Editors Note:

The market was closed today so nothing new to report. Tomorrow may be a big day with all the data that is due.

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

No Changes

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

BULLISH Play Updates

CSCO - Cisco Systems - Company Profile


There is no specific news for this company. The stock set a one-month high on Monday, then gave up the gains on Tuesday. Our outlook for future price action is unchanged.

Original Trade Description: Dec 1st

Cisco Systems, Inc. designs, manufactures, and sells Internet Protocol (IP) based networking and other products related to the communications and information technology industry worldwide. The company offers switching products, including fixed-configuration and modular switches, and storage products that provide connectivity to end users, workstations, IP phones, wireless access points, and servers; and next-generation network routing products that interconnect public and private wireline and mobile networks for mobile, data, voice, and video applications. It also provides collaboration products comprising unified communications products, conferencing products, collaboration endpoints, and business messaging products; data center products, such as blade and rack servers, series, fabric interconnects, and management software solutions; wireless products consisting of wireless access points, WLAN controllers, cloud and appliances based services, and integrated software services. In addition, the company offers security products, including network and data center security, advanced threat protection, Web and email security, access and policy, unified threat management, and advisory, integration, and managed services; and other products, such as emerging technologies and other networking products. Further, the company offers a distributed file system for hyperconvergence that enables server-based storage systems; service provider video software and solutions; and technical support services and advanced services. It serves businesses of various sizes, public institutions, governments, and service providers. The company sells its products directly, as well as through channel partners, such as systems integrators, service providers, other resellers, and distributors. The company was founded in 1984 and is headquartered in San Jose, California. Company description from FinViz.com.

It appears that everyone is moving to the subscription model for software after the success of companies like Adobe in moving from a sales to a license subscription model. Microsoft Office, Autodesk, even BlackBerry is moving to a subscription model.

Cisco is moving to a subscription model on their highest capacity routers and switches. These devices cost from tens of thousands of dollar to hundreds of thousands. These are Cisco's highest capacity and smartest devices. However you need a masters in device programming to make them work correctly. With cyber security threats growing daily, enterprise users want to be able to stop the majority of the threats at the router level.

Cisco now sells multiyear software as a service (SaS) subscriptions for these top of the line devices. The CEO said the unbilled revenue for SaS subscriptions was their fastest growing revenue line item even though it is not on their books. If someone signs a 3-year service contract, Cisco can only recognize the revenue from the current quarter, and then defers revenue for the rest of the fiscal year. The revenue in future years is not disclosed. Deferred and unbilled revenue was up 28% for the quarter and she said unbilled portion was the largest component.

Cisco reported Q3 earnings of 75 cents that beat estimates for 72 cents. Revenue of $12.14 billion missed estimates for $12.86 billion. The company guided for Q4 earnings of 71-72 cents on revenue of $12.48-$12.72 billion. Analysts were expecting 2 cents on $12.54 billion.

I believe Cisco is on the verge of a breakout and a long awaited move higher. Cisco has been dead money all year after a surge in Q3/Q4 last year. This consolidation period may be about over.

Because of the 4.7 billion outstanding shares, the options are inexpensive and we can reach out to April and capture any Q4 earnings rally.

Buy Apr $50 call, currently $1.89, initial stop loss $45.

TGT - Target - Company Profile


No specific news for this stock. Outlook unchanged.

Original Trade Description: Dec 1st

Target Corporation operates as a general merchandise retailer in the United States. The company offers beauty and household essentials, including beauty products, personal and baby care products, cleaning products, paper products, and pet supplies; food and beverage products, such as dry grocery, dairy, frozen food, beverage, candy, snacks, deli, bakery, meat, and produce products; and apparel for women, men, boys, girls, toddlers, infants, and newborns, as well as intimate apparel, jewelry, accessories, and shoes. It also provides home furnishings and decor comprising furniture, lighting, kitchenware, small appliances, home decor, bed and bath products, home improvement products, and automotive products, as well as seasonal merchandise comprising patio furniture and holiday decor; and music, movies, books, computer software, sporting goods, and toys, as well as electronics that include video game hardware and software. In addition, the company offers in-store amenities, which comprise Target Cafe, Target Optical, Starbucks, and other food service offerings. It sells its products through its stores; and digital channels, including Target.com. As of March 8, 2018, the company operated 1,826 stores. Target Corporation was founded in 1902 and is headquartered in Minneapolis, Minnesota. Company description from FinViz.com.

Target shares were beaten severely when they missed Q3 estimates by 2 cents on their Q3 earnings. The company reported earnings of $1.09 that missed estimates for $1.11. Revenue rose to $17.59 billion but that missed estimates of $17.81 billion. Same store sales rose 5.1%, a 3.2% improvement but missed the 5.5% consensus. Digital sales rose a whopping 49% and now contribute 2% to overall revenue.

