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Best Buy Stock Probing All-Time Highs

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Best Buy Stock Probing All-Time Highs

By Alan Farley | August 24, 2017 — 11:30 AM EDT

Best Buy Co., Inc. (BBY) defied retail sector bears on Thursday morning, rallying to an all-time high following a three-month test at 11-year resistance near $60. The stock has outperformed its brick-and-mortar peers for many months, cutting costs in a brutally adverse sales environment while enhancing its online portal to compete more effectively with Amazon.com, Inc. (AMZN) and privately held Newegg.

However, there is little rush for market players to take new exposure because breakouts all across the market universe have developed little buying interest in recent months, often reversing into new downtrends. This conflicted behavior suggests that the stock will enter a longer testing period, with success measured by modest gains until this confused mid-year tape attracts greater public participation. (See also: Best Buy Stock Poised to Break Out Ahead of Earnings.)

BBY Long-Term Chart (1990 – 2017)

A long downtrend ended at a split-adjusted 17 cents in 1990, giving way to a healthy uptrend that topped out at $5.03 in 1995. The stock lost ground for the next two years, bottoming out at 88 cents, ahead of a powerful buying impulse that continued into the April 2000 high at $39.50. It broke a double top pattern in October and fell into the single digits two months later.

That decline posted the lowest low in the past 16 years ahead of range-bound action that persisted into a 2005 breakout. Momentum buying pressure failed to develop, yielding a secondary trading range with resistance centered at $59.50. That level is important to keep in mind because it is back in play in the second half of 2017. The range finally collapsed in September 2008, generating a vertical decline that dropped the stock nearly 70% in just two months. (For more, see: Why Is Best Buy Stock So Volatile?)

A bounce into 2010 fell short, stalling at the .618 Fibonacci retracement level, ahead of a steep decline that posted a 12-year low at $11.20 in December 2012. It completed a round trip back to the 2010 high in 2013, with that level generating intense resistance until an April 2017 breakout reached the 2006 high. It spent three months carving a small-scale cup and handle pattern at that level, ahead of this morning’s breakout attempt.

BBY Short-Term Chart (2015 – 2017)

The stock entered a broad symmetrical triangle after the February 2014 low at $22.30, posting lower highs and higher lows into August 2016, when it broke out on heavy volume. It took another three months to mount the top of the triangle in the mid-$40s and seven more months to clear that level. This stair-step price action has continued into the second half of 2017, with two more sets of higher highs up to 11-year resistance. (See also: Best Buy Stock Tanks on Amazon Service Team Report.)

The three-month cup and handle built a solid platform ahead of this morning’s breakout attempt, which has been met with aggressive selling pressure. However, bulls should eventually prevail given the well-established uptrend and solid technical characteristics. Even so, a breakdown through the mid-August low at $58.93 would undermine the bullish outlook, perhaps triggering a decline into long-term support at the 200-day exponential moving average (EMA).

On-balance volume (OBV) has carved a graceful accumulation pattern since 2014, with the long series of higher highs and higher lows into May 2017 signaling extensive institutional sponsorship that bodes well for higher prices. A minor deficit into August is not enough to signal a bearish divergence, because just one or two high-volume buying days would lift the indicator to another high. (For more, see: Sorry Amazon, Best Buy Is Still Alive and Kicking.)

The Bottom Line

Best Buy tagged an all-time high this morning before bears reversed the tape and dropped the stock back into the red. This mixed price action marks the opening shot of a breakout attempt that should eventually yield much higher prices. (For additional reading, check out: Top 3 Companies Owned by Best Buy.)

 

Published at Thu, 24 Aug 2017 15:30:00 +0000

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U.S. stock fund withdrawals largest of 2017: ICI

 

U.S. stock fund withdrawals largest of 2017: ICI

NEW YORK (Reuters) – Investors battered U.S.-based stock funds with the largest withdrawals this year as wild trading disrupted the market’s summertime calm, Investment Company Institute (ICI) data showed on Wednesday.

Nearly $9.2 billion flowed out of equity mutual funds and exchange-traded funds during the week through Aug. 16, with a 37th week of inflows for international shares only slightly offsetting $11.3 billion of withdrawals for domestic stocks, according to the trade group.

U.S. stocks remained on pace to deliver their ninth straight year of positive returns.

Yet two pullbacks of more than 1 percent in S&P 500 index .SPX this month jolted markets following geopolitical tensions between the United States and North Korea as well as questions surrounding U.S. President Donald Trump’s administration bringing its economic agenda to fruition.

Equity mutual fund outflows of $9.9 billion compared with $1.4 billion of stock ETF withdrawals, according to ICI.

“Investors have favored international equity and bond fund strategies as alternatives,” said Todd Rosenbluth, director of ETF and mutual fund research at CFRA.

Investors turned to perceived safe-haven funds, with taxable bond funds attracting $3.8 billion in their 37th straight week of inflows, ICI said. Funds that invest in commodities like gold pulled in $881 million, their best week since June.

Reporting by Trevor Hunnicutt; Editing by Meredith Mazzilli

 

Published at Wed, 23 Aug 2017 17:05:47 +0000

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Asia shares settle after rally, dollar squares losses on Trump comments

 

Asia shares settle after rally, dollar squares losses on Trump comments

TOKYO (Reuters) – Asian stocks steadied on Wednesday, taking a breather after the previous day’s surge, lacking the momentum to keep up with a global rally spurred by gains for tech shares on Wall Street and miners in Europe.

The dollar initially wobbled against the yen following campaign-rally threats by U.S. President Donald to force a government shutdown over funding a border wall, but it eventually squared the losses.

Spreadbetters expected a mixed start for European stocks, forecasting Britain’s FTSE .FTSE would open 0.15 percent lower, Germany’s DAX .GDAXI to start 0.05 percent higher and France’s CAC .FCHI to open unchanged.

MSCI’s broadest index of Asia-Pacific shares outside Japan .MIAPJ0000PUS, which initially inched up to a two-week high, pulled back to stand little changed following a 0.7 percent rally on Tuesday.

Australian stocks were down 0.3 percent and South Korea’s KOSPI .KS11 gave back earlier modest gains to slip 0.1 percent.

Japan’s Nikkei .N225 bucked the trend and rose 0.3 percent, lifted as the dollar strengthened against the yen.

