The S&P did not close at the lows for the week, but sentiment remains bearish. The low for the week was 2,805 with support at 2,800. The Friday rebound was lackluster and on extremely weak volume. We cannot determine any change in the trend from last week's trading. The trend is down until proven otherwise.
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
LYFT - Lyft
The short position was stopped at $57.25.
CNC - Centene
The long position was entered at the open on Monday.
UBER - Uber Technology
The short position was entered at the open on Monday.
BULLISH Play Updates
CNC - Centene Corp - Company Profile
Big drop on Thursday with the market. Rebounded on Friday with news Dan Loeb's Third Point hedge fund was accumulating a position so they could lobby for putting itself up for sale before committing to the $17.3 billion acquisition of WellCare.
Original Trade Description: April 19th
Centene Corporation operates as a diversified and multi-national healthcare enterprise that provides programs and services to under-insured and uninsured individuals in the United States. The company's Managed Care segment offers health plan coverage to individuals through government subsidized programs, including Medicaid, the State children's health insurance program, long-term services and support, foster care, and medicare-medicaid plans, which covers dually eligible individuals, as well as aged, blind, or disabled programs. Its health plans include primary and specialty physician care, inpatient and outpatient hospital care, emergency and urgent care, prenatal care, laboratory and X-ray, home-based primary care, transportation assistance, vision care, dental care, telehealth, immunization, specialty pharmacy, therapy, social work, nurse advisory, and care coordination services, as well as prescriptions, limited over-the-counter drugs, medical equipment, and behavioral health and abuse services. This segment also offers various individual, small group, and large group commercial healthcare products to employers and directly to members in the Managed Care segment. Its Specialty Services segment provides pharmacy benefits management services; health, triage, wellness, and disease management services; and vision and dental, and management services, as well as care management software that automate the clinical, administrative, and technical components of care management programs. This segment offers its services and products to state programs, correctional facilities, healthcare organizations, employer groups, and other commercial organizations. The company provides its services through primary and specialty care physicians, hospitals, and ancillary providers. Centene Corporation was founded in 1984 and is headquartered in St. Louis, Missouri. Company description from FinViz.com.
Centene has had a rocky six months and shares were recovering in early April until the sector was caught in the Medicare for All downdraft. Since then they reported strong earnings and guidance and are moving up again.
The company reported earnings for $1.39 that beat estimates for $1.35. Revenue rose 40% to $18.44 billion and easily beat estimates for $17.46 billion. Medicare revenue rose 19% to $1.38 billion and commercial policy revenue rose 19% to $3.65 billion.
They raised full year guidance from $4.11-$4.31 to $4.24-$4.44. Revenue guidance rose from $70.3-$71.1 billion to $72.8-$73.6 billion.
Given the decline from the mid $70s in November, our risk should be minimal on an earnings beat and guidance raise. They should outperform the sector.
Earnings July 23rd.
Since Centene has nothing to do with imports or exports the China trade issues should not be a factor.
Shares are facing resistance at $57-$58 but should be clear sailing after that.
Long July $60 call @ $2.15, see portfolio graphic for stop loss.
TDOC - Teledoc Health - Company Profile
No specific news. No material decline despite the weak market.
Original Trade Description: May 4th
Teladoc Health, Inc. provides telehealth services. It offers a portfolio of services and solutions covering 450 medical subspecialties, such as flu and upper respiratory infections, cancer, and congestive heart failure. The company provides its services through mobile devices, the Internet, video, and phone. It serves employers, health plans, health systems, and other entities in approximately 100 countries worldwide. Teladoc Health, Inc. has a collaboration with Cincinnati Children's Hospital Medical Center to develop a consumer pediatric telehealth platform. The company was formerly known as Teladoc, Inc. and changed its name to Teladoc Health, Inc. in August 2018. Teladoc Health, Inc. was founded in 2002 and is headquartered in Purchase, New York. Company description from FinViz.com.
