately, employee compensation rose only 0.2% with proprietor's income rising 0.8% and leading the categories. Income receipts on assets, which means you sold something, rose 1.6% but that is not repeatable.

The key to consumer spending is real disposable income and that rose 0.3% to match April's gain. Basically, the headline number was bullish, but the components were mediocre. Current 12-month average hourly earnings are 3.1% and that is the slowest pace since September.

Personal spending rose only 0.2% to match April but well down from the 0.8% in March. Spending on durable goods rose 1.6% and the strongest since November. Nondurable goods spending declined -0.2% while services rose 0.2%. This was another disappointing report suggesting the employment boom may be fading because income and spending are slowing.

The second reading of consumer sentiment for June, rebounded slightly from 97.9 to 98.2. The present conditions component rose from 110.0 to 111.9 but the expectations component declined from 93.5 to 89.3. Analysts said falling gasoline prices were to blame for the increase in current conditions.

Note that sentiment has been relatively flat for the last 18 months. There was a big spike after the election, but that excitement has faded.


The worst report on Friday was the Chicago PMI for June, which sank to 49.7 and the lowest reading in more than two years. This was the first reading in contraction territory since August 2016. New orders and order backlogs both declined. This is the chart that is giving the Fed a headache. The GDP and the stock market may be doing well but the economic internals are fading fast. This is why the Fed could cut by 50 basis points in July.

Econoday Chart

Big money is moving into treasuries and the yield on the ten-year has been trading at 2.0% for the last week. This could reverse on Monday.


There are multiple high value reports next week, but nobody will be paying attention. Volume will be nonexistent after Monday/Tuesday when the index trackers will be cleaning up their Russell reconstitution trades. There is roughly $9 trillion indexed to the Russell indexes. Fund managers will check their weightings on Monday based on their buys/sells from Friday and see if the weightings are correct. If not, they will have to buy/sell small amounts of stock to correct the imbalances. They will repeat this on Tuesday after Monday's trade impact is calculated.

This is payroll week and ISM week. Both sets of reports will be important but not likely to be market moving because of the low volume. The NYSE closes at 1:PM on Wednesday and all day on Thursday. That makes Friday almost a legal holiday. Volume is not likely to break 5 billion shares on Friday.

The estimates for both the ADP and Nonfarm payrolls declined from prior months but remain significantly over the low numbers we got last month. The flooding in the Midwest was supposedly responsible for the low counts. We are moving into census season and each report for the rest of the year will be positively impacted by census hiring.

If the Manufacturing PMI is below 50, it could increase chances for a rate hike.


The dwindling earnings calendar did not change the numbers last week. Q1 earnings are still expected to rise 1.6%. However, Q2 earnings are now expected to rise only 0.3% on a 3.8% rise in revenue. We are about two weeks from the start of the Q2 earnings cycle.

There are only a handful of companies reporting next week and only a couple that the average investor would recognize. Those are Acuity Brands and Greenbrier. This is going to be a very slow week for corporate headlines.


The big earnings news on Friday came from Constellation Brands (STZ). The company reported adjusted earnings of $2.21 when excluding the pass-through loss from Canopy Growth. Revenue was $2.10 billion. Analysts were expecting $2.05 and revenue of $2.07 billion. Constellation guided for the full year for earnings of $8.65-$8.95, a 15-cent increase from prior guidance. This excludes any impact from Canopy.

Constellation said sales of its Corona and Modelo Especial beer products were booming. In recent quarters the company has added more Mexican beers and craft bears to cater to rising demand by younger drinkers. Beer sales rose 7.4% in the quarter to $1.48 billion with operating margin rising to 39.3%.

Constellation is selling 30 of its inexpensive wine brands to Gallo for $1.7 billion but retaining the more expensive wines in a "power brands" premium portfolio. The sale is expected to close in the second half of the year.

The CEO said he was not pleased with the loss from Canopy Growth, but he understood they were in a growth phase that required significant capital expenditures. The future is very bright, but we will have to endure some losses to get there. Shares spiked nearly 5% on the news.


On Thursday Dow component Nike (NKE) reported earnings of 62 cents missing estimates for 66 cents. That was the first earnings miss in 7 years. Revenue of $10.18 billion narrowly beat estimates for $10.16 billion. The company said impact from currency valuations was painful. Costs have risen 10% over the last 12 months due to higher marketing expenses.

