Apple Eats Bears, Bears Eat Twitter
1) Holding Ahead of Apple US markets entered a holding pattern ahead of Apple’s (AAPL) earnings report, which hit after the close today. (more on this below) The S&P 500 traded in an extremely tight range today before finishing at 2169.19, up a tiny 0.03% on the day. The Nasdaq and Russell 2000 indices showed solid outperformance today despite an intraday drop in oil and some biotech names. This was a bit of a surprise given that overseas markets indicated a risk-off posture in the early going, perhaps best exemplified by the sharp rise in the Japanese yen, which rallies when traders grow more cautious. Crude oil stayed weak, with WTI crude breaking the $43 handle, though energy stocks actually finished up. 2) Bio-Confusion Large cap biotechnology stocks took a tumble today after industry giant Gilead (GILD) reported disappointing second-quarter earnings results and poor guidance. Gilead, which accounts for 8% of the iShares Nasdaq Biotechnology ETF (IBB), fell -8.5% today, while IBB dipped -0.7% That wasn’t exactly a pretty picture, but outside of Gilead, biotechnology was actually pretty decent. The XBI ETF, which is much more diversified than IBB, was actually well in the green today. This indicates that many traders believe Gilead is facing company-specific problems that won’t impact the sector. 3) Post-Close Earnings Twitter (TWTR) beat analysts’ earnings estimates for the 6th quarter in a row, but it reported disappointing revenues and delivered atrocious third-quarter guidance. Many traders were surprised at Twitter’s dissappointment given the headline-heavy US election cycle and global geopolitical troubles, which should be driving significant news consumption and chatter via Twitter. Twitter shares were down sharply in extended trading. That’s not a surprise given that the stock just rose over 20% on takeover speculation. Meanwhile, Apple (AAPL) was up over 5% after-hours as the company beat Wall Street’s expectations for sales, earnings, and iPhone unit sales. Apple also offered strong forward guidance. This should mean good things for the Apple calendar spread trade I suggested today. And it may even be good for the Intel (INTC) calendar spread trade from last week if tech stocks get a lift.
Continue Reading -->Scott Redler’s Daily Recap Video: Choppy Action
T3 Live Chief Strategic Officer Scott Redler breaks down today’s market action.
Continue Reading -->Twitter: It’s Not About Earnings, It’s About the Reaction
I could post my numbers here and say that Twitter‘s gonna beat on EPS, have inline revenues, and the guide conservative, but frankly folks it doesn’t matter. For Twitter and this quarter, I think it’s all about the reaction to what they say. And what they are saying is new messaging and the messaging they should have had all along, which is about total platform engagement and the growth of that. Not the MAU metric, especially as Twitter doesn’t give themselves that soft-shoe MAU measurement. Twitter has never measured MAU’s the same drab way most every other social media company does. They hold their MAU’s to a higher standard than does FB, LNKD, and pretty much everyone else. But Adam Bain has been quite vocal about Twitter’s total audience and if that is where the commentary goes, Twitter is at least worth twice what it is today just given industry comps. Now I’m not going to say that Twitter’s quarter is totally meaningless on either something very good or very bad. A huge beat or a huge miss will obviously move the stock. But I’m not sure Twitter posts a quarter that is a big “financial surprise.” It’s all about assessing the opportunity and the future growth. The most encouraging “change” of late is the large ramp in video content and live streaming deals. This is definitely a notable positive change. A few more deals as well as “applications” that Twitter can keep bolting on and they will increase the “non-logged” audience as well as MAU’s. Simply put, there’s nothing more useful than Twitter from a personal and business tool in the social media space. Over time we will find out just how valuable that utility is to the company and others that are still activity building money making 3rd party apps using Twitter’s data. Oh, I will say that everyone that keeps playing Twitter for the M&A takeout will likely be disappointed, assuming they don’t hold it long enough. The single worst thing Twitter can do is sell itself for a premium over its currently depressed stock value. In fact, the more I look at the economic landscape I’m starting to think that LNKD made a huge mistake selling to MSFT. Why? Because if this US and Global economy does what I think it’s going to do, the next phase will be a material change in jobs growth, especially of better paying jobs. I also think salaries and wages could start increasing again. It’s very overdue for such a change as they haven’t risen in any material ways since 2006. That’s a decade folks. Thus, in a strengthening economy that grows Jobs, LNKD probably just sold itself for $5-10B less than what it would have risen to again on its own, And possibly $10-20B less than maybe they could have sold the company for in the future. Now just think that Twitter’s total addressable market is for sure 5X and possibly as much as 15X what LNKD’s TAM is, and you can see the potential for massive catch-up. However, that isn’t going to occur in weeks or on a single earnings report, especially one where the company has just finally figured out its correct messaging. Bottom line, I’m not sure the numbers for Twitter will be much of a surprise and I do very much think they will continue to guide conservatively. That is also a new and very positive long-term change which finally just occurred last quarter. However, if Twitter can keep tapping into to it’s “non-logged” usage which is roughly 500mm a day and grow that to the point where Twitter’s combined audience grows from the current 800mm total to 1.0-1.2Bish… we have a powder keg to the