They guided for the full year for earnings of $5.30-$5.50 and analysts were expecting $5.42. They guided for 5.0% same store sales. Analysts picked on them for a 17% rise in inventory. Target said with the demise of Toys-R-Us they had stocked up heavily on toys and planned on a big holiday. They want to grab as much of the market share from Toys-R-Us as possible and will be advertising heavily. That will draw more people into the stores and lead to more sales of other merchandise as well. They pointed out that 2018 had the maximum number of sales days on the calendar between Thanksgiving and Christmas.

The guidance was the same as they issued at the end of Q2. They did not back off. The 5.0% same store sales was higher than the 4.4% the street was expecting.

Target has also beefed up their more than a dozen private label brands that have a larger profit margin and that will help in the December quarter. Keybanc estimates the Toys-R-Us exit, Sears bankruptcy and other store closings has put $17 billion in retail market share up for grabs in areas where Target is expected to compete well and add multiple percentage points to their growth. Keybanc maintained their $100 price target. Target shares have fallen to $67 post earnings and are now trading at a PE of 13 compared to 18 for Walmart. That means Target is on sale at the right price and there is very little risk.

Buy Mar $75 Call, currently $3.05, stop loss $66.50.

SPY - S&P-500 ETF - ETF Profile


The broad market had a rough couple of days as trade-truce euphoria quickly turned sour. The SPX looks like it may retest support levels slightly below Tuesday's close but above our stop-loss target so no change to outlook. Futures are indicating a positive open on Thursday, if the data is good we may see the market rebound.

Original Trade Description: Dec 1st

The SPDR S&P 500 trust is an exchange-traded fund which trades on the NYSE Arca under the symbol SPY. SPDR is an acronym for the Standard & Poor's Depositary Receipts, the former name of the ETF. It is designed to track the S&P 500 stock market index. This fund is the largest ETF in the world.

This is a high-risk position. If we do get a positive trade agreement of some sort we could see a major move in the market. If we do not then we could retest the lows. DO NOT enter this position unless the market is positive.

Buy Jan $285 call, currently $2.40, stop loss $268.00.

AAP - Advance Auto Parts - Company Profile


No specific news. Shares were flat again in a volatile market.

Original Trade Description: Nov 24th

Advance Auto Parts, Inc. provides automotive replacement parts, batteries, accessories, and maintenance items for domestic and imported cars, vans, sport utility vehicles, and light and heavy-duty trucks. It offers battery accessories, belts and hoses, brakes and brake pads, chassis and climate control parts, clutches and drive shafts, engines and engine parts, exhaust systems and parts, hub assemblies, ignition components and wires, radiators and cooling parts, starters and alternators, and steering and alignment parts. It also offers AC chemicals and accessories, air fresheners, antifreeze and washer fluids, electrical wires and fuses, electronics, hand and specialty tools, lighting products, performance parts, sealants, adhesives and compounds, tire repair accessories, vent shades, mirrors and exterior accessories, washes, waxes and cleaning supplies, wiper blades, floor mats, seat covers, and interior accessories. In addition, it offers air filters, fuel and oil additives, fuel filters, grease and lubricants, motor oils, oil filters, part cleaners and treatments, and transmission fluids for engine maintenance. Further, it offers battery and wiper installation, battery charging, check engine light reading, video clinic, oil and battery recycling, loaner tool program, and electrical system testing services. Additionally, it sells its products through its Website. It serves do-it-for-me and do-it-yourself customers, professional installers, and independently-owned operators. As of December 30, 2017, it operated 5,054 stores under Advance Auto Parts, Autopart International, and Carquest brand names; and 129 branches under the Worldpac brand name in the United States, Puerto Rico, the U.S. Virgin Islands, and Canada. It also served approximately 1,218 independently owned Carquest branded stores in Mexico, the Bahamas, Turks and Caicos, the British Virgin Islands, and the Pacific Islands. The company was founded in 1929 and is based in Roanoke, Virginia. Company description from FinViz.com.

AAP reported earnings on Nov 13th of $1.89 that beat estimates for $1.76. Revenur rose 4.3% to $2.3 billion and beat estimates for $2.2 billion. Same store sales rose 4.6% and beat the 2.5% estimate. They guided for the full year for revenue of $9.55-$9.60 billion, up from prior estimates for $9.30-$9.50 billion. Same store sales are expected between 2.0-2.5% up from 1.5% in the prior estimate.

Shares spiked 5% on the news then faded in the weak market. They have risen the past two days even though the broader market was weak.

This is a simple play. The stock is showing good relative strength. It is not a tech stock and subject to decline with the Nasdaq. It is not tariff sensitive.

With auto prices rising, interest rates rising and car loans harder to get, people are going to keep their existing cars longer and that means they need more parts.

Earnings February 12th.

Position 11/26/19:
Long Jan $185 call @ $5.75, see portfolio graphic for stop loss.
Short Jan $200 call @ $1.70, see portfolio graphic for stop loss.
Net debit $4.05.

