Editors Note:

The worst week for the markets in 2019 has cleared the portfolio of all but one stock. Our biggest winner, PAYX, finally collapsed at the open to stop us out. The afternoon rebound could be a signal of a pending market recovery but we will need confirmation before backing up the truck.



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


ASHR - Chinese A-Shares ETF
The long position was stopped at the open at $26.85.

PAYX - Paychex
The long position was stopped at $75.50.


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


BULLISH Play Updates

ASHR - CSI China 300 ETF - ETF Profile

Comments:

The A-shares play was in trouble from the start. We got a terrible fill at $2.62 and nearly $1 above the price an hour later. Then headlines began breaking about the trade deal crumbling followed by horrible economics from China. The 4% drop in the Chinese market and stop out on Friday was a mercy killing.

Original Trade Description: March 2nd

The investment seeks investment results that correspond generally to the performance, before fees and expenses, of the CSI 300 Index. The fund will normally invest at least 80% of its total assets in securities of issuers that comprise the underlying index. The underlying index is designed to reflect the price fluctuation and performance of the China A-Share market and is composed of the 300 largest and most liquid stocks in the China A-Share market. The underlying index includes small-cap, mid-cap, and large-cap stocks. Company description from FinViz.com.

The Chinese equity markets have been rising on anticipation of a completed trade deal. Chinese focused ETFs have been rising sharply.

However, a move by MCSI last week is going to lift them even higher. MCSI, the global index provider, announced they were raising the weighting of the Chinese mainland A-Shares from the current 5% weighting to 20% for a number of their global indexes. The weighting will rise to 10% in May, 15% in August and 20% in November.

In 2018 MCSI added 236 China listed large cap stocks to its emerging market index. Most importantly, Chinese A-shares were included in the Emerging Markets Index for the first time.

The increase in weighting will trigger more than $80 billion into Chinese equities. JP Morgan believes it could draw $85 billion and Goldman Sachs expects more than $70 billion in inflows to A-shares.

In addition FTSE Russell and S&P Dow Jones are going to begin adding yuan-denominated Chinese shares to their global benchmark indexes.

The ASHRs ETF holds a basket of 303 large cap Chinese stocks that will benefit from the index additions mentioned above. At the beginning of 2018, before all the trade issues erupted, the ASHR was trading at $35 and rising. Since the dispute shares fell to $24. With multiple index companies adding the large cap Chinese stocks to their indexes for the first time, there should be a solid ramp back to $35 or even higher. A successful Chinese trade deal will give it even more momentum.

The ETF is jerky because it is based on the overnight activity in China's market. It will normally gap open as trade begins in the US.

Position 3/4/19:
Closed 3/8: Long July $29.71 call @ $1.46, exit .85, -1.77 loss.


INTC - Intel - Company Profile

Comments:

No specific news. The Semiconductor Index has fallen 7% from the Feb 25th high but Intel is hanging on to much of its recent gains.

Original Trade Description: Feb 16th

Intel Corporation designs, manufactures, and sells computer, networking, data storage, and communication platforms worldwide. The company operates through Client Computing Group, Data Center Group, Internet of Things Group, Non-Volatile Memory Solutions Group, Programmable Solutions Group, and All Other segments. Its platforms are used in notebooks, desktops, and wireless and wired connectivity products; enterprise, cloud, and communication infrastructure market segments; and retail, automotive, industrial, and various other embedded applications. The company offers microprocessors, and system-on-chip and multichip packaging products. It also provides NAND flash memory products primarily used in solid-state drives; and programmable semiconductors and related products for communications, data center, industrial, military, and automotive markets. In addition, the company develops computer vision and machine learning, data analysis, localization, and mapping for advanced driver assistance systems and autonomous driving. It serves original equipment manufacturers, original design manufacturers, industrial and communication equipment manufacturers, and cloud service providers. Intel Corporation has collaboration with Tata Consultancy Services to set up a center for advanced computing that develops solutions in the areas of high performance computing, high performance data analytics, and artificial intelligence. The company was founded in 1968 and is based in Santa Clara, California. Company description from FinViz.com.

In November Intel announced a $15 billion share buyback program. Intel had $4.7 billion remaining under a prior authorization putting them just shy of $20 billion. This represents almost 10% of the outstanding shares. Six years ago, Intel had 6.5 billion shares outstanding. If they complete this buyback program, they will have just over 4 billion shares outstanding.