On the positive side the company said they had seen no material impact from the China trade issues. They guided for revenue growth to accelerate into the high single digits by December. Currently online sales accounted for 30% of revenue and that will top 50% long term according to the company. They guided for earnings to rise 19% in the current fiscal year.

Wedbush reiterated an outperform with a $96 price target. The analyst said they are executing a "solid strategy" and producing innovative products with key initiatives in women's apparel.


Dow component Walgreens Boots Alliance (WBA) reported earnings of $1.47 that beat estimates for $1.43. Revenue of $34.591 billion beat estimates for $34.442 billion. Domestic pharmacy sales rose 2.3% to $26.5 billion. International pharmacy sales declined -7.3% to $2.8 billion. The company blamed adverse currency impact for the decline. The overall earnings declined -23.6% because of weak performance in the UK unit.

Walgreens did report a rise in "branded" drug sales and a rise in the number of total prescriptions filled in the US. The company reiterated full year guidance.

Walgreens has been the worst performing stock in the Dow with YTD losses of 23.4 percent.


You can now buy a real house on Amazon, free shipping included. Since they were added to the shopping site several models continue to sell out. (Source) Specifically, one 172 sqft $7,250 pre-fab cabin is a hot seller. The manufacturer claims it can be built in only 8 hours from the prefab parts. The available tiny homes range from a few thousand dollars to tens of thousands for the larger models. For instance, the 292 sqft, not including the sleeping loft, cabin below costs about $19,000 and two adults can assemble it in 2-3 days. A 1,000 sqft Ecohousemart Timber Home goes for about $40,000.

Does this sound too good to be true? There is a catch. If you live in a colder climate and want insulation, it is extra. You will need a foundation, not included. Despite the extras, buying a prefab home for a mountain lot, mother-in-law residence, guest quarters, pool cabana, etc, has a lot of potential.


Amazon announced the date for Prime Day as July 15/16th this year. Amazon shoppers are expected to spend an average of $507 each, up from $465 in the 2018 sale. RetailMeNot data showed that those shopping on Prime Day will visit an average of 11 other websites throughout the event. This is not just good for Amazon but good for all retailers. Target, Walmart and Ebay have already announced special events scheduled to coincide with Prime Day. Despite the online feeding frenzy, MiQ data projects that parents will make an average of 16 trips to brick and mortar stores during the back to school shopping season.

Rakuten Intelligence reported that during March and April Amazon delivered as much as 45% of its own shipments. That delivery rate is up from 8% in 2016, 20% in 2017 and 30% in 2018. Amazon is rapidly replacing UPS, FDX and USPS as shippers. Amazon has the second largest warehousing operation in the world behind DHL. Amazon manages more than 233 million sqft of warehouse space compared to 248 million for DHL.

Rite Aid (RAD) announced last week they were partnering with Amazon to provide instore pickup locations in more than 1,500 stores. The service will be called "Counter" and will allow consumers to pickup their online orders with same-day, one-day or standard shipping service. Rite Aid is hoping consumers will linger in the stores and buy something Rite Aid offers. RAD shares spiked as much as 36% before falling back. With RAD shares in the mid-single digits this expanded partnership could be the next step in Amazon eventually acquiring the chain and its 2,469 locations. Rite Aid's market cap is only $431 million and pocket change for Amazon.



Apple announced that noted designer Johnny Ive was stepping down from the CDO position. Ive has worked for Apple since 1992 and designed most of Apple's iconic devices. The iMac G3 was the beginning of the rebound in Apple computers. The G4 Cube did not achieve as much success commercially, but it was a breakthrough design. The iPod was a monster hit with the first device released in 2001 with the capability to hold up to 1,000 songs. The iPod was not the first MP3 player, but it rose to dominate the market.

The iPhone was first released in 2007 and Ive and Jobs worked together to change the image of the cell phone. He was also influential in developing iOS 7 and a major upgrade in smartphone operating systems. He also created the MacBook Air in 2008. That revolutionized the laptop market. He is also credited with designing the Apple Watch, iPad and Apple's new spaceship campus.

Apple shares declined on the news but the impact from Ive leaving is likely to be minimal. He is going to operate his own independent design firm "LoveFrom" and Apple will be his primary client.