Teladoc is a subscription medical service where you can access a live doctor almost at will for $49 a month. Business is booming.
Q1 revenue rose 43% from $89.6 million to $128.6 million. They still posted an earnings loss because they are in customer acquisition mode. Long-term the subscription model will be a money maker. US paid memberships rose 28% to 26.7 million.
Subscription revenue in the US grew 33% to $81 million. International revenue more than doubled to $30 million. Gross margins were 65.3%. The cash on hand at the end of the quarter was $480 million.
Some insurance companies cover the Teledoc fees. An individual pays $49 a month for a suite of services that includes unlimited doctor consultations. US visit-fee-only access, which are users not covered by insurance, rose 7% to 10.2 million. Total global visits rose 75% to 1.06 million.
When you consider all the hassle of making an appointment with your regular doctor, driving to the appointment and back and waiting an hour in the office to see the doctor for 5 minutes, this seems like a bargain. A patient can pick up their phone and be talking to a doctor in minutes. If they have a video camera on their phone or computer, they can talk face to face, which is handy if you have some external affliction.
What does a normal doctor visit consist of other than blood pressure, pulse, sometimes temperature and a lot of waiting for the doctor to walk in for 5 minutes and write a prescription and leave.
The company affirmed full year guidance of $535-$545 million, a 29% boost in revenue. Adjusted EBITDA of $25-$35 million.
Long July $65 Call @ $3.30, see portfolio graphic for stop loss.
Optional: Short July $75 Call @ $1.40, see portfolio graphic for stop loss.
Net debit $1.90.
USO - US Oil Fund - ETF Profile
The China trade war decimated the energy sector on worries the war would significantly decrease global demand. In addition Saudi Arabia assured the world there was enough oil to overcome the current 3.3 million bpd in global outages. I am recommending we close this position.
Original Trade Description: May 4th
The United States Oil Fund LP (USO) is an exchange-traded security designed to track the daily price movements of West Texas Intermediate (WTI) light, sweet crude oil. USO issues shares that may be purchased and sold on the NYSE Arca.
The investment objective of USO is for the daily changes in percentage terms of its shares' NAV to reflect the daily changes in percentage terms of the spot price of light, sweet crude oil delivered to Cushing, Oklahoma, as measured by the daily changes in price of USO's Benchmark Oil Futures Contract, less USO's expenses.
USO's Benchmark is the near month crude oil futures contract traded on the NYMEX. If the near month futures contract is within two weeks of expiration, the Benchmark will be the next month contract to expire. The crude oil contract is WTI light, sweet crude oil delivered to Cushing, Oklahoma.
USO invests primarily in listed crude oil futures contracts and other oil-related futures contracts, and may invest in forwards and swap contracts. These investments will be collateralized by cash, cash equivalents, and US government obligations with remaining maturities of two years or less.
The USO rallied to nearly $14 in mid-April as WTI prices moved to $65. Oil prices tend to peak around Memorial Day and hold that level or slightly higher into the July 4th weekend.
We found out this weekend that one million bpd of Russian oil will be offline for the next couple weeks and that will squeeze global supply. We are also only two weeks past the elimination of waivers on Iranian oil and that removed another million barrels from the market. Turkey and China are the only two countries to defy the sanctions and continue purchases.
The stage is set for a potential oil rally back over $65. That would put the USO back near $14 or higher depending on what kind of ramp we get into Memorial Day and the beginning of the driving season.
I am recommending we buy an inexpensive July call option and target a 100% return over the next couple weeks.
Long July $13.50 call @ 39 cents, no initial stop loss. Target 85-cents to exit.
BEARISH Play Updates
LYFT - Lyft Inc - Company Profile
Lyft shares continued to rebound on Uber's lack of decline and moved over prior resistance to stop us out.
