Option Investor

Daily Newsletter, Saturday, 4/27/2019

Table of Contents

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

Market Wrap

Reluctant Records

by Jim Brown

Click here to email Jim Brown

After a week of low volume gains and losses the S&P and Nasdaq managed to close at record highs.

Weekly Statistics

Friday Statistics

Most of the gains came on Tuesday and the next three days were sideways to down until 2:PM on Friday. A low volume uptick in buying, possibly short covering ahead of the weekend, lifted the indexes back into record territory. The +105 point gain on the Nasdaq on Tuesday and the +27 point gain on Friday, was the majority of the gains for the week. The other three days only added a total of 16 points.

The S&P clawed its way to a new high by 3 points on Tuesday and then added another 6 points to that record on Friday after a 15-point rebound from the morning lows.

The Nasdaq rebounded 85 points from the morning low to close at a record high.

Powering the market rally was the first look at the Q1 GDP. The headline number showed a 3.2% rise in Q1 and that was the equivalent of a blowout. The average of the prior eight Q1 readings before the tax cut was 0.87%. The first quarter GDP is always low due to factors nobody understands. It has been studied and there is no accepted answer other than they blame it on the weather and post-holiday depression. In Q1-2018 the GDP rose 2.2% as a result of the surge in activity following the tax cut.

To illustrate how much of a blowout this quarter actually was, the entire month of January was lost because of the government shutdown. For the entire quarter international trade was handicapped by tariffs and trade battles. The fear of a hard Brexit in April pressured businesses doing business in Europe in Q1. Without those problems the GDP could have been significantly higher. This is setting the stage for a very strong year if the China trade agreement happens in May as expected. The president said on Friday he also expects a major trade agreement with Japan in May. Prime Minister Abe met with Trump at the White House on Friday.

There are so many pieces of the puzzle coming together that investors may soon become bullish again.

The components of the GDP were negative. Consumption (consumer spending) declined from 1.66% in Q4 to contribute only 0.82% in Q1. Analysts blamed that on the shutdown delay in getting tax refunds mailed. Fixed investment declined from 0.54% to 0.27%. On the positive side inventories rose from 0.11% to 0.65%, which will come back to bite us in future quarters when inventories decline. Exports surged from a -0.08% drag in Q4 to a +1.03% contribution in Q1. Given all the tariff worries, analysts were wondering where those exports went. The contribution from government rose from a -0.07% drag to a +0.41% contribution.

The naysayers were out in force claiming the spike in GDP was just a fluke and we will have to wait another six months for the revisions to know if they were right.

The Atlanta Fed Q1 forecast had improved from just a 0.2% rise in early March to 2.7% and was much closer than the analyst consensus of 1.5%. Normally the Atlanta GDPNow forecast is hotter than the actual number but this quarter it lagged. They continue to hone the forecast methods to get as close as possible.

The last reading of Consumer Sentiment for April rose only slightly from the initial reading of 96.9 to 97.2. That was down from the 98.4 in March. The present conditions component declined from 113.3 to 112.3 and he expectations component declined from 88.8 to 87.4. With the Q4 stock market dip and the January government shutdown behind us we should see sentiment begin to rise. The Mueller report is also behind us, but lawmakers seem obsessed with keeping it alive and this is also a weight on sentiment. The spike in GDP should help. If oil prices and fuel prices begin to decline that would be a big plus.

We have a huge calendar for next week with the two jobs reports, two ISM reports and the FOMC meeting announcement and press conference on Wednesday. Jobs are expected to be in the 180,000 range but the potential is good for a higher than expected number. With weekly jobless claims at a 50-year low two weeks ago, new jobs should be strong.

We have another busy week for earnings, but it is front loaded with the big names. After this coming week, 75% of the S&P will have reported. Of the 229 companies that have reported 77% have beaten earnings estimates and 58% have beaten revenue estimates. The current Q1 earnings projection is for a -0.3% decline and much better than the -1.8% to -2.1% projections several weeks ago depending on who you were following. A year ago, the forecast was for a 10.6% rise. Revenue projections are for a +5.0% rise. There have been 85 earnings warnings and 32 guidance upgrades.

Sectors with negative earnings are consumer staples -1.2%, technology -3.3%, communication services -8.8%, materials -14.8% and energy -29.4%.

The big dogs for the week are Google, Amgen and Mastercard along with the four Dow components on Tuesday including Apple, McDonalds, Merck and Pfizer. After Tuesday there are hundreds of reporters, but you probably would not recognize 90% of the symbols.

Last week was very active with a lot of big names. I am not going to review them all for obvious space reasons. However, there were some critical events.

Dow component Exxon (XOM) fell -2% after reporting an earnings drop from $1.09 to 55 cents that missed the estimates for 70 cents. Revenue declined from $68.2 billion to $63.6 billion. You may remember that oil prices hit $42 back on Dec 26th and despite the rebound it was a slow process.

They blamed the refining and chemical business for the earnings miss. They said a heavier than normal maintenance cycle caused the first quarterly loss in refining for more than ten years.

Production in the Permian rose 140% to 226,000 Boepd. Exxon said they were on track to increase that to one million Boepd by 2024. Overall upstream liquids production rose by 5%. Production rose to 4.0 million Boepd, up 3% excluding divestments.

We should not worry about Exxon since they produced $2.4 billion in earnings for the quarter. I doubt any paychecks are going to bounce.

Shares fell 2% to support at $80.

The biggest earnings surprise came from Intel (INTC) after they reported earnings of 89 cents that missed estimates for $1.01. Revenue of $15.6 billion missed estimates for $16.86 billion. The company guided for the full year for earnings of $4.35 on revenue of $69 billion. Analysts were expecting $4.50 on $71.04 billion.

The CEO warned that the decline in memory pricing had intensified. The consolidation of a large capital expenditure spending spree for computer equipment over the last year has not run its course. Enterprise environments still have unused hardware that they bought in 2018 as a result of the new changes to the tax law. The CEO said this consolidation was more pronounced than they expected. He said we were headed into a more cautious IT spending environment. However, conversations with customers suggest demand will return in the second half of 2019.