The Nikkei took its cues from Wall Street, which saw the Dow .DJI rise 0.9 percent, the S&P 500 .SPX climb 1 percent and the Nasdaq .IXIC gain 1.4 percent on Tuesday as technology shares rallied. [.N]

European stocks had also risen overnight, supported by upbeat results from miners and a weaker euro. [.EU]

Financial markets have been buffeted in recent weeks by heightened tensions on the Korean peninsula, turmoil in the White House, and growing doubts about Trump’s ability to fulfil his economic agenda.

Stocks, however, continue to attract buyers in an environment where bond yields remain relatively low and companies have largely notched up strong earnings.

“The return of bargain hunters after a shallow correction in U.S. markets again demonstrates that investors are reluctant to reduce exposure to equity markets given low bond yields, solid profit growth and a lower US$,” said Ric Spooner, chief market analyst at CMC Markets in Sydney.

“In a situation where earnings yields on stocks remain attractive in relation to bond yields, investors are reluctant to respond too negatively to ‘risk events’ unless they represent a clear and present short-term danger.”

The dollar was flat at 109.535 yen JPY=, coming off the day’s low of 109.370 plumbed after President Trump told supporters in Arizona “If we have to close down our government, we’re building that wall” in reference to his pledge to tighten immigration at the U.S.-Mexican border.

The greenback remained clear of a four-month low of 108.605 yen plumbed last week, when turmoil in the White House and geopolitical tensions took a toll on the currency.

“The dollar had been caught in a downtrend amid ebbing expectations towards U.S. inflation. It requires a surge in U.S. shares to break this pattern and that is what happened as Wall Street rallied,” said Junichi Ishikawa, senior FX strategist at IG Securities in Tokyo.

The dollar also drew support as U.S. Treasury yields rose and pulled away from two-month lows as some of the risk aversion that gripped the broader markets last week began to ebb.

The dollar index against a basket of six major currencies was little changed at 93.514 .DXY after rising 0.5 percent the previous day.

The euro was steady at $1.1759 EUR= after slipping about 0.5 percent overnight following weaker-than-expected German investor confidence.

A gathering of global central bankers on Friday in Jackson Hole, Wyoming, has also prompted investors to rebalance their currency positions ahead of the event, leading them to reduce some of their short dollar bets.

Speeches from Fed Chair Janet Yellen and European Central Bank President Mario Draghi will headline the event, although neither are expected to announce any significant policy.

In commodities, Brent crude LCOc1 slipped 0.35 percent to $51.69 a barrel after data from the American Petroleum Institute showed a crude stockpile decline largely in line with expectations and a surprise build in gasoline inventories.

Improving Libyan output also added to oversupply concerns in the crude oil market. [O/R]

Copper retreated from a three-year high, and other base metals also fell or trimmed gains, as speculators and funds locked in some profits after a steep rally. [MET/L]

Copper on the London Metal Exchange CMCU3 was down 0.3 percent at $6,562.50 per tonne after striking $6,649 on Tuesday, the highest since November 2014.

Spot gold XAU= was a shade higher at $1,285.50 an ounce, after losing 0.5 percent overnight as the precious metal felt the pressure from a stronger dollar. Spot gold had reached a nine-month high above $1,300.00 an ounce on Friday.

Reporting by Shinichi Saoshiro; Editing by Shri Navaratnam and Eric Meijer

 

Published at Wed, 23 Aug 2017 05:35:29 +0000

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Snap Stock May Have Bottomed Out

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Snap Stock May Have Bottomed Out

By Alan Farley | August 22, 2017 — 10:59 AM EDT

Snap Inc. (SNAP) shares may have finally bottomed out after losing half their value since March’s eagerly subscribed initial public offering. However, there is no rush to get on board unless you’re a short-term trader, because bottoms usually take time to form before yielding substantially higher prices. Even so, informed market players will be keeping a close eye on short-term charts, waiting for buying signals that favor immediate exposure.

The stock punished shareholders for more than three months after posting a swing high at $23.57 and gapping down on May 11 in reaction to a dismal quarterly report in which the company missed nearly all major metrics. The downside intensified after the gap was filled on May 25, failing to bounce through June and July while the tech-heavy Nasdaq-100​ posted a fresh round of all-time highs. (See also: Downward Pressure on Snap Stock Will Continue.)

SNAP Daily Chart (2017)

The stock came public at $24.00 on March 2, posting heavy volume in an enthusiastic response to months of Wall Street hype. It topped out one session later after hitting an all-time high $29.44 and turned sharply lower, cutting through the IPO print on its fourth trading day. The downdraft ended at $18.90 less than two weeks later, setting a price floor that failed at the end of the second quarter.

Stubborn resistance at the IPO print in the mid-$20s ended March and May recovery attempts, setting a line in the sand that might not be crossed for several years. The May sell gap dropped the stock into March support in the upper teens, which finally broke down in June. That failure marked the start of capitulative selling pressure that may have finally ended when the decline undercut $12.00 on Aug. 3. (For more, see: Some Wall Streeters See Value in Snap Inc. Shares.)

A bounce into Aug. 10 failed to pick up steam, giving way to an intermediate breakdown that set off fresh sell signals. The stock opened lower in the following session, posted an all-time low at $11.28 and charged higher, lifting to a four-week high earlier this week. This turnaround set off a small-scale 2B buy signal, denoting the failure of bears to defend a new resistance level, and it could coincide with a long-term bottom.

On-balance volume (OBV) topped out with price during the first trading week and entered a distribution phase that continued into Aug. 2. It turned higher eight sessions before the stock hit the all-time low and has gained substantial ground in the past week, lifting to the highest high since June. This reversal signals heavy bottom fishing consistent with the start of a bottoming formation that could yield substantial upside in the fourth quarter. (To learn more, check out: Uncover Market Sentiment With On-Balance Volume.)

SNAP 60-Minute Chart (June – August)

A Fibonacci grid stretched across the selling wave that started on June 19 organizes price action, with the most recent bounce stalling on Monday at the .386 retracement level near $14.00. Not surprisingly, this level has aligned with the declining 200-bar exponential moving average (EMA) and the top of a trading range that could mark the outline of a developing bottom. That pattern has now posted two lower lows but not a single higher low, telling informed market players that it needs more time to complete a bullish platform that supports higher prices.