INTC - Intel - Company Profile


Northland downgraded INTC to underperform on the idea that this is as good as it gets for this company. The report cites weak demand from Apple and soft pricing for flash. The analyst lowered the stocks price target to $42 which may become a problem for this trade. Intel announced a new 5G modem for phones that will be available by summer. This will allow Apple iPhones to have the capability of 5G when they are announced next September. The actual 5G network will not be ready on a broad basis until late 2021. The first network offerings will be limited to the core of major cities. Since 5G will deliver 6 GBps speeds, compared to current 4G phones at 50 MBps that would mean a 120% increase in speeds. However, all the carriers only have the capability of 200 MBps on average, all those networks will have to be upgraded and that is going to be a long process.

Original Trade Description: Nov 17th

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.

Intel has bucked the trend in the chip sector by beating on earnings and giving decent guidance. Shares have resisted any material decline in November and appear to be poised to break through resistance at $49.

On Thursday, 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.

Earnings January 24th.

Position 11/19:
Long Jan $50 call @ $1.73, see portfolio graphic for stop loss.

LITE - Lumentum - Company Profile


No specific news. Continued downgrades on Apple are holding back everyone in the supply chain. The XR is reportedly getting bad reviews and sales are crashing.

Original Trade Description: Nov 17th

Lumentum Holdings Inc. manufactures and sells optical and photonic products in the Americas, the Asia-Pacific, Europe, the Middle East, and Africa. The company operates through two segments, Optical Communications and Commercial Lasers. The Optical Communications segment offers components, modules, and subsystems that enable the transmission and transport of video, audio, and text data over high-capacity fiber optic cables. It offers tunable transponders, transceivers, and transmitter modules; tunable lasers, receivers, and modulators; transport products, such as reconfigurable optical add/drop multiplexers, amplifiers, and optical channel monitors, as well as components, including 980nm, multi-mode, and Raman pumps; and switches, attenuators, photodetectors, gain flattening filters, isolators, wavelength-division multiplexing filters, arrayed waveguide gratings, multiplex/de-multiplexers, and integrated passive modules. This segment also provides Super Transport Blade, which integrates optical transport functions into a single-slot blade; optical transceivers for fiber channel and Ethernet applications; integrated fiber optic transceivers; vertical-cavity surface-emitting lasers; distributed feedback and electro-absorption modulated lasers; and laser illumination sources for 3D sensing systems. It serves customers in telecommunications, data communications, and consumer and industrial markets. The Commercial Lasers segment offers diode-pumped solid-state, fiber, diode, direct-diode, and gas lasers for use in original equipment manufacturer applications. It serves customers in markets and applications, such as sheet metal processing, general manufacturing, biotechnology, graphics and imaging, and remote sensing, as well as in precision machining, such as drilling in printed circuit boards, wafer singulation, glass cutting, and solar cell scribing. Lumentum Holdings Inc. was incorporated in 2015 and is headquartered in Milpitas, California. Company description from FinViz.com.

On November 12th, Lumentum slashed earnings estimates because Apple slashed their "previously placed orders" for laser components for Face ID technology. The cut came two weeks after the iPhone XR became available for sale. The XS models had been available for more than a month. This suggests to analysts that the order cut was related to the previously reported weak sales of the XR model.

We know it was Apple that slashed their orders because they are the only company that uses the 3D VCSELs in a Face ID application. Lumentum cut guidance for earnings from $1.60-$1.75 to $1.15-$1.34 and revenue from $405-$430 million to $335-$355 million. Analysts were expecting $1.67 and $420.5 million.

MKM Partners said the drop in the stock was a severe over reaction because the company remains the dominant supplier of 3D VCSELs. MKM said after the drop Lumentum is trading at only 8 times 2020 EPS, which is "too inexpensive" compared to the $60 target price.

Raymond James said the guidance cut is based on XR sales and the weakness could cause Apple to end production of the cheaper phone almost immediately. Since the XS models are still selling well, eliminating the XR would push prospective buyers into the higher dollar units. Either way the LITE drop was overdone.

Tigress said that Apple sales are not in trouble. They pointed to the Alibaba Singles Day event where the iPhone was the number one selling smartphone in the event. After that event, Apple could increase production targets.

Rosenblatt cut production estimates for the XR by 9 million units but bumped XS estimates by 3 million units.

Some analysts believe Lumentum over compensated in their guidance cut just in case Apple sales were even worse than expected. This leaves room for an upside surprise in the January earnings.

Apple is still expected to sell roughly 77 million phones in Q4. Apple has also been known for ordering heavy, cutting orders in mid cycle and then coming back later with an offer to reorder at a lower price to help the supplier unload all their excess inventory. When you are the 800 pound gorilla you can play all kinds of gain with suppliers.

Apple needs to stay on good terms with Lumentum because they are the only manufacturer with the new upgraded version of the 3D VCSELs that Apple will want to use in their 2019 phone models. Competitors are as much as two years away from production.

Basically, Lumentum shares were crushed and analysts believe the selloff was overdone.

Earnings January 31st.

Position 11/19:
Long Jan $45 call @ $1.75, see portfolio graphic for stop loss.

BEARISH Play Updates

No Current Puts