As a result of these headwinds datacenter revenue declined -6% to $4.9 billion. Analysts were expecting a -2.5% decline to $5.1 billion. Traditional PC revenue rose 4% to $8.6 billion and analysts were expecting 1.9% and $8.38 billion. Memory revenue declined 12% to $915 million and more than the 9.4% decline analysts expected.

The CEO said they had decided over the "last couple weeks" to exit the 5G smartphone business because they did not see a path to profits. They do plan on being a leader in 5G for the networking sector and for IoT devices. They are planning on selling their 5G phone business and estimates are $2 billion. There are rumors that Apple could buy it. However, there are also rumors that talks have already ended. This could have been a big factor in the settlement with Qualcomm.

Intel shares fell -9% on Friday and erased 34 points off the Dow. The rest of the chip sector declined on Intel's commentary about weak IT spending.

Amazon (AMZN) reported blowout earnings of $7.09 per share compared to $4.61 analysts expected. That more than doubled the $3.27 they earned in the year ago quarter. Amazon Web services (AWS) saw revenue rise 41% despite the rise of the me-too cloud services companies. Advertising revenue in the "other" category rose 34%. They guided for current quarter revenue of $59.5-$63.5 billion and analysts were expecting $62.53 billion.

The earnings were not the big news. Amazon said it was going to spend $800 million to shake up delivery times for Prime members. Instead of 2-days, they are going to 1-day delivery on 100 million items. They did not give a date but said they had been growing their warehouses and distribution network in order to make it happen. They said the company would spend $800 million on this project in 2019.

This is a major competitive advantage for Amazon. Shares of Target and Walmart crashed on the news. Knowing that an item you buy today will be here tomorrow is a major sales tool. Target and Walmart have free shipping if you order a certain dollar amount, but it is not two day. You can get in your car and drive to a store and pick it up but why would you want to do that. Next day is going to be an ecommerce killer for the other retailers.

Amazon sells more than 606 million different products in the USA and more than 3 billion skus worldwide in 11 different marketplaces. How can Target and Walmart compete with this monster? All they can attempt to do is deal with several thousand common products in the USA and try to make a few pennies using their referral marketing on the website. If you need a T-shirt maybe you need socks too. They are never going to be able to compete heads up with Amazon.

Can you imagine the tone of the meetings at Target headquarters when this was announced? Amazon is approaching $1 trillion in market cap again and nearly four times that of Walmart and 25 times that of Target.

Netflix and Disney had better not underestimate Amazon's streaming platform. It is not mentioned in the press, but every Prime member has access to the Amazon Prime streaming video service for free. With more than 100 million Prime members in the USA that is a lot of eyeballs that will not be looking to sign up for paid subscriptions elsewhere.

On Thursday 3M (MMM) crashed the Dow at the open after falling $29 on a major earnings miss. That is the equivalent of about 200 Dow points. Earnings declined from $2.50 to $2.23 and missed estimates for $2.49. Revenue declined -5% to $7.86 billion and missed estimates for $8.03 billion. Industrial sales declined -6.6%, graphics sales fell -4.2% and healthcare sales rose only 0.3%. The company said it was slashing 2,000 workers in an effort to save $225-$250 million a year. They guided for the full year for earnings of $9.25-$9.75, down from prior guidance of $10.45-$10.90. They warned of slowing conditions in key end markets that impacted both organic growth and margins. The $29 drop was the biggest one-day decline since the 1987 market crash.

My question here is why did sales decline. 3M operates in a full spectrum of retail and industrial businesses and a 5% decline in revenue in an economy growing at 3.2% suggests there were some serious internal problems. Clearly, everyone else felt the same and that is why the stock was trashed.

United Parcel Service (UPS) reported earnings of $1.39 that missed estimates for $1.42. Revenue of $17.16 billion was flat and missed estimated for $17.77 billion. The company said weather reduced earnings by 7 cents per share. They guided for the full year for earnings of $7.45-$7.75 and analysts were expecting $7.52. UPS shares fell $10 on the results.

The UPS earnings led UBS to cut competitor FedEx (FDX) to a sell with a $161 price target. UBS said the slowing global economy is weighing on results and will result in several quarters of growth below expectations. FedEx lowered its own guidance in March citing "weaker global growth trends" leading to a decline in revenue. The CEO specifically cited "significant deceleration in airfreight activity in Asia over the last six months and a sharp decline in German manufacturing." They are also having problems digesting the TNT acquisition in Europe.

Caterpillar (CAT) reported earnings of $3.25 that beat estimates for $2.83 but the CAT number had a 31-cent tax windfall, which translates into real earnings of $2.94 and still a beat. Revenue rose from $12.9 billion to $13.5 billion and beat estimates for $13.3 billion. Construction equipment sales rose 3% to $5.677 billion. Resource sales rose 18% to $2.309 billion. Energy and transportation sales were flat. The company raised full year guidance from $11.75-$12.75 to $12.06-$13.06.

Shares fell 4% on worries about the sales slowdown in China with a 4% decline in construction equipment. If you read the details sales were actually flat after accounting for the strong dollar but that was still a disappointment since Asia-Pacific and China is normally their fastest growing region. The good news was a 7% rise in revenue in North America.

Facebook (FB) dodged another bullet with better than expected earnings that led investors to ignore the various regulatory issues they are facing. They set aside $3 billion as a potential loss in their feud with the FTC and said the loss could be as much as $5 billion for violations relating to a 2011 consent decree. Legal costs of the FTC investigation declined to 85 cents per share. Since Facebook has $45 billion in cash, even a $5 billion fine would be painful but not detrimental. Investors ignored it because of the earnings metrics.

They reported revenue of $15.1 billion that beat estimates for $14.7 billion. They reported earnings of $1.89 that beat estimates for $1.62. Their monthly active user count rose to 2.7 billion with 1.56 billion daily active users. Shares spiked $16 on the earnings but faded to only a $9 gain by Friday's close.