upside. And that is what I think the long-term path of Twitter is. The last thought I will leave you all with is IBM’s Watson. Is there a more important data stream to Watson than Twitter’s? I doubt it. And that’s just one example. I find it interesting that no one even talks about the Twitter Data license revenue anymore. But it hasn’t gone away and keep growing at a very strong rate. Once this stream’s base is big enough, it will become another key value driver for the shares. In the meantime, I’ll still be selling rips and buying dips but will retain a large slug in my core holdings for what I still believe should be a multi-bagger move. P.S. — I’d add one more thing. I think we are very close to a peak FB, Instagram, Snapchat type moment. IE., where the use of fun but sorta useless and definitely time-wasting social media platforms starts to see materially decelerating growth. That usage growth might itself even turn negative. If that occurs and Twitter’s use stays steady or even starts increasing again, that could be a whopper of an “inflection moment”. Moreover, I’ve not even baked that moment/turn into my long-term case, but it’s something I’ve been thinking about lately. As to me it’s very similar to thesis to where I called “peak Android” and noted that I thought iOS would see a massive increase and uptake of usage back in 2013. And I definitely think it’s worth noting that I’m having the above thought more frequently of late. ********* This was a special bonus edition of Sean Udall’s TechStrat Report. Click here to learn how you can get Sean’s best stock picks straight to your inbox.
Continue Reading -->Apple Earnings Preview: Is the Bad News Bad Enough?
Tech superheavyweight Apple (AAPL) reports earnings after the close today, and as always it’s the talk of the town for tech investors. Here is a quick summary of Wall Street’s consensus expectations: (data from Bloomberg and Factset) Sales: $42.0559B (Apple’s guidance was $42 billion) Earnings $1.386 per share Gross margin: 37.945% (guidance was 37.750%) iPhone units: ~40 million And for next quarter, analysts expect: Sales: $45.537B Earnings $1.593 per share Gross margin: 38.361% Now, let’s take a broader look at overall expectations for Apple. Right now, 82.7% of analysts rate it a buy. Let’s compare that to other major large-cap tech names: Facebook (FB): 88.0% rate it a buy Google (GOOGL): 90% Salesforce.com (CRM): 91.3% IBM (IBM): 25.9% Oracle (ORCL): 56.1% The average target price on Apple is now $121.91, down from $150+ last November. And for the full year, analysts now expect revenues of $215 billion, down from nearly $250 billion last fall. You can see the trend in this chart: (red is 2016 revenue expectations, white is stock price) So it’s safe to say that expectations have come down quite a bit. And perhaps most tellingly, yesterday, BGC analyst Collin Gillis downgraded the stock to a sell, saying “Our opinion [is] that Apple has peaked under the leadership of CEO Tim Cook.” That’s not as dramatic as the “Fire Tim Cook Era” which marked the last major Apple bottom: But it’s certainly in the same ballpark in terms of line of thinking. Remember, Apple is very cyclical at this point, and you want to buy when the news stinks. Therefore, I think the bulls have the edge with Apple here. Even if Apple misses, the downside may be limited because a decent amount of negativity is being priced in with the stock trading at 11 times earnings with a 2.2% dividend yield. (vs. a 10-year Treasury with a 1.56% yield) I’ll be back after the open with some possible options trades. (Click here for my trade idea)
Continue Reading -->The Safety Dance Starts, but You Can’t Argue With Price
The yen is rising this morning on what looks like an advance “sell the news” reaction in advance of the Bank of Japan Meeting on July 28-29. Remember, the yen has been ripping all year: Most economists expect the bank to increase its ETF purchase prices, cut rates, and increase its JGB purchases, which could mean it’s all but priced in. The Nikkei is off -1.4% and most European markets are red. SPX futures are flat, and I’m surprised they’re not down more. Crude oil slumped under $43 and the key biotech sector is getting roughed up in the early going. Gilead (GILD), which is 8.1% off the IBB ETF, is taking a big hit on its disappointing earnings reports, and is off 4.3% in the early going. IBB is indicated down -0.9%. That’s not the end of the world, but we can all agree that things are just plain better when biotech keeps its act together. There have been 4 horsemen leading equities since the 2/11 low — biotech (IBB), oil, high-yield (HYG), and the Russell 2000. Biotech and oil are obviously feeling the heat. High-yield is closely linked to oil (since oil prices drive default rates on energy bonds). Here is a chart of the HYG ETF vs. crude oil over the past year: So we have 3 of the 4 in some kind of trouble. Therefore, keep your eyes on the Russell. If that starts giving up, maybe the bears will score a victory. Post-Brexit, they haven’t been been able to do much. I still see an April-May-style sideways grind for the time being. Markets are a little stretched and sentiment is positive, but you can’t argue with price. Frankly, with the yen up so much and oil now 15%+ from the high , I expected SPX futures to be down at a least a half-percent. But they’re flat. In other earnings news, industrial giant United Technologies (UTX) is up after beating. The economic calendar picks up a little bit today, with S&P Case-Shiller, Markit PMI, Consumer Confidence, Richmond Fed, and New Home Sales numbers coming. However, the big news comes after the close with Apple’s (AAPL) earnings report. Expectations appear to be pretty low, but remember, it takes a lot of money to move Apple, so they really need to deliver. Twitter’s (TWTR) also reporting, and given how much that stock has run since Microsoft (MSFT) bought LinkedIn (LNKD), it will be in close focus. Still not fan of that one. Good luck friends!