Original Trade Description: May 11th
Lyft, Inc. operates a peer-to-peer marketplace for on-demand ridesharing in the United States and Canada. It provides Ridesharing Marketplace, which facilitates lead generation, billing and settlement, support, and related activities to enable drivers to provide their transportation services to riders. The company also offers a network of shared bikes and scooters in various cities to address the needs of riders for shorter routes; Express Drive program, a flexible car rentals program which connects drivers who need access to a car with third-party rental car companies; and concierge for organizations to manage the transportation needs of their customers and employees. In addition, it integrates third-party public transit data into the Lyft app to offer various enterprise programs, including monthly ride credits for daily commutes, supplementing public transit by providing rides for the first and last leg of commute trips, late-night rides home, and shuttle replacement rides. The company was formerly known as Zimride, Inc. and changed its name to Lyft, Inc. in 2013. Lyft, Inc. was incorporated in 2007 and is headquartered in San Francisco, California. Company description from FinViz.com.
We were stopped out of our Lyft put position a week ago and I am reinstating it. The monster earnings loss of $1.138 billon in Q1 is just a preview of things to come.
Lyft reported an adjusted loss of $9.02 per share. That is a small improvement from the loss of $11.40 in the year ago quarter, but it is a huge amount of money. Revenue was $776 million compared to the loss of $1.138 billion. They guided for revenue of $800-$810 million for Q2 and $3.275-$3.3 billion for the full year. Active users rose to 20.5 million, up from 14 million. Average revenue per rider rose from $28.27 to $37.86.
The big question now that Lyft is public is how long can it continue to lose $1 billion per quarter with total revenue at $800 million? With Uber and Lyft both losing tons of cash, cheap rides are going to end. If ride prices double to an average of $75 as needed to breakeven, riders will disappear.
Earnings August 6th.
Closed 5/22: Long July $45 put @ $3.50, exit .95, -2.55 loss.
TSLA - Tesla Inc - Company Profile
Despite our horrible fill, we are deep in the money on both puts. At some point we are going to have to close both sides. We have a $15 spread and our gain today is only $6.55. We need for more of the short premium to fade as it becomes deeper into the money. I would recommend placing an order to close for a $10 gain. If we get it, we can launch a new position. $180 is support. If we reach that level, I would simply close the position.
Original Trade Description: May 11th
Tesla, Inc. designs, develops, manufactures, and sells electric vehicles, and energy generation and storage systems in the United States, China, Netherlands, Norway, and internationally. The company operates in two segments, Automotive, and Energy Generation and Storage. The Automotive segment offers sedans and sport utility vehicles. It also provides electric vehicle powertrain components and systems to other manufacturers; and services for electric vehicles through its company-owned service centers, Service Plus locations, and Tesla mobile technicians. This segment sells its products through a network of company-owned stores and galleries. The Energy Generation and Storage segment offers energy storage products, such as rechargeable lithium-ion battery systems for use in homes, commercial facilities, and utility grids; designs, manufactures, installs, maintains, leases, and sells solar energy systems to residential and commercial customers; and sell renewable energy to residential and commercial customers. The company was formerly known as Tesla Motors, Inc. and changed its name to Tesla, Inc. in February 2017. Tesla, Inc. was founded in 2003 and is headquartered in Palo Alto, California. Company description from FinViz.com.
Tesla has so many headwinds you could not list them all. They are short on cash. They have multiple gigafactory construction projects underway at the same time. They have multiple models from sedans to semi trucks in pre production planning. Each one could consume $1 billion or more in manufacturing start up costs. The gigafactory in China is multiple billions to construct and populate with equipment and inventory. Sales of the Model S and Model 3 are slowing. Competition is heating up with Mercedes, Volkswagen, Jaguar and BMW starting to deliver new models of electric cars and in large quantities. GM is prepping to deliver multiple models of reasonably priced cars.
Even worse, there is suddenly a large number of used Teslas for sale. For instance TrueCar has more than 940 used Teslas for sale. The electric car fad is now over and they are becoming common place. Instead of only one car maker to choose from now there are six or more with all price ranges. I have seen the Jaguar and I would much rather have that than a Tesla. The Tesla brand is over priced and over hyped.