UBS upgraded from neutral to buy with a $240 price target and Monness Crespi & Hardt raised the price target from $225 to $250. Ten analysts upgraded their targets after the earnings.

What we learned from all those earnings above is that domestic focused businesses did ok in Q1, but international companies of all types did poorly. The slowdown in the global economy is real and is not yet improving. China implemented 72 different stimulus changes in Q1, but the economy has not yet recovered. Stimulus takes months to filter through the system and it will eventually be beneficial.

Germany continues to post weak economics and that is weighing on Europe. Kicking the Brexit can down the road until October has eliminated any current economic event but done nothing about solving the problem. Companies doing business in Europe are in a holding pattern. They do not want to commit large amounts of capital to any expansion if the final Brexit deal is going to be a disaster. The longer they wait the worse the European economy will be.

The China trade agreement is starting to be a problem again. Talks will restart next week with Lighthizer and Mnuchin traveling to China and a Chinese trade group will return to the USA the following week. For a deal that had reportedly been agreed several weeks ago, the new negotiations suggest there are still problems. The expectations for a deal helped lift the markets over the last three months. Now we have a never-ending negotiation with no details.

My view is that the longer it takes to conclude a deal the more likely the deal will be weak. Chinese leaders know the 2020 election cycle has begun and President Trump needs a deal as a campaign point. The longer they can drag their feet the more likely US negotiators will be to relax their demands. The Chinese government plays the long game as in years to decades. They are willing to endure some pain now rather than endure long term pain later.

If we get a weak deal, it will be picked apart unmercifully within hours of the release and the market could collapse. Any decline could be short-lived since the uncertainty will be over, but expectations are currently high and the Pied piper must be paid if those expectations are not met.

Tesla CEO, Elon Musk, settled his current battle with the SEC on Friday afternoon. The new agreement contains a list of things Musk cannot tweet about without approval from a securities lawyer. This list includes things like production targets, acquisitions, delivery timeframes, new products, nonpublic filings, earnings or losses, etc.

Musk and his attorneys succeeded in escaping the wrath of the SEC by arguing that the original agreement was unclear as to what things Musk had to avoid in his tweeting. In theory future tweets will be far less entertaining. The deal was announced about 6:30 on Friday evening.

Tesla shares fell -14% for the week to a two year low on worries they will have to raise capital with another public offering very soon. Musk has repeatedly said there would not be a capital raise, but the company needs money to build Gigafactory 3 in China and start an entirely new production facility. They also need money to build a new production line at the existing Gigafactory 1 in Nevada for the new SUV and eventually they must build big trucks since they have taken hundreds of deposits from corporations.

On Wednesday Tesla posted a quarterly loss of $702 million. Musk said the company would return to a profit in Q3 and there was "some merit" to raising capital. That immediately negated his prior statements about no capital raise. The company ended the quarter with $2.2 billion in cash, down from $3.7 billion in Q4. Short seller, Andrew Left, had previously switched positions from short to long, has now gone flat again saying, "I believe Tesla needs to raise money" and "I am disappointed with the way the company is communicating with shareholders." We could be very close to a new short position by Left given the collapse in the stock.

If Tesla is going to do a capital raise, they need to do it soon before the stock is in complete free fall. Even now, it would be difficult to manage without a big drop on the announcement.

On a side note, Musk went to China in early January for the groundbreaking of Gigafactory 3. Today, only four months later there is a massive factory taking shape thanks to the 24/7 pace of construction. There are estimates for the first car to be produced by the end of September, only five months from now. Managers claim this will be the fastest plant build ever done in China. In America this would be a three-year project. In China they are going from dirt to producing cars in nine months.

The backlog of crude deliveries through the Houston Ship Channel appears to be easing. Imports rose 1.16 million bpd last week and that boosted inventories by 5.5 million barrels. We saw refining utilization rise over 90% for the first time this year and it should move up to 95% in the weeks ahead. That will force inventories lower.

Crude prices fell 4% intraday on Friday after President Trump said he had asked OPEC to produce more oil and reduce fuel prices in order to stimulate the global economy. The mainstream media immediately rebutted that with calls to various officials in OPEC and Saudi Arabia. None reported talking to the president. The White House had to follow up with the list of Saudi energy officials and OPEC members that had visited the White House in the prior week to discuss increasing production to offset the loss of Iran's oil when sanctions waivers were removed.

Despite oil prices trading over $66 during the week, there was a huge decline of -21 active rigs. There was a drop of 20 oil rigs and 1 gas rig. With more than 8,000 drilled but uncompleted wells, there is no reason to continue spending money to drill new wells.


The S&P has succeeded in climbing the wall of worry and has dodged quite a few potholes during the earnings parade. For every ugly earnings report there has been someone reporting a blowout and the index has refused to decline materially. The majority of the gains came on Tuesday and Friday but the intraday declines on the other days were also bought and prevented any material losses.

On the surface it would seem that the indexes should continue higher. However, in that prior paragraph I pointed out that somebody was reporting blowout earnings to offset the decliners. As the frequency of earnings declines, starting late next week, we are not going to have those big positive surprises. If the beats and misses level out and fade in number at the same time, we could see investors lose their enthusiasm again.

Sentiment remains lackluster despite the new highs on the S&P and Nasdaq. Volume on Friday was only 6.4 billion shares and definitely not what you would expect with new highs. On the positive side 5,392 advancers more than doubled the 2,202 decliners. Out of those 7,600 stocks only 360 made new highs.

The S&P closed just slightly over the 2,933 high close on Tuesday and there was no breakout. This is what I would call solid meltup buying. The opening dips on Thursday and Friday were immediately bought. Not later that day but immediately after the initial dip ended.

It would be great if we had another positive catalyst to catapult us higher and force the shorts to cover. Tuesday before a FOMC meeting is normally positive. There are also four Dow components reporting but Apple does not report until after the close. Worry over Apple's earnings could restrain anxious buyers of other stocks during the day on Tuesday.