Intel is poised to profit from the coming 5G revolution. Apple has already said they are going to use Intel's 5G model in their 2020 phones. Intel has participated in more than 25 5G trials with potential partners. In the last quarter Intel said revenue from communications service providers rose 30%. The company said in August it is pursuing the $24 billion communications infrastructure segment of the market and expects to gain significant market share by 2022. Intel is not just a PC and server processor company any more.

Intel reported Q4 earnings of $1.28 that beat estimates for $1.22. However, revenue of $18.66 billion missed estimates for $19.02. Their biggest problem was guidance for Q1 of 87 cents on $16 billion in revenue. Analysts were expecting $1 on $17.29 billion.

Intel is poised to benefit from a trade agreement with China. They currently get 24% of their revenue from China. With the advent of 5G, Intel is poised to be a leading player. They bill themselves as an "end to end" provider. The 5G revolution is not only going to replace nearly every piece of networking gear on the planet, every cellphone owner will be upgrading to a new 5G phone, many with an Intel modem. Remember the old commercials from the 2000's, "Intel Inside?" With Intel's new push into the internet of things (IoT), smartphone communications and self-driving vehicles, they really will be inside most electronic products.

Intel is expected to grow revenue by 5% in 2019. That is better than the sector forecast for 2% growth.

Earnings April 25th.

We have to reach out to the June option cycle to get a strike that comes after earnings and will keep the premiums inflated. We can buy time, but we do not have to use it.

Position 2/19:
Long June $55 call @ $1.53, see portfolio graphic for stop loss.


PAYX - Paychex Inc - Company Profile

Comments:

No specific news. Shares finally succumbed to profit taking in the broader market and fell to stop us out.

Original Trade Description: Feb 3rd

Paychex, Inc. provides payroll, human resource (HR), retirement, and insurance services for small to medium-sized businesses in the United States and Europe. The company offers payroll processing services; payroll tax administration services; employee payment services; and regulatory compliance services, such as new-hire reporting and garnishment processing. It also provides HR outsourcing services, including Paychex HR solutions comprising payroll, employer compliance, HR and employee benefits administration, risk management outsourcing, and the on-site availability of a professionally trained HR representative; and retirement services administration, including plan implementation, ongoing compliance with government regulations, employee and employer reporting, participant and employer online access, electronic funds transfer, and other administrative services. In addition, the company offers insurance services for property and casualty coverage, such as workers' compensation, business-owner policies, and commercial auto, as well as health and benefits coverage, including health, dental, vision, and life; cloud-based HR administration software products for employee benefits management and administration, time and attendance, recruiting, and onboarding solutions; and other HR services and products, such as employee handbooks, management manuals, and personnel and required regulatory forms. Further, it provides various accounting and financial services to small to medium-sized businesses comprising payroll funding and outsourcing services, which include payroll processing, invoicing, and tax preparation; and various services, such as payment processing services, financial fitness programs, and a small-business loan resource center. The company markets its products and services through direct sales force. Paychex, Inc. was founded in 1979 and is headquartered in Rochester, New York. Company description from FinViz.com.

The company reported earnings of 65 cents that rose 20.4% and beat estimates for 63 cents. Revenue of $858.9 million rose 7% and beat estimates for $855 million. Free cash flow from operations was $223.5 million. They paid $201.3 million in dividends in the quarter. The annual dividend is $2.24 or a 3.12% yield.

For 2019 the company guided for 18% to 20% revenue growth in PEO and insurance services and 4% growth in management solutions. Interest on funds held for clients is expected to rise by 20-25%. Earnings are expected to rise 11-12%.

During the quarter they announced a deal to acquire Florida based Oasis Outsourcing for $1.2 billion in cash. That is expected to bolster the company's PEO strategy an expand PEO sales and the client base. PEO stands for professional employer organization. This is where they provide all types of HR solutions to small businesses.

Earnings March 20th.

Shares have moved up steadily from the December low and broke above December 3rd resistance high on Friday. The next target is $75 and the October high. With strong earnings, guidance and dividend, shares should continue to be in favor.

The March options cycle expires 5 days before earnings, so we have to reach out to June to prevent premium erosion ahead of earnings.

Position 2/4/19:
Closed 3/8: Long June $75 call @ $1.90, exit $2.95, +1.05 gain.


BEARISH Play Updates

No Current Puts