After five weeks of declines, the shorts gave back much of their gains in only four days. It was a great week for the bulls and a bad week for the bears. While a short squeeze can be just an oversold rally in a bear market it can also be the start of a lasting rally. Just look at the bottom left of this chart when the December decline ended with a giant squeeze.
Unfortunately, when these squeezes appear, all the oversold stocks rally and that stopped us out of the three put positions.
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
AJRD - Aerojet Rocketdyne
The long position was entered at the open on Monday.
CNC - Centene
The long position was stopped at $52.50.
SBUX - Starbucks
The short position was stopped at $79.85.
TSLA - Tesla Inc
The short position was closed at $180.00.
UBER - Uber Technology
The short position was stopped at $42.25.
BULLISH Play Updates
AJRD - Aerojet Rocketdyne - Company Profile
Aerojet said it was opening a state of the art rocket propulsion facility in Huntsville Alabama. The 136,000 sqft Advanced Manufacturing Facility was opened on Friday/ They will produce high performance rocket motors for things like the Standard Missile-3 and the THAAD missile defense system.
Original Trade Description: May 31st.
Aerojet Rocketdyne Holdings, Inc. designs, develops, manufactures, and sells aerospace and defense products and systems in the United States. The company operates through two segments, Aerospace and Defense, and Real Estate. The Aerospace and Defense segment offers aerospace and defense products and systems for the United States government, including the Department of Defense, the National Aeronautics and Space Administration, and aerospace and defense prime contractors. This segment provides propulsion systems, such as liquid, solid, air-breathing, and electric propulsion systems for space, defense, civil, and commercial applications; and armament systems. The Real Estate segment engages in the re-zoning, entitlement, sale, and leasing of the company's excess real estate assets. It owns 11,451 acres of land adjacent to the United States Highway 50 between Rancho Cordova and Folsom, California east of Sacramento. The company was formerly known as GenCorp Inc. and changed its name to Aerojet Rocketdyne Holdings, Inc. in April 2015. Aerojet Rocketdyne Holdings, Inc. was founded in 1915 and is headquartered in El Segundo, California. Company description from FinViz.com.
Earnings July 30th.
Aerojet reported earnings of 44 cents that beat estimates for 27 cents. Revenue of $491.7 million also beat estimates for $478.2 million. Revenue was flat year over year because of the phase out of the AJ60 solid rocket motor. However, the uptick in Patriot missile components offset that end of life product. Order backlogs were $3.8 billion.
I am sure everyone has noticed the increase in launches by dozens of companies and everyone needs rocket motors. SpaceX, Blue Origin, NASA and other countries all around the world are adding to the 4,091 satellites in orbit. Every satellite requires a rocket. In addition, Aerojet has numerous contracts with the government to supply defense contracts. With the defense sector seeing increased orders from around the globe, the outlook for Aerojet is strong.
Shares rose over prior resistance at $38 on the strength of their earnings. New high resistance is $40 and only $1.50 away.
Long August $40 Call @ $2.00, see portfolio graphic for stop loss.
CNC - Centene Corp - Company Profile
The takeover bubble burst when Humana said it would not make a bid for Centene. Analysts and shareholders had been hoping that something would happen to breakup the proposed acquisition of WellCare by Centene.
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.
Closed 6/3: Long July $60 call @ $2.15, exit $.60, -1.55 loss.
SWKS - Skyworks - Company Profile
Shares closed at a three-week high as the semiconductor crash comes to an end.
Original Trade Description: May 25th
Skyworks Solutions, Inc., together with its subsidiaries, designs, develops, manufactures, and markets proprietary semiconductor products, including intellectual property worldwide. Its product portfolio includes amplifiers, antenna tuners, attenuators, circulators/isolators, DC/DC converters, demodulators, detectors, diodes, directional couplers, diversity receive modules, filters, front-end modules, hybrids, LED drivers, low noise amplifiers, mixers, modulators, optocouplers/optoisolators, phase locked loops, phase shifters, power dividers/combiners, receivers, switches, synthesizers, technical ceramics, voltage controlled oscillators/synthesizers, and voltage regulators. The company provides its products for use in the aerospace, automotive, broadband, cellular infrastructure, connected home, industrial, medical, military, smartphone, tablet, and wearable markets. It sells its products through direct sales force, electronic component distributors, and independent sales representatives. Skyworks Solutions, Inc. has a collaboration agreement with MediaTek Incorporated to deliver standards-based 5G solution. The company was founded in 1962 and is headquartered in Woburn, Massachusetts. Company description from FinViz.com.
Skyworks shares have been crushed in the tariff war and the resulting chip-wreck. Many of the companies that buy from Skyworks have been hit by tariffs that depress their sales. However, this could be n ideal buying opportunity.
Other than Qualcomm, Skyworks probably has the most to gain from the 5G revolution. They said the amount of Skyworks chips in 5G phones will be 40% more than in a 4G phone. Skyworks recently provided a graphic showing all the components they will be supplying for most 5G phones. Their revenue per phone will increase from $18 to $25 per phone.