We are close to an inflection point for the market. If we do move up sharply from here, there is a lot of money on the sidelines that could immediately jump in on a fear of missing out rally (FOMO). Conversely, this decision point is where long term investors must decide if they are going to continue holding or move to cash. We have reached the "Sell in May and go away, come back again on Labor Day" period on the calendar. While that strategy has not worked well in the last several years, it does tend to work after the market has had a big gain. The S&P is up 18% for the year, Dow 14%, Nasdaq 23% and Russell 18%. For most years that would be a killer gain for the entire year. Portfolio managers could go to cash now and still collect their end of year bonuses.

Support is now 2,895 but that would be a 45-point decline. At this stage in the market investors would be in a panic with that large of a drop.

The Dow has been hammered with multiple large losses from individual components. UNH, BA, MMM, HD, XOM and INTC to name a few. Without these large individual losses, the Dow would be more than 600 points higher today and possibly over 27,000. That is the problem with a 30-stock index. One rotten apple can ruin the entire basket.

I sincerely hope that Apple does not do that on Wednesday. With every smartphone manufacturer and contributor warning of slowing sales, a positive surprise by Apple would be a major market mover. Shares have declined $4 over the last week on worries over a potential earnings challenge. Many analysts believe Apple will try to cover over any lowered guidance with a larger dividend and bigger stock buyback in hopes of limiting any stock drop.

If the Dow can avoid any large losses from earnings reporters this week, we could see it retest the 26,828 high. Whether it can break out with some many damaged components is another question.

The Nasdaq big caps have been leading the market higher. The Nasdaq 100 broke out to a new high on Wednesday the 17th and has continued to make new highs. Amazon, Facebook and Google have led the FANG stocks with Netflix a laggard due to the Disney streaming announcement.

FYI, a survey last week showed that Netflix was in danger of losing 8.7 million subscribers as they switch to the Disney $6.99 plan. CEO Reed Hastings said he was not worried because Netflix had so much more current content and breadth of offerings that Disney+ subscribers would probably remain Netflix subscribers. "I doubt Disney will be material because there's already so many competitors for entertainment time."

The good thing about the Nasdaq is its breadth. With it so positive (2,029 advancers to 971 decliners) on Friday, the other stocks are erasing the losses from the few that are not performing.

With the big caps leading and the troops following, the tech sector could continue to lead the markets higher.

The Russell 2000 is on the verge of a breakout over critical resistance. The 1,600 level is crucial and a break out there could power short covering to 1,707 and the last resistance before a new high. The A/D ratio on the small cap sector was a whopping 4:1 in favor of advancers on Friday. On Tuesday it was 7:1 in favor of advancers. If the small caps continue this performance, we could have a real broad market rally on our hands.

For the last couple weeks, I have warned about the potential for a sell the news top when the major indexes made new highs on weak earnings ahead of the sell in May period and the eventual summer doldrums. While I was concerned about that possibility, I reiterated that I was not predicting it. My job is to warn about the potential pitfalls in the road ahead, so everyone is aware and not be blindsided if they occur. After seeing the S&P and the Nasdaq Composite finally move to new highs on strong market breadth, I am not as concerned about an imminent failure at the highs. Remember, Blackrock's Larry Fink, said there was record amounts of cash on the sidelines that would come into the market once new highs were made.

My only concern is the low volume. We have not yet seen the typical breakout volume from the FOMO buyers chasing prices. Investors are still cautious, but sentiment is improving. If volume were to pick up, I believe it would be the final confirming indicator.

Enter passively and exit aggressively!

Jim Brown

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New Plays

The Cycle Repeats

by Jim Brown

Click here to email Jim Brown
Editor's Note

Every couple of years this cycle repeats and this year it has some momentum. Gun sales are going through the roof again as anti-gunners ramp up their activity.


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


AOBC - American Outdoor Brands - Company Profile

American Outdoor Brands Corporation designs, manufactures, and sells firearms worldwide. The company's Firearms segment offers handguns, long guns, handcuffs, suppressors, and other firearm-related products under the Smith & Wesson, M&P, Performance Center, Gemtech, and Thompson/Center Arms brands. It also sells parts purchased through third parties; operates a private law enforcement training facility; and provides manufacturing services to other businesses under the Smith & Wesson and Smith & Wesson Precision Components brands. This segment sells its products to gun enthusiasts, collectors, hunters, sportsmen, competitive shooters, individuals desiring home and personal protection, law enforcement and security agencies and officers, and military agencies. The company's Outdoor Products & Accessories segment offers reloading, gunsmithing, and gun cleaning supplies; stainless steel cutting tools and accessories; flashlights, tree saws, and related trimming accessories; shooting supplies, rests, and other related accessories; apparel; vault accessories; laser grips and laser sights; and a range of products for survival and emergency preparedness, as well as field rests, knives, gun vises, hearing protection products, camping and survival gears, and case tumblers. It provides its products under the Caldwell, Wheeler, Tipton, Frankford Arsenal, Smith & Wesson, M&P, Thompson/Center, Lockdown, Hooyman, BOG-POD, Golden Rod, Non-Typical, Crimson Trace, Imperial, Schrade, Old Timer, Bubba Blade, UST, and KeyGear brands. The company markets its products through dealers, retailers, in-store retail channels, and range operations; social and electronic media; in-store retail merchandising systems and strategies; and Websites and online retail stores. The company was formerly known as Smith & Wesson Holding Corporation and changed its name to American Outdoor Brands Corporation in January 2017. The company was founded in 1852 and is based in Springfield, Massachusetts. Company description from FinViz.com.

Every time some idiot goes berserk with a firearm the anti-gun crowd ramps up their attack on lawful gun owners. It does not seem to matter that 270 million gun owners in the US have not broken the law but they want to change the laws because of individuals that don't obey the laws anyway. Murder is against the law, but these violators do not care.

The ensuing efforts to ban guns always sends millions of people into the gun stores to buy guns while they are still legal. The stocks of gun makers rally for 6-9 months and then fall back into dormancy.