A bounce at or near the lower red line at $12.00 in the next few sessions could carve the right shoulder of an inverse head and shoulders pattern. In turn, that might support a breakout that targets the unfilled July 10 gap between $16.35 and $16.95. The .786 sell-off retracement cuts right through the gap, highlighting a harmonic barrier that could take time to overcome. (For more, see: Strategies for Trading Fibonacci Retracements.)

The Bottom Line

Snap shares may have bottomed out following a long downtrend that shocked optimistic shareholders, setting the stage for a recovery rally that could reach resistance between $16 and $17. This price action favors position trades rather than fresh investments, which should be put on hold until recovery efforts yield a longer-term uptrend. (For additional reading, check out: A SNAP Story: Revenge of the IPO.)

 

Published at Tue, 22 Aug 2017 14:59:00 +0000

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Barclays Thinks Alibaba Can Hit $200 a Share

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Barclays Thinks Alibaba Can Hit $200 a Share

By Donna Fuscaldo | August 22, 2017 — 1:15 PM EDT

Alibaba Group (BABA) has had blowout quarters this year, and if it keeps up the momentum, Barclays is confident the stock could reach its new price target of $200 a share.

Late last week, on the back of the Chinese e-commerce giant’s strong fiscal first quarter results the Wall Street firm upped its price target from $180 a share, which means it thinks the stock could surge an additional 15%. Barclays isn’t the only bull when it comes to Alibaba. A slew of analysts raised their price targets last week with Raymond James becoming one of the most bullish with a price target of $230 a share. (See also: Alibaba Price Targets Raised Thanks to Cloud.)

Rising Price Targets

In a research report covered by Barron’s, Barclays analysts Gregory Zhao and Ross Sandler said the company “keeps defying the law of big numbers,” noting its earnings results surpassed Wall Street views with total revenue coming in 5% higher than Wall Street expectations. “Cutting-edge Personalization technology continues to improve user targeting and drive click volumes. Physical goods GMV [gross merchandise volume] growth accelerated to 49% y/y, demonstrating the platforms’ marketing capability and the effectiveness of new promotion initiatives on Tmall,” wrote the analysts, noting the its cloud business reached 1 million paying users in the three months ended in June, a milestone for the company.

What’s more, the analysts said Alibaba’s Hema supermarket strategy is already moving beyond the incubation stage. With Hema, the company is melding online data with physical stores, enabling visitors to peruse a slew of items that have barcodes attached to them. When scanned with a mobile device, users get information about the products and recommendations for other items that are similar. The barcodes work with its digital payment service AliPay, which can be used as the payment method at checkout. The stores also acts as hubs to pick up items that were purchased online. The Hema app lets users search and purchase items from the closest store, keep tabs on their purchase history, make recommendations and, thanks to its use of big data, enables customized product pages for its users. (See also: Alibaba Pushes Dual Strategy With New Stores.)

Barclays has been growing bullish on the stock for sometime, raising its price target multiple times in recent weeks. In August, it lifted the price target to $180 from $175. Five weeks prior to that it raised the target to $175 from $141 a share.

 

Published at Tue, 22 Aug 2017 17:15:00 +0000

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Footwear Stocks Headed Into Steep Downtrends

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Footwear Stocks Headed Into Steep Downtrends

By Alan Farley | August 22, 2017 — 11:48 AM EDT

Ubiquitous mall denizen Foot Locker, Inc. (FL) triggered a footwear freefall on Aug. 18 after missing top- and bottom-line estimates in its second quarter earnings report. The stock fell more than 13 points in that session, posting the lowest low in almost four years while dragging down athletic apparel giant and Dow component Nike, Inc. (NKE), ending its two-month recovery effort with a two-point gap and bearish island reversal.

DSW Inc. (DSW) eased bearish sentiment on Tuesday morning, with the stock lifting more than 21% after the company beat EPS and revenue estimates while reiterating fiscal year 2018 guidance. The news set off a sector reversal and short squeeze, but the relief rally is likely to run into a buzzsaw of trapped shareholders looking to get out while aggressive short sellers use the opportunity of higher prices to add to profitable positions. (See also: Nike Signs Biggest Shoe Deal in NFL History.)

Foot Locker stockentered a strong uptrend after the 2008 market crash, posting a long string of new highs into the second half of 2015, when its topped out at $77.25. A decline into 2016 found support near $51, ahead of a recovery wave that stalled just two points above the prior high in December. Nearly six months of testing at that resistance level failed to yield a breakout, with aggressive sellers finally taking control after the May 19 earnings report.

The decline settled in the mid-$40s in mid-June, bouncing at that level in July but failing to make substantial progress into last week’s ugly confessional. It gapped down more than 11 points following the news and lost five more points into Tuesday’s oversold bounce. Traders should look for a repeat of the May into August price pattern, with weak bounces and a stair-step decline that could easily reach the upper teens. (For more, see: Foot Locker Stock Plunges on Q2 Earnings and Sales Miss.)

Nike shares scraped the bottom of the 2016 Dow performance list, but the future looked brighter after an upbeat June 2017 earnings report triggered a strong recovery rally. (See also: Nike Stock Headed Into Slow but Steady Recovery.) The stock ended a long uptrend at the same time as Foot Locker in 2015 and entered a complex correction that found support in the upper $40s in the fourth quarter of 2016. It broke out above a long trendline​ of lower highs in July 2017 but failed the breakout when it gapped down last week.

The decline also left behind a bearish island reversal, with the August sell gap taking back gains posted during the July buy gap. However, a small dose of optimism may be warranted because the decline has filled the July gap, perhaps setting the stage for a larger-scale recovery into year end. However, all bets are off if the stock fails to hold the 2016 low at $49.01, because that breakdown would signal the start of a secular downtrend. (For more, see: Nike and Under Armour’s Growth Went to Adidas and Puma.)

DSW squeezed short sellers on Tuesday morning after beating second quarter EPS and revenue estimates while reiterating fiscal year 2018 guidance. This footwear play topped out in late 2013 following a four-year uptrend that posted an all-time high at $47.55. It spent the next two years building an Adam and Eve topping pattern that broke to the downside in November 2015.