5G is also going to revolutionize the Internet of Things (IoT) devices because the greater speed will allow them to perform more functions an be in more places. Skyworks will be selling those chipsets as well. Literally billions of 5G IoT devices will be sold over the next several years.
They do have risk. Huawei is on the verge of being blacklisted by the USA and the EU. They will have a hard time selling phones outside of China. Huawei is currently a large customer of Skyworks. However, just because Huawei will not be able to sell phones in the US or EU it does not mean people in those areas will not be buying phones. They will simply be buying different phones from other manufacturers and they will still contain Skyworks chips.
Skyworks rallied 36% off the December lows to close at $93.56 in April. They gave back 29% in the chip-wreck since May 1st to trade at support at $68. This is a monster drop to support and should be a buying opportunity. While we cannot foresee the future headlines, the drop back to support should prevent them from a continued decline unless the headlines are severe.
Earnings August 1st.
Long July $75 call @ $2.00, see portfolio graphic for stop loss.
BEARISH Play Updates
SBUX - Starbucks - Company Profile
No specific news. Major short squeeze. Shares sprinted higher with a $6 gain to stop us out.
Original Trade Description: May 26th
Starbucks Corporation, together with its subsidiaries, operates as a roaster, marketer, and retailer of specialty coffee worldwide. The company operates in four segments: Americas; China/Asia Pacific; Europe, Middle East, and Africa; and Channel Development. Its stores offer coffee and tea beverages, roasted whole bean and ground coffees, single-serve and ready-to-drink beverages, iced tea, and food and snacks; and various food products, such as pastries, breakfast sandwiches, and lunch items. The company also licenses its trademarks through licensed stores, and grocery and foodservice accounts. It offers its products under the Starbucks, Teavana, Tazo, Seattle's Best Coffee, Evolution Fresh, La Boulange, Ethos, Frappuccino, Starbucks Reserve, Princi, Starbucks Doubleshot, Starbucks Refreshers, and Starbucks VIA brand names. As of April 25, 2019, the company operated approximately 30,000 stores. Starbucks Corporation was founded in 1971 and is based in Seattle, Washington. Company description from FinViz.com.
Starbucks has been the king of coffee for decades. However, lately their market share has been under attack by McDonalds McCafe, Dunkin Donuts and Panera in the US. They were still king in China. Over the last decade they have opened 3,000 stores in China and continue to open one per day. Unfortunately, they have a new challenger in China that has opened nearly 3,000 stores in just the last year.
Starbucks expects to have 5,000 stores in China by 2025. Lukin Coffee plans to have 5,000 stores by the end of 2019. Where Starbucks is opening one store per day, Lukin is opening 7 stores per day.
The Starbucks theory has always been Chinese people will drink coffee once they are exposed to it. China is a tea culture. Starbucks stores appear, they get people to try coffee and some become converts and customers.
Luckin's plan is to offer a broad range of teas and coffee. That way the consumer does not have to change their taste patterns and can continue to be tea drinkers. Those that have been exposed to coffee at Starbucks can now get their coffee elsewhere.
The challenge for Starbucks is that Luckin is very price conscious. They do not accept cash. All purchases are made and paid through their app. Just signing up will get you a reward of 14 coupons on average. Some allow you to purchase a latte for as little as 69 cents where Starbucks charges $4. Once you have downloaded their app you receive a continuous stream of promotions based on what you have ordered in the past.
Starbucks is the lumbering giant in the China coffee market and Luckin is the super smart entrepreneurial kid that is running circles around the giant.
Coupled with the market share challenges in the US, Starbucks has a hard road ahead. It is very possible they will succeed but over the next several months investors are likely to be wary since China has been the growth sector for Starbucks. If their earnings begin to show weakness and loss of market share, the 2019 rally could quickly evaporate.
Earnings July 25th.
Closed 6/5: Long July $75 put @ $1.73, exit .83, -.90 loss.
TSLA - Tesla Inc - Company Profile
TSLA shares hit exit target at $180 and then rebounded $25. It may be time to launch a new 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.
Update 5/31: The bad news continues to flow, and analysts are slashing prices almost daily. The Fresno Model 3 plant is now running only one shift instead of three as demand for the Model 3 continues to decline.
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 $8.06. 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.
Closed 6/3: Long July $225 put @ $17.61, exit $46.75, +$29.14 gain.
Closed 6/3: Short July $205 put @ $10.40, exit $31.05, -20.65 loss.
Net gain $8.49.
UBER - Uber - Company Profile
When the major short squeeze began in the market, Uber went along for the ride. Every stock with selling pressure over the last couple weeks posted major gains. We were stopped out early so the loss was minimal.
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.
Update 5/26: Bad fill again. 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.
Update 5/31: UBER reported a loss of $1.01 billion (-$2.26) and slightly better than the $1.0-$1.1 guidance. Revenue rose 20% to $3.1 billion. While the report was still ugly it was "less bad" than some expected. Shares rose slightly after the earnings but floundered intraday before posting a fractional gain at the close. Costs rose 35%. The company failed to provide Q2 guidance and that suggests they could lose even more money. I put a tight stop on the position in case a rebound appears.
Closed 6/3: Long July $45 put @ $6.20, exit $5.10, -1.10 loss.