I have been warning of some impending profit taking for over a week. The market does not need an excuse to take profits but whenever one appears traders use it as a reason. Larry Kudlow said we were still a long way from a deal with China and President Trump said there will probably not be a meeting with President Xi before the March 1st tariff deadline. European economics were downgraded again and now the Fed is not expected to hike again over the next two years. A lot changed in 24 hours and I am surprised we only closed down -220 on the Dow. It may not be over with the futures down -12 tonight.
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.
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
FFIV - F5 Networks
The long position was entered at the open and stopped at $159.
IBB - Biotech ETF
The long position was stopped out at $108.65.
SPY - S&P SPDR ETF
The long position was stopped out at $272.15.
SWK - Stanley Black & Decker
The long position was stopped out at $126.35.
Full updates on all plays on Wednesday and Saturday. Only closed plays are updated on other days.
BULLISH Play Updates
FFIV - F5 Networks - Company Profile
Not a good day to enter a new play on a tech stock. No specific news but shares fell $4 with the market to stop us out.
Original Trade Description: Feb 6th
F5 Networks, Inc. develops, markets, and sells application delivery networking products that optimize the security, performance, and availability of network applications, servers, and storage systems. The company's primary application delivery technology is Traffic Management Operating System (TMOS) that enable company's products to intercept, inspect, and act on the contents of traffic from virtually each type of Internet Protocol-enabled application. It offers Local Traffic Manager, which provides intelligent load-balancing, traffic management, and application health checking; BIG-IP DNS that automatically directs users to the closest or best-performing physical, virtual, or cloud environment; Advanced Firewall Manager, a network firewall; and Application Security Manager, an Web application firewall that provides comprehensive, proactive, and application-layer protection against generalized and targeted attacks. The company also provides Access Policy Manager, which provides secure, granular, and context-aware access to networks and applications; Carrier-Grade Network Address Translation, which offers a set of tools that enables service providers to migrate to IPv6 while continuing to support and interoperate with existing IPv4 devices and content; and Policy Enforcement Manager that offers traffic classification capabilities to identify the specific applications and services to service providers, as well as Link Controller. In addition, it offers cloud-based and other subscription services; BIG-IP appliances; VIPRION chassis-based systems; BIG-IP Virtual Edition software platform; and management and orchestration software platform. The company sells its products to enterprise customers and service providers through distributors, value-added resellers, and systems integrators in the Americas, Europe, the Middle East, Africa, Japan, and the Asia Pacific Region. F5 Networks, Inc. was founded in 1996 and is headquartered in Seattle, Washington. Company description from FinViz.com.
On January 24th, F5 reported earnings of $2.70 that rose 19.5% and beat estimates for $2.54. Revenue of $544 million rose 4% but narrowly missed estimated for $547 million.
Software sales rose 21% and contributed 19% to total revenues. Services revenues rose 4.7% to $309.9 million and accounted for 57% of the total. EMEA revenues rose 7% and Asia Pacific/Japan rose 11%. Enterprise customers accounted for 65% of revenue, services providers 14% and governments 21%. Gross margins were a whopping 85.2% with operating margins of 37%. They ended the quarter with $1.13 billion in cash and long-term debt of $435 million.
They repurchased $101 million in shares in Q4 and authorized a new $1 billion buyback for 2019.
F5 is going through a product transition from providing a physical piece of hardware that acts as a firewall for customer servers, to a software as a service model where they supply a software firewall and eliminate the hardware expense. This impacts revenue because the hardware is expensive. As hardware is eliminated from the sales cycle it drags on total revenue but margins gain appreciably.
They are launching F5-as-a-Service and Cloud Native App Services in the first half of 2019 and should be key growth drivers.
They guided for software revenue growth of 30-35% in 2019-2020. Earnings guidance for Q1 was $2.53-$2.56 with revenue of $543-$553 million.
Shares dipped to $152 after earnings and then flatlined for a week. Over the last week shares have been rising. With most stocks already rebounding 15-20% since December, fund managers and investors should be looking for these fallen stars as a less risky investment.
Closed 2/7: Long March $170 call @ $2.75, exit $1.47, -1.14 loss.
IBB - iShares Nasdaq Biotech ETF - ETF Profile
No specific news. The biotech sector crashed -2.4% with the Nasdaq to stop us out.
Original Trade Description: Jan 19th
The investment seeks to track the investment results of the NASDAQ Biotechnology Index, which contains securities of companies listed on NASDAQ that are classified according to the Industry Classification Benchmark as either biotechnology or pharmaceuticals and that also meet other eligibility criteria determined by Nasdaq, Inc. The fund generally invests at least 90% of its assets in securities of the index and in depositary receipts representing securities of the index. It may invest the remainder of its assets in certain futures, options and swap contracts, cash and cash equivalents. It is non-diversified. Company description from FinViz.com.