Price action hugged the breakdown level in the mid-$20s throughout 2016, ahead of a January 2017 decline that continued into Monday’s six-year low at $15.14. The post-earnings rally has lifted the stock into the top of a choppy three-month trading range and into heavy resistance at the 200-day exponential moving average. Given that formidable barrier, it is likely that this short squeeze will run out of steam quickly, with the prevailing downtrend quickly filling Tuesday’s three-point rally gap. (See also: DSW Continues Store Expansion, To Open Store in New Jersey.)

The Bottom Line

Last week’s dismal Foot Locker quarterly report dropped major sector players to new lows in volatile declines that have paused following an upbeat DSW quarter. Traders should look for committed sellers to prevail in this two-sided price action, dropping the group to even lower 2017 and multi-year lows. (For additional reading, check out: Consumer Stocks May Be the Canary in the Coal Mine.)

 

Published at Tue, 22 Aug 2017 15:48:00 +0000

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Cisco Stock Could Test Lower Support After Weak Earnings

 

Cisco Stock Could Test Lower Support After Weak Earnings

By Justin Kuepper | August 17, 2017 — 8:35 AM EDT

Cisco Systems, Inc. (CSCO​) shares fell nearly 3% in after-hours trading after the company reported worse-than-expected fiscal fourth quarter financial results in key segments. Fourth quarter revenue fell 4% to $12.13 billion – beating consensus estimates by $60 million – while earnings per share were in line with forecasts at 61 cents. The market appears primarily concerned with the company’s largest segments – switching ($3.44 billion) and routing ($1.98 billion) – which both contracted by 9% year over year.

Competitors have started to take meaningful market share, including Arista Networks, Inc. (ANET​), which has experienced 50% year-over-year growth. AT&T Inc.’s (T) white box testing has also led to concerns that telecom network providers could build fast and reliable networks with generic computer switches and open-source software. These trends mesh with Facebook, Inc.’s (FB) vision for software-defined networking as an alternative to high-end networking gear. (See also: Facebook’s Open Compute Takes on Cisco.)

Technical chart showing the performance of Cisco Systems, Inc. (CSCO) stock

On a technical level, the stock reached the upper end of its price channel near R1 resistance at $32.29 during Wednesday’s session. The relative strength index (RSI) remains relatively lofty at 62.43, while the moving average convergence divergence (MACD) has trended sideways over the past several months. If the 50-day moving average crosses over the 200-day moving average, traders could see a prolonged intermediate-term downtrend.

Traders should watch for a breakdown from upper trendline resistance toward the lower end of its price channel near $32.00. If the stock opens high, traders should watch for a breakout from upper trendline resistance to R2 resistance at $33.12. Cisco has underperformed the S&P 500, disclosed mediocre financial results and trended sideways over the past few months, which means traders may want to keep a neutral to bearish bias on the stock. (For more, see: Cisco’s Security Business Revenue Misses Estimates, Shares Drop.)

Chart courtesy of StockCharts.com. The author holds no position in the stock(s) mentioned except through passively managed index funds.

 

Published at Thu, 17 Aug 2017 12:35:00 +0000

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The Dangers of Share Dilution

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The Dangers of Share Dilution

By Matt Cavallaro | Updated August 16, 2017 — 1:00 PM EDT

When a company issues additional shares, this reduces an existing investor’s proportional ownership in that company. This often leads to a common problem called dilution. The end result is that the value of existing shares may take a hit. This is a risk of investing in stocks that investors must be aware of. In this article, we’ll look at how dilution happens and how you can protect your portfolio.

What Is Share Dilution?

Assume that a simple business has 10 shareholders and that each shareholder owns one share (10%) of the company. If each investor receives voting rights for company decisions based on share ownership, every shareholder has 10% control.

Suppose that the company then issues 10 new shares and that a single investor buys them all up. There are now 20 total shares outstanding, and the new investor owns 50% of the company. Meanwhile, each original investor now owns just 5% of the company (1 share out of 20 outstanding), because their ownership has been diluted by the new shares.

There are several situations where shares become diluted. These include:

  • Conversion by holders of optionable securities: Stock options granted to individuals, such as employees or board members, may be converted into common shares, boosting the total share count.
  • Secondary offerings where the firm is looking to raise additional capital: A firm may looking to raise new capital to fund growth opportunities or to service existing debt may issue additional shares to raise the funds.
  • Offering new shares in exchange for acquisitions or services: Instead of paying for an acquisition with shares, new shares might be offered to shareholders of the firm being purchased. For smaller businesses, new shares could be offered to individuals for services provided. For example, special counsel could be offered shares for representing the firm or in exchange for other legal services.

Warnings Signs Of Dilution

Because dilution can reduce the value of an individual investment, retail investors should be aware of warnings signs that may precede a potential share dilution. Basically, any emerging capital needs or growth opportunities may precipitate share dilution.

There are many scenarios in which a firm could require an equity capital infusion; funds may simply be needed to cover expenses. In a scenario where a firm does not have the capital to service current liabilities and the firm is hindered from issuing new debt due to covenants of existing debt, an equity offering of new shares may be necessary.

Growth opportunities are another indicator of a potential share dilution. Secondary offerings are commonly used to obtain investment capital that may be needed to fund large projects and new ventures. Investors can also be diluted by employees who have been granted options as well. Investors should be particularly mindful of companies that grant employees a large number of optionable securities. Executives and board members can influence the price of a stock dramatically if the number of shares upon conversion is significant compared with the total shares outstanding. (Learn more about employee stock options in our ESO Tutorial.)

If and when the individual chooses to exercise the options, common shareholders may be significantly diluted. Key personnel are often required to disclose in their contract when and how much of their optionable holdings are expected to be exercised.

Diluted EPS

Because the earnings power of every share is reduced when convertible shares are executed, investors may want to know what the value of their shares would be if all convertible securities were executed. Diluted earnings per share is calculated by firms and reported in their financial statements. Diluted EPS is the value of earnings per share if executive stock options, equity warrants and convertible bonds were converted to common shares.

The simplified formula for calculating diluted earnings per share is:

Net Income – Preferred Dividends(weighted average number of shares outstanding + impact of convertible securities – impact of options, warrants and other dilutive securities)

Diluted EPS differs from basic EPS in that it reflects what the earnings per share would be if all convertible securities were exercised. Basic EPS does not include the effect of dilutive securities. Basic EPS simply measures the total earnings during a period, divided by the weighted average shares outstanding in the same period. If a company did not have any potentially dilutive securities, basic EPS would equal dilutive EPS. (Learn more in What is the weighted average of outstanding shares? How is it calculated?)