Continue Reading -->T3’s Take 3: Hillary Clinton Derails Pokémon Go Hype Train
Want to Boost Your Trading Skills? Click here to sign up for one of our FREE trading webinars ******** By Michael Comeau 1) US Dollar Kills Commodities The US dollar extended its rally today as traders are once again pricing in US rate hikes this year. Just after the Brexit, Fed Funds futures implied a mere 9% chance of a December rate hike. Those odds are now back up to 48%. At the same time, traders believe the Bank of Japan and European Central Bank will add more stimulus, which would push major currencies down against the dollar. The dollar’s rise sent oil, gold, and silver lower. The drop in oil drove some equity market profit-taking, and the S&P 500 fell -0.3% to 2168.48, though the Nasdaq and Russell 2000 did slightly better. Biotechnology was strong ahead of Gilead’s (GILD) after earnings report, even though some analysts warned Gilead could miss expectations. And after a week of going nowhere, the VIX rose 8%, implying that traders are starting to price in some actual potential downside. 2) Will the Gold Trap Continue? T3 Live’s Jeff Cooper seems to think so. This is what he told Daily Market Report subscribers this morning: It’s a Monday and another golden hammer. Last Wednesday, gold and miners had a breakaway gap to the downside followed by a sharp rebound on Thursday when GDXJ backtested its overhead 20 day. Today’s gap down looks like the second cheese will get the mouse for those looking for a more pronounced pullback. See daily GDXJ here from June with 20 day. 3) The Nintendo Hype Train Gets Derailed Nintendo shares doubled in less than 2 weeks after the release of its incredible popular Pokémon Go game. However, Nintendo collapsed 17% today after the company admitted that the game would not produce meaningful revenues, even though the game is so popular that some tech experts believe it is impacting the use of social media apps like Twitter (TWTR). On July 15, I mused that Democratic Presidential candidate Hillary Clinton’s awkward Pokémon Go joke was a sign that the craze was getting out of hand. Incidentally, Nintendo shares topped out the next day, and it’s all been downhill from there: With the benefit of 20/20 hindsight, that looks like a perfect fad stock top!
Continue Reading -->State of the Markets: This Bull Is Strong
I mentioned last week that we are still stuck in high-level range and to me, that means we stick with a bullish bias until that lower part of the range breaks. Pulling back the zoom a little bit, let’s check the markets on a larger time frame and via sectors. The S&P 500 (via SPY) is hovering above the old breakout zone and is well above the intermediate trend line. Still a bullish bias in my view. Banks (KBE)- broke their uptrend and have been going sideways to down since. This is the most concerning thing that I have seen. I prefer them to lead, so this divergence could be a harbinger of things to come, but nothing yet. Retail (XRT) – broke its recent down trend, then checked back into it from above. A good sign and a clear positive trend change. Bullish here. Transports (XTN) – They were stuck in a downward channel, but broke through to the upside and have consolidated there for a while. Bullish again. The bull still seems strong here, and I don’t see the need to play for the downside until we break the lower end of this range. BP
Continue Reading -->Scott Redler’s Morning Call Express Video: Earnings Blitz!
In today’s Morning Call Express video, T3 Live Chief Strategic Officer Scott Redler discusses the technical picture as we head into earnings season.