The IBB has 226 stocks and follows the Nasdaq Biotech Index ($NBI). The IBB rebounded strongly from the Christmas bottom and then stalled for over a week in the $108 range as it consolidated its gains. Friday's minor gain set it up to test resistance at $111.50 and a breakout there would target the prior highs at $122.
The first quarter is normally strong for biotechs because of the multiple conferences and calendar of FDA drug approvals. I am recommending we enter a position to benefit from a break over resistance.
Closed 2/7: Long March $115 Call @ $1.79, exit .55, -1.24 loss.
SPY - S&P-500 SPDR ETF - ETF Profile
The morning market crash hit our tight stop on this February position to stop us out for a nice gain.
Original Trade Description: Dec 22nd
The SPY is the SPDR ETF for the S&P-500. It was the first exchange traded fund listed in the USA starting in 1993.
If the market is going to rebound the SPY would be our vehicle of choice. This avoids single stock risk and capitalizes on the most oversold big cap index.
This is a bet on an end to tax loss selling and a post-Christmas market rebound. There is no guarantee there will be a rebound and there is the risk of some early January volatility.
There are hundreds of billions in cash on the sidelines waiting for the selling to end. Investors want to establish positions for 2019 and at the current lows there are plenty of bargains.
Closed 2/7: Long Feb $255 Call @ $3.25, exit $16.18, +12.93 gain.
SWK - Stanley Black & Decker - ETF Profile
No specific news. The market sell off today simply triggered profit taking and the three weeks of gains saw some retracement. If we get another down day on Friday, I am going to reenter this position on Monday.
Original Trade Description: Jan 23rd
Stanley Black & Decker, Inc. provides tools and storage, engineered fastening and infrastructure, and security solutions worldwide. The company's Tools & Storage segment offers professional products, including corded and cordless electric power tools and equipment, drills, impact wrenches and drivers, grinders, saws, routers, and sanders, as well as pneumatic tools and fasteners, including nail guns, nails, staplers and staples, and concrete and masonry anchors; and consumer products, such as lawn and garden products comprising hedge and string trimmers, lawn mowers, and edgers and related accessories, as well as home products, such as hand-held vacuums, paint tools, and cleaning appliances. It also offers hand tools, including planes, hammers, demolition tools, clamps, vises, knives, chisels, and industrial and automotive tools, as well as measuring, leveling, and layout tools; power tool accessories; and storage products. The company's Industrial segment sells engineered fastening products and systems, which include blind rivets and tools, blind inserts and tools, drawn arc weld studs and systems, engineered plastic and mechanical fasteners, self-piercing riveting systems, precision nut running systems, micro fasteners, and high-strength structural fasteners; sells and rents custom pipe handling, joint welding, and coating equipment; provides pipeline inspection services; and sells hydraulic tools and accessories. Its Security segment provides alarm and fire alarm monitoring, video surveillance, systems integration, and system maintenance solutions; sells healthcare solutions, which include asset tracking, wander and fall management, and emergency call products, as well as infant, pediatric, and patient protection products; and sells automatic doors. The company was formerly known as The Stanley Works and changed its name to Stanley Black & Decker, Inc. in March 2010. The company was founded in 1843 and is headquartered in New Britain, Connecticut.
Company description from FinViz.com.
Earnings were not kind to Stanley Black & Decker (SWK). On Tuesday the company reported earnings of $2.11 that edged out estimates by a penny. Revenue of $3.63 billion barely edged out estimates for $3.62 billion. The problem came in the guidance. The company predicted earnings for fiscal 2019 of $8.45-$8.65 and analysts were expecting $8.79. The company is in the middle of a large $250 million restructuring program that is impacting costs in the short term.
Analysts were quick to moan about the falling housing market and how it was impacting this sector. However, about 90% of home improvement sales come from consumers not selling their homes. Investors were quick to dump Home Depot thinking weakness at SWK meant weakness at Home Depot since they are their biggest customer.
Investors need to focus. Revenue hit the target, restructuring costs are impacting earnings, Home Depot has not reported any sales declines. Unfortunately, SWK shares fell $21 on the news.
Now is the time to buy the dip on SWK.
Update 1/30: OpenGate Capital has agreed to buy lock maker Sargent and Greenleaf from SWK. The lock maker was founded in 1857 and sells products in more than 100 countries. No terms were disclosed and the transaction will be completed in March.
Closed 2/7: Long Mar $125 Call @ $2.40, exit $5.00, +$2.60 gain .
BEARISH Play Updates
No Current Puts