The formula above is a simplified version of the diluted EPS calculation. In fact, each class of potentially dilutive security is addressed. The if-converted method and treasury stock method are applied when calculating diluted EPS.

If-Converted Method

The if-converted method is used to calculate diluted EPS if a company has potentially dilutive preferred stock. Preferred dividend payments are subtracted from net income in the numerator and the number of new common shares that would be issued if converted are added to the weighted average number of shares outstanding in the denominator.

For example, if net income was $10,000,000 and 500,000 weighted average common shares are outstanding, basic EPS equals $20 per share ($10,000,000/500,000). If 10,000 convertible preferred shares that pay a $5 dividend were issued, and each preferred share was convertible into five common shares, diluted EPS would equal $18.27 ([$10,000,000 + $50,000]/[500,000 + 50,000]).

The $50,000 is added to net income because the conversion is assumed to occur at the beginning of the period so there would be no dividends paid out. Thus $50,000 would be added back, just like when after-tax income is added back when calculating the dilution of convertible bonds, which we will go over next.

If-Converted Method for Convertible Debt

The if-converted method is applied to convertible debt as well. After-tax interest on the convertible debt is added to net income in the numerator and the new common shares that would be issued at conversion are added to the denominator.

For a company with net income of $10,000,000 and 500,000 weighted average common shares outstanding, basic EPS equals $20 per share ($10,000,000/500,000). Assume the company also has $100,000 of 5% convertible bonds that are convertible into 15,000 shares, and the tax rate is 30%. Using the if-converted method, diluted EPS would equal $19.42 ([10,000,000 + ($100,000 x .05 x 0.7)] / [500,000 + 15,000]).

Note the after-tax interest on convertible debt that is added to net income in the numerator is calculated as the value of the interest on the convertible bonds ($100,000 x 5%), multiplied by the tax rate (1 – 0.30). (For more examples see our CFA Level 1 Study Guide Calculating Basic and Fully Diluted EPS in a Complex Capital Structure.)

Treasury Stock Method

The treasury stock method is used to calculate diluted EPS for potentially dilutive options or warrants. No change is made to the numerator. In the denominator, the number of new shares that would be issued at warrant or option exercise minus the shares that could have been purchased with cash received from the exercised options or warrants is added to the weighted average number of shares outstanding. The options or warrants are considered dilutive if the exercise price of the warrants or options is below the average market price of the stock for the year.

Again, if net income was $10,000,000 and 500,000 weighted average common shares are outstanding, basic EPS equals $20 per share ($10,000,000/500,000). If 10,000 options were outstanding with an exercise price of $30, and the average market price of the stock is $50, diluted EPS would equal $19.84 ([$10,000,000/[500,000 + 10,000 – 6,000]).

Note the 6,000 shares is the number of shares that the firm could repurchase after receiving $300,000 for the exercise of the options ([10,000 options x $30 exercise price] / $50 average market price). Share count would increase by 4,000 (10,000 – 6,000) because after the 6,000 shares are repurchase there is still a 4,000 share shortfall that needs to be created.

Securities can be anti-dilutive. This means that, if converted, EPS would be higher than the company’s basic EPS. Anti-dilutive securities do not affect shareholder value and are not factored into the diluted EPS calculation.

Using Financial Statements to Assess the Impact of Dilution

It is relatively simple to analyze dilutive EPS as it is presented in financial statements. Companies report key line items that can be used to analyze the effects of dilution. These line items are basic EPS, diluted EPS, weighted average shares outstanding and diluted weighted average shares. Many companies also report basic EPS excluding extraordinary items, basic EPS including extraordinary items, dilution adjustment, diluted EPS excluding extraordinary items and diluted EPS including extraordinary items.

Important details are also provided in the footnotes. In addition to information about significant accounting practices and tax rates, footnotes usually describe what factored into the diluted EPS calculation. Specific details are provided regarding stock options granted to officers and employees, and the effects on reported results.

The Bottom Line

Dilution can drastically impact the value of your portfolio. Adjustments to earnings per share and ratios must be made to a company’s valuation when dilution occurs. Investors should look out for signals of a potential share dilution and understand how their investment or portfolio’s value may be affected.

 

Published at Wed, 16 Aug 2017 17:00:00 +0000

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Is Teva Pharmaceutical Stock Finally Bottoming Out?

 

Is Teva Pharmaceutical Stock Finally Bottoming Out?

By Justin Kuepper | August 14, 2017 — 3:19 PM EDT

Teva Pharmaceuticals Industries Limited (TEVA) shares have plummeted more than 45% since the generic drug maker reported its second quarter financial results. After six consecutive days of big losses, the stock experienced a modest rebound on Aug. 11 and opened marginally higher on Aug. 14 before moving lower by mid-session. Traders may want to keep an eye out for a possible relief rally, as the stock has reached strongly oversold levels.

Second quarter revenue rose 12.9% – missing consensus estimates by $40 million – while net income of $1.02 per share missed consensus estimates by five cents per share. Since acquiring Allergan plc’s (AGN) generics business in 2015, Teva has faced several large write-downs amid competitive pressures in the generics business. The second quarter included a $6.1 billion impairment charge that came on top of the ciprofloxacin settlement and Venezuela loss. (See also: Teva Sinks 40% as It Loses Top Rating From 5 Firms.)

Technical chart showing the performance of Teva Pharmaceuticals Industries Limited (TEVA) stock

From a technical standpoint, the stock broke down from a head and shoulders pattern back in late 2016 and has been in a decline ever since. The second quarter financial results sent the stock below its prior reaction lows to fresh multi-year lows below $20.00 per share. The relative strength index (RSI) appears very oversold at 11.42, while the moving average convergence divergence (MACD) remains deep in bearish territory.

Traders should watch for a relief rally over the coming sessions as the stock moves off of extreme oversold levels and supply-demand balances out. In particular, traders should watch for some consolidation between $17.00 and $20.00 over the coming sessions before the stock resumes its long-term trend. Traders should also keep an eye on external events that could affect the price, such as a change in executive leadership. (For more, see: Teva Blames FDA Generics Approvals for Its Decline.)

Chart courtesy of StockCharts.com. The author holds no position in the stock(s) mentioned except through passively managed index funds.