A headline out this weekend claims US air-safety regulators reportedly found a problem with the 737 in-flight control chip. This could extend the grounding of the planes until the end of the year. More than 500 are parked at storage facilities.

Regulators said a failure in the chip can cause "uncommanded movement" of a flight control on the aircraft's tail and force the nose of the plane lower. During testing it took pilots longer than expected to work through the problem. This problem is unrelated to the initial flaw in the MCAS automated flight control system. A Boeing official said they are shooting for a late September time frame for a full software update to fix the MCAS and this new problem. Once regulators approve the software update it will take an additional two months before planes can begin flying again. In addition, all the pilots will have to be retrained and recertified. Shares declined on the news.


Uber (UBER) rallied more than $4 over the last two days to close at a new post IPO high at $46.14. Option volume was running twice normal as buyers bought calls and doubters bought puts. There have been 2.2 calls bought for every put over the last two weeks.


Tesla (TSLA) could be in for a big move this week. They normally report deliveries for the quarter a couple days after the quarter ends. Analysts are expecting 91,000. Elon Musk has said this could be a record quarter for deliveries. Others are expecting 85,000-87,000. Shares have rallied over the last three weeks on the Musk comments. At this point, even if he meets the analyst estimates, multiple analysts believe this will be as good as it gets.

The company's manufacturing momentum is slowing and the multiple models both announced and in production are a drain on cash flow and capital expenditures. Several years ago, there were projections of 750,000 to one million vehicles a year in the early 2020s. With current production around 350,000 there is almost no hope of reaching those targets. The completion of the Chinese factory will boost production somewhat but another 50-60,000 a quarter is not going to reach those lofty goals. Earnings are now at long term risk as cash burn increases. There are multiple analysts who believe Tesla will either be acquired in a rescue or end up in bankruptcy. There are more than 20 new models of electric cars to be delivered between 2019-2021 and nearly all are cheaper than a Tesla. Competition is going to be fierce and these companies have significantly more money than Tesla. Musk is at great risk of losing Tesla's pole position in the EV race.


Crude inventories imploded last week as refiners get ready for the July 4th holiday. Utilization ramped up to 94.2% as they produced gasoline to flood the system ahead of a week of heavy driving. Also impacting inventories was a sharp drop in imports that accounted for about a 6 million barrel decline for the week.

Crude prices spiked to $60 on the increase in Iranian tensions. Prices dropped $1 at the close on Friday but immediately recovered that in the Sunday evening session. OPEC meets this week to discuss Q3 production targets.

Active rigs were unchanged in total, but oil rigs rose by 4 and gas rigs declined by 4. The $60 oil price may be giving drillers a chance to rethink their plans.





Markets

The S&P futures are up +29 as I type this on Sunday evening. Obviously, we do not know if that will stick through Monday's open or will sellers appear on the spike. We are entering the normal summer doldrum period, so anything is possible. Traders already short ahead of the doldrums are going to have a bad morning.

Headline rallies are normally short squeezes and are not based on fundamentals. Sometimes these squeezes ignite a real and lasting rally but many times they fade out over a couple days and the direction reverses. I would not be a buyer of long positions at Monday's open. Option premiums will be out of sight and you will more than likely be filled at the high of the day and possibly the week.

On the positive side, the S&P is likely to open in new high territory over 2,954. That could trigger some price chasing, but I would be cautious. In the past we have seen rebounds like we had in June end with a climax spike of shorts covering and retail traders buying. Institutional investors will not be buying Monday's bounce.

Multiple analysts have year-end price targets over 3,000 with 3,150 the current high target for 2019. If we were to see a multiday rally appear and break through 3,000, those high targets would begin to be hit and that would be an excellent time for fund managers to take some chips off the table and protect their 2019 gains and their bonuses.


The Dow is poised to open at a new intraday high, but it must close over 26,828 for a new record high. Boeing is likely to be a drag, but Intel, Cisco, Chevron, Exxon, Caterpillar, Apple and 3M are likely to be leaders.

The Dow's decline last week was minimal, and sentiment is still positive despite the weak earnings forecast. A new high close coupled with expectations for a 50-point rate cut, would be a powerful motivating force.



The Nasdaq futures are up +107 and the Nasdaq Composite is still 162 points below its prior high. The chip sector is likely to contribute to Monday's gains thanks to the position reversal on Huawei. The Nasdaq has strong support at 7,859 and strong resistance at 8,164 with Friday's close almost exactly in the middle at 8,002.