The shooting in New Zealand and others have triggered the current wave of proposed laws. The FBI reported that Federal background checks rose from 2,053,886 in February to 2,644,851 in March. That is the biggest spike in Feb-Mar number since the reporting began in 1998. April is likely to be even larger.

Shares of Ruger gained $3 for the week and AOBC, formerly Smith and Wesson, closed at a two-month high. As these numbers are more widely reported and the April numbers show another increase, the gun stocks are likely to continue higher.

Earnings June 6th.

Buy AOBC shares, currently $9.97, stop loss $9.50.
Optional: Buy June $11 call, currently 35 cents, no stop loss.


No New Bearish Plays

In Play Updates and Reviews

Finally, A Break

by Jim Brown

Click here to email Jim Brown

Editors Note:

The Russell closed at 1,591 and an 8-week high. We have to be thankful for small events on the Russell when the S&P and Nasdaq closed at record highs. Friday was the second time this week that the Russell posted a decent gain and maybe sentiment is improving. We really need the Russell to close over 1,600 to trigger the real short covering and let the price chasing begin. We can always hope this recovery is for real.

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

CY - Cypress Semiconductor
We closed the long stock position at the open on Wednesday.

PSTG - Pure Storage
The long stock position was stopped at $22.45 on Monday.

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

BULLISH Play Updates

CY - Cypress Semiconductor - Company Profile


We closed the stock position at the open on Monday and held the option position open over earnings. Cypress reported adjusted earnings of 27 cents that beat estimates for 24 cents. Revenue of $539 million beat estimates for $535 million. The company guided for Q2 revenue of $515-$545 million and earnings of 22-26 cents. Analysts were expecting $528 million and 24 cents. That put them right in line with estimates. Shares spiked 7% on Friday. This is a May option so I put a tight stop loss on it.

Original Trade Description: April 5th.

Cypress Semiconductor Corporation designs, develops, manufactures, markets, and sells embedded system solutions worldwide. It operates in two segments, Microcontroller and Connectivity Division, and Memory Products Division. The Microcontroller and Connectivity Division provides microcontroller (MCU), analog, and wireless and wired connectivity solutions, including Traveo automotive MCUs; programmable system-on-chip and general-purpose MCUs; analog power management integrated circuits and energy harvesting solutions; CapSense capacitive-sensing controllers; TrueTouch touchscreens; Wi-Fi, Bluetooth, and Bluetooth low energy; and USB controllers comprising solutions for the USB-C and USB power delivery standards, as well as wireless Internet of things connectivity solutions. The Memory Products Division provides NOR and NAND flash memories, static random access memory (SRAM) products, HyperRAm, synchronous and asynchronous SRAMs, nonvolatile SRAMs, F-RAM ferroelectric memory devices, and other specialty memories and clocks. The company serves various markets, including automotive, industrial, consumer, computation, white goods, communications, handset, PC peripherals, mobile devices, networking, telecommunications, video, data communications, computation, and medical markets. Cypress Semiconductor Corporation sells its semiconductor products through distributors and manufacturing representative firms, as well as through sales force directly to original equipment manufacturers and their suppliers. The company was founded in 1982 and is headquartered in San Jose, California. Company description from FinViz.com.

Cypress makes chips for the Internet of Things or IoT. That has evolved into automotive uses as well as today's cars are connected to the internet in multiple ways. Self-driving cars obviously have more chips but many cars today function as their own WiFi hotspot for the occupants. I am sure the explosion of IoT devices we have seen over the last several years is just the tip of the iceberg for the years to come.

Shares spiked in early February after the company reported earnings of 35 cents compared to estimates for 33 cents. Revenue of $604.5 million also beat estimates for $599 million.

After several days of gains the stock rolled over with the chip sector in early March. Over the last several days shares have rallied to close at a 6-month high on Friday.

Earnings May 7th.

More than 7,800 of these calls were bought on Friday compared to an open interest of only 257. Somebody is betting a lot that the stock will go up. Because of the cheap price we may hold over earnings unless we have a decent profit to protect before they report. We will NOT hold the stock over the earnings.

Position 4/8/19:
Long CY shares @ $15.90, see portfolio graphic for stop loss.
Optional: Long May $17 call @ 40 cents, see portfolio graphic for stop loss.

INO - Inovio - Company Profile


No specific news. Shares starting to rebound after the positive cancer drug news the prior week.

Original Trade Description: April 3rd.

Inovio Pharmaceuticals, Inc., a late-stage biotechnology company, focuses on the discovery, development, and commercialization of DNA-based immunotherapies and vaccines to prevent and treat cancers and infectious diseases. Its SynCon immunotherapy design has the ability to break the immune system's tolerance of cancerous cells, as well as is intended to facilitate cross-strain protection against known, as well as new unmatched strains of pathogens, such as influenza. The company is involved in conducting and planning clinical studies of its proprietary SynCon immunotherapies for human papillomavirus-caused pre-cancers and cancers; bladder cancer; glioblastoma multiforme; hepatitis B virus; hepatitis C virus; human immunodeficiency virus; Ebola virus; middle east respiratory syndrome; and Zika virus. Its partners and collaborators include MedImmune, Limited; The Wistar Institute; University of Pennsylvania; GeneOne Life Science Inc.; ApolloBio Corporation; Regeneron Pharmaceuticals, Inc.; Genentech, Inc.; Plumbline Life Sciences, Inc.; Drexel University; National Institute of Allergy and Infectious Diseases; United States Military HIV Research Program; U.S. Army Medical Research Institute of Infectious Diseases; National Institutes of Health; HIV Vaccines Trial Network; Defense Advanced Research Projects Agency; the Parker Institute for Cancer Immunotherapy; and Coalition for Epidemic Preparedness Innovations. Inovio Pharmaceuticals, Inc. was founded in 1979 and is headquartered in Plymouth Meeting, Pennsylvania. Company description from FinViz.com.

Inovio is developing new cancer treatments that deliver coded DNA to cells so they can create their own antibodies against the invading cancer cells. They have multiple trials in progress and the success of any one trial will catapult INO significantly higher.