Continue Reading -->Maybe the Brexit Didn’t Kill Planet Earth After All…
European stocks are up this morning after German’s Ifo’s business confidence reading came in better-than-expected, implying once again that Brexit-related fears have gone too far. As we’ve been noting on the Virtual Trading Floor again and again, global economic data has actually outperformed expectations since the Brexit. Below, you can see 2 charts showing the Citi economic surprise indices for Europe (first chart) and the US (second chart): In both cases, the trend is UP, not down. Plus this morning, Irish airline Ryanair kept its 2017 profit forecast in place even though presumably, the Brexit and recent string of terrorists attacks could impact air travel volume. And in fact, traders are once again pricing in Fed rate hikes this year. Fed funds futures now show a 45% implied probability of a rate hike this year, up from 9% after the Brexit. So faith in the economy is returning… whether that marks a near-term top remains to be seen. We’ve got some deal activity this morning. Yahoo (YHOO) is selling its main web properties to Verizon (VZ) for $4.8 billion. Yahoo will operate as a publicly-traded investment company with holdings in Alibaba (BABA) and Yahoo Japan. CEO Marissa Mayer says she will stay with Yahoo. AMC Entertainment (AMC) raised its bid for Carmike Cinemas (CKEC) by about 10% to $1.2 billion. SPX futures are as flat as an ironing board this morning. We are seeing minor profit-taking in commodiites, with oil, gold, and silver all off as US Treasury and Euro bond yields rise. The 10-year German bund is still negative though. Sentiment measures including CBOE equity put/call, VIX spreads, and the II survey still show that traders are in a pretty bullish mood, so the best past forward may be a little break that lets moving averages catch up, and lets the bears reload. I still think we’re heading for a summer stalemate that looks like the amazingly boring April-May stretched, and that’s ultimate a good scenario for the bulls. My main worry now is that crude oil just trades horribly. Crude was a major catalyst for equities off the February 11 low, and with oversupplly worries coming back to the forefront, it could just as easily serve as a downward catalyst. It would also be nice to see the Nasdaq and Russell 2000 confirm the SPX all-time high. But it’s very rare that markets behave cooperatively across the board, so keep your eyes on the important stuff. As long as biotech (IBB), high-yield (HYG), and the Russell don’t break down, equities will likely keep it together. And oh yeah — the Pokemon-driven Nintendo hype train just got derailed. The stock is down 18% today after investors that Nintendo’s clearly not going to make enough money from Pokemon to justify a doubling in the stock price.
Continue Reading -->All-Time Highs on the Table?
Happy Friday! We’re less than a day away from a much-needed weekend, so let’s try to go out strong… though I’ll settle for making it out alive. I’m picking Runaway Child, Running Wild by the Temptations as my morning pick-me-up since coffee wasn’t enough. Asian markets are slipping and Europe is slightly green following yesterday’s down day in the US. Japan is down on Governor Kuroda’s stated opposition to “helicopter money.” Markit’s euro area PMI hit an 18-month low at 52.7, while its UK PMI showed what they’re calling a “dramatic deterioration” in business activity. This is disappointing because UK economic data has actually been fairly strong relative to low expectations recently. On the plus side, Germany’s PMI was strong, though interestingly, the DAX is the worst performing major market this morning. Crude oil is off the lows but still down for the week as traders remain concerned about seasonably high gasoline inventory levels. In earnings, GE (GE) beat expectations despite a sluggish global macro picture, though fellow industrial Honeywell (HON) is off on light guidance. SPX futures are up fractionally on the boost from GE, so we could see the 7th new all-time high in the past 10 days. Sentiment continues to lean positive, which is probably best illustrated by the low VIX and steep VIX curve. However, bulls are not quite leaning “all in.” The ISE Sentiment Index has read bearish in 2 of the past 3 days and the AAII survey showed neutral sentiment. On my own personal back-of-the-envelope sentiment meter, I’d say that on a 1-10 scale, we’re at about a 7 out of 10 in terms of sentiment. (with 10 being ecstatically bullish) Near-term, the best course forward for the bulls seems to be a sideways grind like we saw in April-May. That horrendously boring lull tricked the bears into wasting all their money on put options, which ultimate provided the fuel for this recent streak of record highs. The economic calendar is more or less empty today — we’ve got just the Markit US Manufacturing PMI and Baker Hughes Rig Count, so odds are the news flow will be pretty light. I try to stear clear of politics here, but there is chatter that Democratic candidate Hillary Clinton will appoint a running mate today. If she happens to appoint Massachusetts Senator Elizabeth Warren (I see a less than 25% chance of this myself), the banks could get hit short-term. I wouldn’t mind seeing a modest down day today to digest gains Good luck out there friends.
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