Apple should be the biggest impact with increased Chinese tariff concerns off the table for now.



The Russell 2000 was the strongest gainer on Friday, but it was due to the reconstitution of the Russell indexes and the five billion shares of additional volume. It was not because earnings are improving. Nothing has changed in small cap land. These reconstitutions typically lift the Russell for the next two days as portfolio managers balance their positions. That normally means buying a few more shares of the companies added to the Russell indexes. There is no guarantee and there is strong resistance for any continued move higher.


I would not recommend buying stocks at the open on Monday. There is no reason to jump in front of the freight train and get run over with high prices. I am not going to publish the LEAPS newsletter tonight for this reason. I will publish it on Monday. I can almost guarantee you that we will revisit current levels over the next couple of months and possibly lower. Be patient.

Enter passively and exit aggressively!

Jim Brown

Send Jim an email

 

"You cannot cross the sea by merely standing and staring at the water."

Rabindranath Tagore


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Index Wrap

Russell Reconstitution

by Jim Brown

Click here to email Jim Brown
The Russell reconstitution produced a volume surge even higher than the quadruple witching the prior Friday. The quadruple witching expiration spiked the volume to 9.265 billion shares the prior Friday. The Russell reconstitution sent volume soaring to 10.884 billion shares this Friday. That is a massive amount of volume since the average is about 6.0 billion on a normal weekday.


The Russell reconstitution occurs once a year on the last Friday in June. Russell ranks all the stocks in the market by market cap and removes non US stocks and several other classes of securities. What they end up with is a list of all tradable stocks by market cap. The top 1,000 by market cap become the Russell 1000 index. The remainder of those 3,000 stocks become the Russell 2,000. For example, on any given year there could be 100 stocks that have risen in market cap to move from the Russell 2000 index into the Russell 1000 index. That pushes the 100 smallest stocks in the Russell 1000 back into the Russell 2000. Every year there are new stocks that have made the grade and are now eligible to be added to the Russell 2000. That means an equal number of stocks are going to be eliminated from the index.

Russell publishes the expected additions and deletions around the 1st of June. They revise that list about 10 days before month end. Hedge funds try to game the system by buying the additions in advance and shorting the deletions. On reconstitution Friday they try to unload those positions for a profit in the high volume as thousands of portfolio managers are forced to buy and sell.

Because market caps change throughout the year every stock that is currently in the indexes sees their weighting change. This forces portfolio managers tracking the indexes to buy or sell EVERY stock in the Russell 3000 universe. It may be only a few hundred shares each or a few thousand. It depends on how much the individual market caps have changed and their new weighting inside the indexes.

The entire process on Friday runs so smoothly that it rarely impacts the market despite the heavy volume. On Monday, portfolio managers will review their portfolios compared to the Russell rankings and further adjust their holdings. Since the entire process is computerized, there will still be some adjustments but only minor in volume. Where trouble could appear is the leftover stock from the hedge funds trying to game the system. If they were unsuccessful in selling for the price they wanted on Friday, they will be looking to liquidate those remaining holdings on Monday. This can cause some downward pressure at the close as they hit the exit button on any remaining shares.

This reconstitution process messes with the normal technical indicators because thousands of stocks are being bought and sold based on a math program rather than any fundamental or technical reason.

In a rising market like we have had in 2019, market caps for most stocks have risen and therefore more buying is needed to bring the funds tracking the indexes back into balance. This powered the A/D ratios to new highs on the S&P, but this is a false indicator this week because of the forced buying.


The small cap Russell 2000 was a prime beneficiary of the rebalance and surged 1.3% on Friday for obvious reasons. Since this was forced buying and not based on fundamentals, we could see the prior weakness return by Friday.

The small cap A/D line is not at a new high despite the buying surge. Small caps are still struggling.


The Russell has major resistance at 1,585 and 1,600. It would take a major change in market sentiment to power through those levels. However, with the Fed expected to cut rates in July and the China trade confrontation delayed for another 90-days we could see some new buying interest. On the flip side, the summer doldrums are normally unkind to small cap stocks.


The trade truce and the reversal on sales to Huawei should lift the chip stocks and that should also lift the Nasdaq. Chips were up last week in advance of the G20 on hopes for a breakthrough.