The drawback is money. They ended the year with $85.5 million after burning through $69 million in 2018. In February they announced a secondary to raise another $82 million. The secondary was convertible notes at $5.38 in 2023. Since that is almost a slam dunk deal, investors trashed the stock because of the 17% dilution in 2023. I think that is very short sighted since we could see three years of stock gains before that comes to pass.

Earnings May 8th.

After crashing to $3.30 on the secondary announcement shares have started to rebound. Wednesday's close was a two-month high. They announced the early closing for enrollment on two different cancer trials. They also announced a new therapy against respiratory tract tumors in a new study. Good things are breaking out all over.

Update 4/20: Inovio published new data on their cancer killing T-Cell engagers. The DNA encoded Bi-specific T Cell Engagers cleared established tumors in preclinical studies. One dose of the drug lasted for months compared to only hours for the current versions.

Position $4/4/19:
Closed 4/17: Long INO shares @ $3.86, exit $3.85, -.01 loss.
Optional: Long May $4 call @ 30 cents, see portfolio graphic for stop loss.

PSTG - Pure Storage - Company Profile


No specific news. Resistance held. Bad week for chip stocks and some techs and PSTG dipped to $22.45 to stop us out of the stock position. The option position is still open.

Original Trade Description: April 5th.

Pure Storage, Inc. engages in building a data platform that enables businesses to enhance performance and reduce complexity and costs worldwide. The company delivers its data platform through Purity Operating Environment, an optimized software for solid-state memory that offers enterprise-class storage and protocol services; FlashArray and FlashBlade optimized hardware products for solid-state memory to enhance the performance and density of flash, optimize its advanced software services, and reduce solution cost for customers; Pure1, a cloud-based management and support software; and FlashStack and Artificial Intelligence Ready Infrastructure converged infrastructure solutions. Its data platform is used for a range of use cases, including database applications, large-scale analytics, artificial intelligence/machine learning, private and public cloud infrastructure and webscale applications, virtual server infrastructure, and virtual desktop infrastructure; and helps customers scale their businesses through real-time and accurate analytics, increase employee productivity, improve operational efficiency, and deliver compelling user experiences to their customers and partners. The company serves enterprise and commercial organizations, cloud, global systems integrators, and service providers across various set of industry verticals, consumer web, education, energy, financial services, governments, healthcare, manufacturing, media, retail, and telecommunications through a network of distribution and channel partners. The company was formerly known as OS76, Inc. and changed its name to Pure Storage, Inc. in January 2010. Pure Storage, Inc. was founded in 2009 and is headquartered in Mountain View, California. Company description from FinViz.com.

Their memory management products are state of the art and their acquisition of Compuverde will increase those capabilities. Compuverde is a leading developer of file software solutions for enterprises and cloud providers. The combination of the two companies will allow customers to implement true hybrid architectures in on premise or cloud applications or a mix of both.

They reported earnings of 14 cents that missed estimates for 19 cents. However, the miss was due to a breakdown at a contract manufacturer and prevented them from shipping a large number of orders. Revenue still rose 24% to $422.2 million despite missing estimates for $443 because of the supplier breakdown.

Shares dipped on the initial earnings results but have rebounded to six month high. Shares have been consolidating for the last six days but appear to be ready for a breakout.

Earnings May 30th.

Position 4/11/19:
Closed 4/22: Long PSTG shares @ $23.40, exit $22.45, -.95 loss.
Optional: Long May $25 call @ 40 cents, see portfolio graphic for stop loss.

VIPS - Vipshop Holdings - Company Profile


No specific news. I came very close to ending the position. There is no excitement but it did rebound slightly from the uptrend support.

Original Trade Description: March 30th.

Vipshop Holdings Limited operates as an online discount retailer for various brands in the People's Republic of China. It operates in two segments, Vip.com and Internet Finance Business. The company offers women's apparel, such as casual wear, jeans, dresses, outerwear, swimsuits, lingerie, pajamas, and maternity clothes; men's apparel comprising casual and smart-casual T-shirts, polo shirts, jackets, pants, and underwear; women and men shoes for casual and formal occasions; and accessories that include belts, jewelry, watches, and glasses for women and men. It also provides handbags, which comprise purses, satchels, duffel bags, and wallets; apparel, gears and accessories, furnishings and decor, toys, and games for boys, girls, infants, and toddlers; sports apparel, sports gear, and footwear for tennis, badminton, soccer, and swimming; and consumer electronic products, including computers, mobile handsets, digital cameras, and home appliances. In addition, the company offers skin care and cosmetic products, such as cleansers, lotions, face and body creams, face masks, sunscreen, foundations, lipsticks, eye shadows, and nail polish; and home furnishings comprising bedding and bath products, home decors, dining and tabletop items, and small household appliances. Further, it provides designer apparel, footwear, and accessories; and snacks and health supplements, and occasion-based gifts. Additionally, the company offers Internet finance services, which comprise consumer and supplier financing, and wealth management services. It provides its branded products through its vipshop.com, vip.com, and lefeng.com online platforms, as well as through its cellular phone application. Additionally, the company offers warehousing, logistics, procurement, research and development, consulting, and software development and information technology support services. Vipshop Holdings Limited was founded in 2008 and is headquartered in Guangzhou, the People's Republic of China. Company description from FinViz.com.

Earnings May 22nd.

In late February, the company reported earnings of 19 cents that beat estimates for 18 cents. However, revenue of $3.80 billion missed estimates for $3.96 billion. The 8.1% rise in revenue was down from a 16.4% rise in the prior quarter. The CEO said the weak quarter was the result of the company shifting some low margin categories from the "first-party business" and into the "marketplace platform." He said the move would result in a positive improvement in earnings beginning next quarter. For the current quarter they were only targeting 1-5% revenue growth and analysts were expecting 11.6%. The CEO cautioned that revenue growth was not the metric to worry about. The company is now focused on increasing profits rather than increasing revenue at any cost.