 

Published at Mon, 14 Aug 2017 19:19:00 +0000

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Is NVIDIA Stock Topping Out?

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Is NVIDIA Stock Topping Out?

By Alan Farley | August 11, 2017 — 11:37 AM EDT

NVIDIA Corporation (NVDA) shares sold off more than 5% in the first hour of Friday’s U.S. session, hitting a four-week low at $153.65 after the company reported a strong quarter but disappointed the momentum crowd with lower-than-expected guidance. The decline reinforces a three-month trading range between $138 and $175 while increasing the odds that the graphics giant is grinding through the middle stages of a long-term topping pattern.

The stock traded as low as $150.20 in pre-market action, forcing a supply of weak-handed shareholders back to the sidelines. Modest technical improvement since that time has eased bearish sentiment, but it will take a very strong close to draw fresh buying power into this market leader. That seems unlikely given the broad retreat generated by growing geopolitical risk. (See also: NVIDIA Shares Fall as Investors Fret Over Data Center Growth.)

It has been unwise to bet against NVIDIA in 2017 despite 2016’s parabolic uptrend, but gains have slowed considerably in recent months, with the stock now trading at the same level it did in early June. That is not an issue for long-term shareholders, but the momentum crowd is also holding positions while keeping one finger on the exit button at all times. An orderly decline could turn into a full-scale rout if this group tries to exit positions at the same time.

NVDA Weekly Chart (2011 – 2017)

A post-bear market bounce ended at the .618 Fibonacci sell-off retracement level in the mid-$20s in 2011, giving way to a long-term rounded correction that returned to resistance in the second half of 2015. The stock broke out into the end of that year and took off in a vertical trend advance fueled by the company’s strategic advantages in the growing virtual reality market. The rally continued its incredible trajectory into the end of 2016, posting greater than 300% annual gains. (For more, see: Figuring Out What NVIDIA Is Really Worth.)

NVIDIA shares pulled back in a bull flag pattern in the first quarter of 2017, undercutting the 50-day exponential moving average (EMA), and took off in a May rally wave that reached $168.50 in early June. Slightly higher highs in July and earlier this week failed to attract significant buying interest, while the bearish post-earnings reaction has dropped the price back into a broad trading range that could eventually yield a trend reversal.

Weekly and monthly stochastics oscillators will remain in buy cycles when the trading week comes to an end, indicating that bulls are still in charge. As a result, bearish observations serve as warning signs and red flags rather than sell signals that demand immediate action. However, that will change when the weekly indicator crosses into a sell cycle because the technical dominoes could then fall and generate long-term sell signals. (See also: NVIDIA Stock Risks Falling Below Key Support.)

NVDA Daily Chart (2016 – 2017)

The trading range between the July low at $138 and August high at $175 now becomes the dominant technical feature because a breakdown could drop the stock into the unfilled May 10 gap between $103 and $114. There is plenty of room for bulls and bears to get it wrong within this range-bound pattern, especially if price action fails to hold the 50-day EMA at $155. Shorter-term resistance now lies between $162 and $165 following the breakdown through the July 27 swing low.

The on-balance volume (OBV) indicator looks nearly bulletproof, grinding sideways close to the rally high. However, the stock has posted more than 100% of its average daily volume in the first hour of Friday’s session, telling us to watch for a downturn that will gain significance if it carries through the July low (red line). While that is unlikely to happen in one day, the decline could easily continue into the coming week, especially if geopolitical factors continue to weigh on the broad tape. (For more, see: NVIDIA’s Way to Win AI Chip Share: Give Them Away.)

The Bottom Line

NVIDIA is struggling on Friday morning after a sell-the-news reaction dropped the stock more than 5%. It has now dropped back within the prior trading range, denying breakout buyers while raising the odds that it will carve a longer-term topping pattern. (For additional reading, check out: Is NVIDIA Too Dependent on Bitcoin?)

 

Published at Fri, 11 Aug 2017 15:37:00 +0000

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3 S&P 500 Laggards Flashing Short Sale Signals

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3 S&P 500 Laggards Flashing Short Sale Signals

By Alan Farley | August 9, 2017 — 10:55 AM EDT

The S&P 500 hit another bull market and all-time high this week, but not all index components rose in tandem. An expanding group of laggards is heading the other way, grinding out downtrends that are now setting off preliminary short sale signals. These plays could generate opportune profits in coming weeks, especially if the broader market turns tail and enters a late-summer correction.

Many traders try to pick tops in strong uptrends when choosing short sale candidates, but those buying impulses feed on this weak-handed mentality, taking each batch of short sellers and squeezing them into oblivion. In turn, those upticks draw the next wave of momentum buyers off the sidelines, generating a positive feedback loop that can lift stocks well above logical price targets. (To learn more, check out: Rules and Strategies for Profitable Short Selling.)

A more reliable approach sells breakdowns in the weakest stocks or waits for pullbacks following big declines. In both cases, short sellers access steady tailwinds of deteriorating sentiment, poor technical positioning and nervous shareholders looking to exit positions at any cost. It also allows those positioned on the short side to sleep at night, confident that the next session won’t start with an unexpected catastrophe.

O’Reilly Automotive, Inc. (ORLY) stock posted an all-time high at $293 in July 2016 and turned lower, carving the next stage of a topping pattern that broke to the downside in May 2017 when it sold off through support at $250. The decline eased into a descending channel, losing ground at a modest pace into July 5, when it plunged in a vertical decline that relinquished more than 41 points in a single session. (See also: O’Reilly Beats on Q2 Earnings Estimates, Cuts Outlook.)

The stock bottomed out at $169 three sessions later, giving way to a recovery wave that has drawn the outline of a bear flag pattern. The bounce turned south at the 50-day exponential moving average (EMA) last week after reaching within 10 points of filling the gap, generating a preliminary short sale signal that predicts a decline to the downtrend low. However, a final buying impulse to $220 is possible, with that level offering a more favorable risk/reward ratio.

Shares of The Mosaic Company (MOS) returned to the 2008 bear market low near $22 in the first quarter of 2016 and bounced in a recovery wave that stalled in the low $30s about two months later. A 10-month consolidation pattern tested the deep low in October, ahead of a January 2017 breakout that attracted aggressive selling pressure and a reversal that has now reached long-term support for the third time. (For more, see: Mosaic Shares Tumble on Disappointing Fertilizer Guidance.)