Google reversed course last week and moved lower creating a drag on the tech index. The other FANG stocks moved sideways ahead of the G20 because of the additional uncertainty and profit taking from the prior gains.


The Dow chart did not change from last week. There are still two levels of strong resistance and even with the +220 spike in the futures, those levels will still be in play. The prior high was 26,828 and that is the level to watch.


After the reconstitution of the Russell 3000 this will be the index to watch this week. The prior record high at 1,738 is the critical level and a move over that level could trigger some significant price chasing.


The VIX plunged at the close on Friday as the result of 3,000 stocks being bought in the reconstitution. With the S&P futures up +29 on Sunday evening it will likely fall again on Monday.


As I said in the market commentary, I would not be a buyer at the open on Monday. We do not know how long this short squeeze will last and once the details of the Trump/Xi meeting begin to leak out, the market could lose traction rapidly. Be patient, we will probably revisit these levels again soon.

Enter passively and exit aggressively!

Jim Brown

Send Jim an email


New Option Plays

Not an Entry Point

by Jim Brown

Click here to email Jim Brown

Editors Note:

With the S&P futures up +29 on Sunday this is not an entry point. We have to be patient. Option prices will be out of sight at the open and there is a good chance we could get filled at the high for the day if not the week. When headline events cause these giant short squeezes we just have to step aside and wait for normal conditions to return.

I wanted to add a long put on Tesla today, but the option premiums are obscene. A lot of investors are expecting them to decline.



NEW DIRECTIONAL CALL PLAYS

No New Bullish Plays


NEW DIRECTIONAL PUT PLAYS

No New Bearish Plays



In Play Updates and Reviews

Markets Rested

by Jim Brown

Click here to email Jim Brown

Editors Note:

After several weeks of gains the major indexes took a breather ahead of the G20. Investors unsure about the potential outcome took profits while others nibbled at the declines. This was a major Friday in the market with the annual Russell 3000 index reconstitution. Nearly 11 billion shares were traded and it is hard for the market to be directional in that kind of mixed volume. All 3,000 stocks plus the dozens of new additions were either bought or sold to complete the rebalance.



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


GILD - Gilead Sciences
The long position was entered at the open on Monday.

BMY - Bristol-Myers Squibb
The long position was not entered due to opening gap lower.


BULLISH Play Updates

AJRD - Aerojet Rocketdyne - Company Profile

Comments:

Aerojet said it has delivered four RS-25 engines to NASA for integration into the first Space Launch System (SLS) rocket core stage. Aerojet engines have powered every astronaut that has launched from the USA. The SLS will eventually power flights to the moon and Mars. Shares spiked nearly 4% on the news.

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.

Update 6/23: 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.

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


BG - Bunge Ltd - Company Profile

Comments:

Shares of BG crashed as corn prices imploded. We were stopped at $56.50 on Tuesday.

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.


BMY - Bristol-Myers Squibb - Company Profile

Comments:

BMY announced on Monday it was selling off a profitable division of Celgene in order to gain approval for the acquisition. Investors were not happy to see those profits split off. Shares gapped down nearly $4 on Monday to negate the entry into the position. No trade.

Original Trade Description: June 23rd

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.

No entry on $3 gap open lower.


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.


GILD - Gilead Sciences - Company Profile

Comments:

Gilead blunted its own rally after the company announced it was allowing a Japanese firm, Carna Biosciences, access to its small molecule compounds in immuno-oncology. Gilead will get access to Carna's lipid kinease drug discovery platform. Carna will get $20 million up front, progress payments of up to $450 million and a percentage of the sales of any commercialized drug.

Original Trade Description: June 23rd

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.

Position 6/24:
Long August $72.50 call @ $1.47, see portfolio graphic for stop loss.


SWKS - Skyworks - Company Profile

Comments:

We closed the position at the open after the government added five more Chinese companies to the blacklist. After an initial decline shares rallied back late in the week but the G20 meeting this weekend could be a show stopper.

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:
Closed 6/24: Long July $75 call @ $2.00, exit $3.25, +$1.25 gain.


WMT - Walmart - Company Profile

Comments:

No specific news. Shares declined slightly with the market but are still holding near the recent highs.

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.

Update 6/23: 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.

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


BEARISH Play Updates

No Current Puts