Zacks reiterated a buy rating saying earnings estimates had risen 5.9% over the last 60 days which includes the post earnings commentary. VIPS only has a 9.7 PE compared to 29.4 for the rest of the industry.

After the Zacks comments on the 25th the stock began escalating sharply and closed at an 8-month high on Friday. The stock is now over the 50, 100 and 200 day averages.

Position 4/1/19:
Long August $9 call @ 75 cents, see portfolio graphic for stop loss.

Previously closed 4/15: Long VIPS shares @ $8.19, exit $7.85, -.34 loss.

BEARISH Play Updates

BHGE - Baker Hughes GE - Company Description


No specific news. No material movement. Support cracking ahead of earnings.

Original Trade Description: April 20th.

Baker Hughes, a GE company provides integrated oilfield products, services, and digital solutions worldwide. Its Oilfield Services segment offers drilling, wireline, evaluation, completion, production, and intervention services; and drilling and completions fluids, completions tools and systems, wellbore intervention tools and services, artificial lift systems, pressure pumping systems, and oilfield and industrial chemicals for integrated oil and natural gas, and oilfield service companies. The company's Oilfield Equipment segment designs and manufactures products and services, including pressure control equipment and services, subsea production systems and services, drilling equipment, and flexible pipeline systems; and onshore and offshore drilling and production systems, and equipment for floating production platforms, as well as provides a range of services related to onshore and offshore drilling activities. Its Turbomachinery & Process Solutions segment provides equipment and related services for mechanical-drive, compression, and power-generation applications across the oil and gas industry, as well as products and services to serve the downstream segments of industry. Its product portfolio includes drivers, compressors, and turnkey solutions; and pumps, valves, and compressed natural gas and small-scale liquefied natural gas solutions. This segment serves upstream, midstream, onshore and offshore, industrial, engineering, procurement, and construction companies. The company's Digital Solutions segment provides sensor-based measurement, non-destructive testing and inspection, turbine, generator and plant controls, and condition monitoring, as well as pipeline integrity solutions for a range of industries, including oil and gas, power generation, aerospace, metals, and transportation. It serves through direct and indirect channels. The company is based in Houston, Texas. Baker Hughes, a GE company is a subsidiary of General Electric Company. Company description from FinViz.com.

On Thursday energy services giant Schlumberger (SLB) reported earnings of 30 cents that matched estimates. Revenue rose only slightly to $7.879 billion but it was enough to beat estimates for $7.810 billion. Both numbers were lower than the prior quarter. The company projected lower activity in land rigs in North America and seasonal slowness in international markets. North American revenue was down -3% because of pricing weakness. They do expect the overall market to improve as production cuts overseas take effect. They also warned that four years of slowing investment in the sector would result to lower services activity in the years ahead.

If Schlumberger is struggling in this energy market then Baker Hughes GE will be struggling as well. Shares rallied with oil prices early in 2019 but now that prices have stabilized and we are losing 10 active rigs a week, their earnings should be suffering.

They make a lot of money from fracking and completing wells. With drilled and uncompleted wells now over 8,500 there is plenty of work but that number is growing instead of declining. That means production companies are not completing them. With pipelines at capacity there is no reason to spend a couple million dollars completing a well only to have it sit idle because you can't get the oil to market.

I suspect Baker Hughes is going to disappoint when they report earnings on April 30th. I am recommending we buy an inexpensive put option and hold over the report. The May $25 put is relatively inexpensive.

Position 4/22:
Long May $25 put @ 65 cents, no stop loss.

GME - Gamestop - Company Description


No specific news. Analysts continue to warn that Microsoft's all digital Xbox is going to be a death blow to Gamestop.

Original Trade Description: March 23rd.

GameStop Corp. operates as a multichannel video game, consumer electronics, and wireless services retailer. It operates in five segments: United States, Canada, Australia, Europe, and Technology Brands. The company sells new and pre-owned video game hardware; video game software; pre-owned and value video games; video game accessories, including controllers, gaming headsets, virtual reality products, memory cards, and other add-ons; and digital products, such as downloadable content, network points cards, prepaid digital and prepaid subscription cards, and digitally downloadable software. It also sells wireless products, services, and accessories; collectibles, such as licensed merchandise primarily related to the video game, television, and movie industries, as well as pop culture themes; gaming-related print media, and mobile and consumer electronics products; PC entertainment software in various genres comprising sports, action, strategy, adventure/role playing, and simulation; and carry strategy guides, magazines, and interactive game figures. In addition, the company operates e-commerce sites under the GameStop, EB Games, Micromania, and ThinkGeek brands; collectibles stores under the Zing Pop Culture and ThinkGeek brands; and Spring Mobile, an authorized AT&T reseller operating AT&T branded wireless retail stores. Further, it provides Game Informer magazine, a print and digital video game publication; and operates Simply Mac, an authorized Apple reseller that sells Apple products, including desktop computers, laptops, tablets and smart phones, and related accessories and other consumer electronics products, as well as training, warranty, and repair services. As of March 28, 2018, the company operated approximately 7,200 stores across 14 countries. It primarily operates its stores under the GameStop, EB Games, and Micromania brands. The company was formerly known as GSC Holdings Corp. GameStop Corp. was founded in 1994 and is headquartered in Grapevine, Texas. Company description from FinViz.com.

Gamestop is headed to the same fate as Blockbuster. Gamestop sells preowned game consoles and video games. With Google announcing Stadia where all games are browser based and run on any device and computing power is not important, this is a major hurdle for Gamestop.

Microsoft announced a similar fate with plans on moving the Xbox to the cloud, called Project XCloud, and there will be no game consoles or game CDs.

With these two giants eliminating the hardware and software that is resold by Gamestop, this company is in a world of trouble. They do sell other products but consumers come into their stores for the games. With 7,200 stores they have a lot of overhead and their biggest revenue items are disappearing.

Granted, this will not happen overnight. These game conversions to the cloud will take months to take hold and many months to become the majority of market share. However, investors will see the future, with Blockbuster a prime example, and Gamestop shares are going to bleed value in the months ahead.