An old market expression insists that there’s no such thing as a triple bottom because three tests at support are more likely to trigger a breakdown than a new uptrend. In addition, on-balance volume (OBV) entered an aggressive distribution wave in February 2017 and is now testing the 18-month low, signaling that bottom fishers are abandoning losing positions. This loss of sponsorship could presage a breakdown that drops the stock toward deep support at $12.50.

The Kroger Co. (KR) stock topped out at $42.75 in December 2015 and ticked lower through most of 2016, building the next stage in a head and shoulders topping pattern that broke to the downside when the stock violated the neckline in June 2017. A perfect storm of bad news triggered the decline, with the company lowering guidance just one day before Amazon.com, Inc. (AMZN​) upended the supermarket world when it announced the acquisition of Whole Foods Market, Inc. (WFM). (See also: Kroger CEO Not Fazed by Amazon-Whole Foods Tie Up, Shares Pop.)

The stock bottomed out on June 16 and eased into a bear flag that is now testing the underside of the 50-day EMA at $25. It filled the lower of two gaps last week and is unlikely to trade higher than $27 before aggressive sellers return in force. A solid entry plan will be to watch the weekly stochastics oscillator, waiting for a crossover at the overbought level to enter or add to existing short sales.

The Bottom Line

The weakest S&P 500 components could offer the strongest short sales in coming weeks and months, especially if the broad market enters a correction or downtrend. (For additional reading, check out: Stocks Face Miserable August as Correction Looms.)

(Disclosure: The author held no positions in the aforementioned securities at the time of publication.)

 

Published at Wed, 09 Aug 2017 14:55:00 +0000

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Solar Stocks Are Heating Up

Solar Stocks Are Heating Up

By Cory Mitchell | August 9, 2017 — 1:00 PM EDT

Solar stocks are recovering from major sell-offs over the past few years, recently completing major bottoming patterns and signaling that a longer-term uptrend could be under way. While some of these stocks remain in basing patterns, others have already surged higher. Therefore, each stock will require a slightly different game plan for traders who wish to get involved.

SunPower Corporation (SPWR) stock is in a long-term downtrend going back to the 2014 high of $42.07. That long-term downtrend should be kept in mind, but the price could still make significant upside progress, especially considering the basing pattern that is playing out right now. Over the past year, SunPower stock has been forming a rounded bottom, and since April, it has started making consecutive higher swing lows and higher swing highs. (See also: SunPower Q2 Losses Narrower Than Expected, Sales Fall.)

While the price did fall sharply on Aug. 2, and there may be more short-term downside, the overall trajectory is up. Possible buying locations include the rising trendline, which intersects near $8.50. Based on the short-term downward momentum, reaching that $8.50 to $8.00 area is probable, yet in light of the broader strength, it could be a good entry point. If the price continues to drop below $7.50, that is a warning sign that the broader move to the upside is in trouble and does not have enough buying interest behind it. However, if the price continues its uptrend, the next targets are $13 and $14.50. Traders could exit a portion of their position at each level, implement a trailing stop-loss at the first, or pick one level or the other as an exit point.

Technical chart showing SunPower Corporation (SPWR) stock forming a basing pattern and rallying to the upside

Canadian Solar Inc. (CSIQ) has also been forming a bottom after a long-term decline. A volatile rounded bottom has been forming for more than a year, with the price making higher swing highs and lows since April. In July, the price hit a 52-week high of $18.12, and as of Aug. 8, the price is slightly below that. The past year has been marked by strong moves up and down, so buying near a high may not be the most prudent play based on the stock’s tendency. (For more, see: Rounded Bottom Could Mean a Rally for These Stocks.)

Since Canadian Solar stock tends to see sharp corrections after a rally, getting a lower entry point is quite possible. The rising trendline that intersects near $13.50 is one spot to look for an entry. An entry signal could include the price falling to near (it could be slightly above or below) the trendline and then consolidating for several sessions. If the price then breaks out of the consolidation to the upside, that is a buy signal. If the price falls below $12, the uptrend is in trouble, and the technical premise for the trade is no longer valid. If the uptrend can regain its legs (after a pullback), upside price targets include $21 and $23.

Technical chart showing Canadian Solar Inc. (CSIQ) stock forming a basing pattern after a long-term decline

JinkoSolar Holding Co., Ltd. (JKS) has been one of the strongest solar stocks year to date, up 87%. Jinko stock is pushing into price levels not seen since 2015. This stock exhibited the same pattern that is playing out in Canadian Solar and SunPower, but in the case of Jinko, the higher lows and highs started forming a couple of months earlier. (See also: JinkoSolar to Supply Solar Modules for Fuji Electric Project.)

With the price having already rocketed up and earnings just around the corner (Aug. 23), this is a tough time to justify buying. The stock has already hit its profit targets based on the rounded bottom and is approaching some strong resistance from 2015. If the price declines back below $25.50, traders should be careful. With the stock near resistance, a move below $25.50 could mark the start of a steep decline.

Technical chart showing JinkoSolar Holding Co., Ltd. (JKS) stock spiking after completing a bottoming pattern

The Bottom Line

Right now, these solar stocks are looking good. Even with the recent weakness in SunPower, the broader uptrend remains in play. However, an uptrending stock still requires buying at a price that is acceptable given the risk and profit potential. Since any trend can turn, it is important to cap risk and exit a trade if the original premise for the trade is no longer valid. The risk, or the difference between the entry and stop loss, helps determine if the trade is worth taking from a risk/reward perspective. No matter how good a trade looks on paper, traders should risk only a small portion of account capital on any single trade. (For related reading, check out: A Surprisingly Sunny Run for the Solar ETF.)

Charts courtesy of StockCharts.com. Disclosure: The author does not have positions in the stocks mentioned.

 

Published at Wed, 09 Aug 2017 17:00:00 +0000

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Twilio Stock Breaks Out to Test Key Resistance

Twilio Stock Breaks Out to Test Key Resistance

By Justin Kuepper | August 8, 2017 — 6:29 PM EDT

Twilio Inc. (TWLO​) shares soared nearly 10% on Tuesday after the company reported better-than-expected second quarter financial results. While Twilio has struggled with its reliance on large customer accounts, management projected third quarter revenue of $91 million to $93 million – above consensus estimates of $89.69 million – while full-year revenue guidance of $371 million to $375 million exceeds consensus estimates calling for $359.79 million.