The constant headlines of Elon Musk in trouble with the law, the SEC, the courts, individual suits, etc, is tarnishing the brand. Musk used to be the wonder kid that could do anything. As his recent promises become even more unbelievable and undeliverable, he is being written off as a spoiled rich kid and the Tesla brand is losing its luster. He has a coming trial date on his comments calling a British cave rescue diver a pedophile and a child rapist. The diver sued him for defamation.
Goldman has a price target of $210. RBC $210 and Cowen $200. Bank of America just resumed coverage with an underperform rating (sell). Evercore has an underperform.
Shares are slowly slipping away after breaking strong support at $249.
Unfortunately, options are expensive and this will have to be a spread.
Update 5/18: Elon Musk sent a memo to employees saying the company only had 10 months of cash at the Q1 burn rate and he was going on a "hard core" cost cutting program. Tesla just raised $920 million in a bond sale in March to bring their cash balance up to $2.2 billion. That is a lot of money unless your cash burn rate is $3 billion a year.
Long July $225 put @ $17.61, see portfolio graphic for stop loss.
Short July $205 put @ $10.40, see portfolio graphic for stop loss.
Net debit $7.21.
UBER - Uber - Company Profile
Bad fill! The ask that was showing last weekend was $2.95 and a reasonable premium for this stock. Unfortunately, UBER shares gapped down from $42 to $39 at the open on Monday and that ask shot up to $6.20. For years we have had a rule that a gap of more than $1 negated the recommendation. However, I have not emphasized that recently, so I am continuing the play with the bad fill. I did put a tight stop on it to take us out on any further rise.
UBER has earnings on Thursday. I am recommending we hold this position over earnings just in case the market reacts badly to the UBER report. HOWEVER, there is no harm in exiting the position and removing the risk in advance. There is a lot of risk. A $10 spike in the wrong direction could erase more than half the premium in an instant.
Original Trade Description: May 18th
Uber Technologies, Inc. develops and supports proprietary technology applications that enable independent providers of ridesharing, and meal preparation and delivery services to transact with riders and eaters worldwide. The company operates in two segments, Core Platform and Other Bets. Its driver partners provide ridesharing services through a range of vehicles, such as cars, auto rickshaws, motorbikes, minibuses, or taxis, as well as based on the number of riders under the UberBLACK, UberX, UberPOOL, Express POOL, and Uber Bus names; and restaurant and delivery partners provide meal preparation and delivery services under the Uber Eats name. The company also offers Uber Central, a tool that enables companies to request, manage, and pay for rides for their employees, customers, or partners; and Uber Health, which allows healthcare professionals to arrange rides for patients going to and from the care destinations. In addition, it provides freight transportation services to shippers in the freight industry under the Uber Freight name; leases vehicles to third-parties that use the vehicles to provide ridesharing or eats services through the platforms; and provides access to rides through personal mobility products, including dockless e-bikes and e-scooters under the JUMP name. The company was formerly known as Ubercab, Inc. and changed its name to Uber Technologies, Inc. in February 2011. Uber Technologies, Inc. was founded in 2009 and is headquartered in San Francisco, California. Company description from FinViz.com.
Now that Uber is public and the initial volatility is over, investors should begin to focus on fundamentals. Losing $1 billion or more a quarter is not a big selling point. While Uber has a lot of other businesses in development the majority of their revenue comes from ride hailing. They have stated they are going to raise prices and pay their drivers less and that is going to be a disaster. Drivers are already protesting about the low wages and no benefits. If their commissions are cut again, many will quit. Response times will rise. If Uber raises prices they will be in a price war with Lyft. The service with the lowest prices will win.
Analysts believe ride prices would have to double for Uber to break even. That would be the kiss of death to market share.
Uber has received so much bad press since the IPO that plenty of frustrated investors have exited. Others, not wanting to take a big loss probably waited for the rebound and will be exiting soon.
Long July $45 put @ $5.80, no initial stop loss.