Earnings April 2nd. Normally we would not take a position in front of earnings but there will be analyst questions about the path of progress. The answers may be hard for investors to handle. I am recommending we own a put and hold it over the earnings report.

Update 4/3: Gamestop (GME) reported earnings of $1.60 that matched estimates but was down from $2.02 in the year ago quarter. Revenue declined from $3.32 billion to $3.06 billion and missed estimates for $3.28 billion. Even worse they projected a 5% to 10% decline in revenue in 2019 and losses of up to 5 cents per share in Q1. The company is struggling to adapt to changes in the video game industry.

Microsoft has announced a new Xbox game console that only uses downloaded games. That prevents users from reselling the games to Gamestop on CDs as in the past. Apple and Google also announced new video game offerings that stream games through your browser and the game does not reside on your computer or mobile device. That means no CDs and no consoles needed to play the games. That means no resale opportunities for Gamestop. This is also going to impact the resale value of existing games and consoles. In addition to their woes, Activision Blizzard announced today they were going to release a battle-royale version of Call of Duty that would be free online in the month of April.

Shares fell below $9 at the open but rebounded sharply in what should be a dead cat bounce.

Update 4/6/19: After the disappointing earnings Bank of America reiterated an underperform (sell) with a price target of $5. However, Telsey Advisory reiterated a market perform and a $10 target. The stock closed at $9.86.

Position 3/25/19:
Long May $10 put @ 65 cents. see portfolio graphic for stop loss.

SIG - Signet Jewelers - Company Description


No specific news. Testing 52-week lows.

Original Trade Description: April 13th.

Signet Jewelers Limited engages in the retail sale of diamond jewelry, watches, and other products. As of February 02, 2019, it operated 3,334 stores and kiosks. The company operates through three segments, North America, International, and Other. The North America segment operates stores in malls and off-mall locations primarily under the Kay Jewelers, Kay Jewelers Outlet, Jared The Galleria Of Jewelry, Jared Vault, Zales Jewelers, Zales Outlet, Piercing Pagoda, Peoples Jewellers, Gordon's Jewelers, and Mappins Jewellers regional banners; and JamesAllen.com, an online jewelry retailer Website. This segment operated 2,729 locations in the United States and 128 locations in Canada. The International segment operates stores in shopping malls and off-mall locations, principally under the H.Samuel and Ernest Jones brands. This segment operated 477 stores in the United Kingdom, the Republic of Ireland, and the Channel Islands. The Other segment is involved in the purchase and conversion of rough diamonds to polished stones, as well as provision of diamond polishing services. Signet Jewelers Limited was founded in 1950 and is based in Hamilton, Bermuda. Company description from FinViz.com.

On April 4th, Signet Jewelers reported earnings of $3.96 that beat estimates for $3.77 but that was still a decline of 7.5% from the year ago quarter. Revenue of $2.154.7 billion beat the estimates for $2.142 billion but declined 6% year over year.

Globally same store sales declined -2% with sales in North America down -5.5%. The average number of transactions declined 4%. Sales at Zales stores declined -2% and Piercing Pagoda sales declined -17.1%. Kay stores fell -1.6%, Jared -8.4% and James Allen -1.4%. international sales declined -16.6% to $195 million and same store sales fell -7.3%. Average transaction values declined -5.4% and the number of transactions declined -2.3%.

They guided for Q2 for a loss of 17-28 cents and analysts were expecting a loss of 6 cents. Same store sales are expected to decline between 0.5% and 1.5%. For the full year they guided for earnings of $2.87-$3.45 and analysts were expecting $3.53. Same store sales are expected to be down -2.5% for the year. They closed 262 stores in 2018 and plan to close another 150 in 2019.

There was NOTHING to like about these earnings. Shares have fallen $5 since April 4th and with metrics like those they could fall significantly lower. Shares closed at a new 52-week low on Friday.

Position 4/15/19:
Short SIG shares @ $23.18, see portfolio graphic for stop loss.
Optional: Long July $20 put @ $1.35, see portfolio graphic for stop loss.

VXXB - Barclays VIX Futures ETN - ETN Description


The market volatility on Thursday morning spiked the VIX and VXXB but continued market gains will produce new lows in those issues.

Original Trade Description: Nov 17th.

The investment seeks return linked to the performance of the S&P 500 VIX Short-Term Futures Index TR. The ETN offers exposure to futures contracts of specified maturities on the VIX index and not direct exposure to the VIX index or its spot level. The index is designed to provide investors with exposure to one or more maturities of futures contracts on the CBOE Volatility Index. Company description from FinViz.com.

The VXXB is a short-term volatility ETN based on the VIX futures. As a futures product it has the rollover curse. Every time they roll to a new futures contract, they have to pay a premium and that lowers the price of the ETN. It is a flawed product with a perpetual decline built in from the monthly roll over in the futures contracts.

As evidence of this flaw, the prior VXX ETN had done five 1:4 reverse stock splits. The last five reverse splits occurred at $13.11 (11/2010), $8.77 (10/2012), $12.84 (11/2013), $9.52 (8/8/16), $12.77 (8/22/17). The prospectus says it can reverse split anytime it trades under $25 for a prolonged period and the splits will always be 1:4.

We know from experience that the VXXB and its predecessor the VXX always decline long term.

Unfortunately, put options are expensive with a volatility instrument at this price level. The only recommendation is to short the ETN and forget it. This will be a long-term position. This is not a 2-3 week play. I can guarantee you, if history holds, we can play this until it splits 1:4 again at $10. Once we are in the position and profitable, I may put a trailing stop loss on it. We will take profits and then look for a bounce to get back in. We could keep this play in the portfolio on a trading basis permanently.

The VXXB will be hard to short. The shares are out there and being traded because the volume on Thursday was 22.1 million. You have to tell your broker you really want to short it and make them find the shares. Sometimes it takes days or even a week before your broker will find you the shares. Trust me, be persistent and it will be worth the effort.

Position 2/1/19:
Short VXXB shares @ $35.33, see portfolio graphic for stop loss.