Second quarter revenue increased 48.6% to $95.87 million – beating consensus estimates by $9.63 million – and net losses of five cents per beat consensus estimates by six cents per share. Base revenue – excluding large customer accounts without a year-long minimum contract – jumped 55% to $87.6 million, while total active customer accounts reached 43,431 compared with just about 31,000 during the same time last year. (See also: Twilio In-Line Q2 Loss, Solid View Mitigate Uber Woes.)

Technical chart showing the performance of Twilio Inc. (TWLO) stock

From a technical standpoint, the stock broke out from reaction highs made in mid-July to key resistance levels near $35.00. The relative strength index (RSI) reached overbought levels at $71.07, while the moving average convergence divergence (MACD) could see a bullish crossover. The stock has been building momentum since its sharp decline following first quarter earnings, when it issued guidance that was well below expectations.

Traders should watch for a breakout from these key resistance levels to new highs. Over the past 52 weeks, the $35.00 level has been tested three times without a breakout following the stock’s tremendous decline during the middle of last year. The next major resistance after a breakout would be at around $39.00 per share, although a failure to break out could send shares back down to retest support at around $32.50. (For more, see: The Top IPOs of 2016.)

Chart courtesy of StockCharts.com. The author holds no position in the stock(s) mentioned except through passively managed index funds.

Published at Tue, 08 Aug 2017 22:29:00 +0000

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Tesla Stock Generated Most Returns Among Car Makers This Year

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By most metrics, Tesla, Inc. (TSLA) lags its rivals in the car industry. But there is one metric in which Tesla has overtaken rivals. According to calculations by Charlie Bilello, director of research at Pension Partners, the Palo Alto, California-based company has generated the maximum returns this year for any car company listed in the markets.

Since the beginning of this year, investors have earned 63% returns from Tesla stock. Other car companies have produced far less. An investment in General Motors Company (GM) would have produced 3% returns in 2017. Ford Motor Company (F) generated negative 5% returns, while Honda Motor Co., Ltd. (HMC) and Toyota Motor Corporation (TM) produced negative returns of 2% and 4%, respectively. The party is expected to continue. Tesla’s stock price has jumped by more than 50% since the start of this year, and based on multiple analyst reports, it has further room to grow. (See also: Tesla Passes General Motors in Market Cap, Becomes Most Valuable Car Maker.)

To be sure, the return numbers are not indicative of actual performance. While they sport similar market capitalizations compared with Tesla, Ford and GM are vastly more experienced in producing and selling cars. This is reflected in the number of cars that they sell each year. For example, Ford sold 6.6 million cars last year versus approximately 76,000 cars sold by Tesla.

Instead, the run-up in Tesla’s shares is a reflection of the market’s assessment of the company’s prospects in the nascent electric car industry. Consumer tastes have shifted against gasoline and diesel – the fuels that power most vehicles made by car majors. Governments across the world also set mandates this year and promulgated policies to regulate and promote sales of electric cars. As a pioneer in the space, Tesla is expected to be a major beneficiary of this trend. (See also: Tesla Model 3 Expectations Are ‘Hitting the Moon’.)

Still, it is difficult to shake off the possibility of a bubble in Tesla’s stock price given the massive difference in car production numbers. A good point of assessment for investors may be Tesla’s progress with the Model 3, its first mainstream electric car.

Encouraging delivery and sales numbers for the Model 3 would imply two things. First, Model 3 success would suggest that Tesla’s production capabilities have matured to the point where it can take on car majors. Previously, the company struggled with multiple manufacturing and delivery issues for the Model S and Model X, cars that did not have the scale and ambitious numbers of the Model 3.

Second, and related to the first point, Tesla’s sales will take off if it delivers the Model 3 on time and without significant problems. The electric car company has already proven its capabilities in the luxury car segment. Successful execution of the Model 3’s mandate will help prove Tesla’s critics wrong and set the stage for sales to take off. (See also: UBS Believes the Model 3 Launch Will Determine Tesla’s Future.)

 

Published at Sat, 05 Aug 2017 20:12:00 +0000

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All about earnings: Snap, Blue Apron, Disney and more

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Wall Street gets its first taste of Blue Apron IPO
Wall Street gets its first taste of Blue Apron IPO

 All about earnings: Snap, Blue Apron, Disney and more

  @CNNMoney

1. Snap earnings: Snapchat parent company Snap(SNAP) will report its second-quarter finances on Thursday, but Wall Street isn’t holding its breath for anything positive.

The “camera company,” as Snap calls itself, wishes its bad news could just disappear. Shares soared following its highly anticipated March IPO, but Snap has lost much of its market value since then. Earlier this week, some insiders sold their shares after the expiration of the company’s “lockup” period, which bars employees and early investors from ditching their stock. If investors keep selling off shares, the company could be in trouble.

Those investors would have reason to move on. In May, Snap revealed a whopping $2.2 billion loss in the first quarter. It also announced that it had added just 8 million daily active users during that time, bringing its total to 166 million — a meager figure compared to Facebook’s average of 1.3 billion daily active users in June. Snap recently unveiled a slew of new features, but it may not be enough to keep users — and investors — on board.

2. Blue Apron earnings: Blue Apron(APRN) will also share its second quarter financial report on Thursday.

The company’s June IPO was supposed to whet Wall Street’s appetite for meal delivery services, but investors hardly took a bite. Its first day of trading was a bust.

It got worse. On Friday, Blue Apron’s stock dipped by more than 6% following news that it is shutting down its operation in Jersey City and will move more than 1,200 employees to a new plant. The company’s shares also fell earlier this month when it was reported that Amazon filed a trademark for its own meal-kit delivery service. Burgeoning competition from the likes of Hello Fresh, Plated, Purple Carrot, Sun Basket and other similar startups has always been a concern for Blue Apron. With Amazon(AMZN, Tech30) — and, once Amazon’s deal goes through, Whole Foods(WFM) — in the mix, the landscape will only get tougher for the company.

3. Retail earnings:Macy’s(M), Nordstrom(JWN) and Kohl’s(KSS) are all reporting second quarter earnings on Thursday. Both Macy’s and Kohl’s reported lousy earnings in the first quarter — yet another signal to investors that retailers are fighting for their lives.

Amazon and other online retailers like the Walmart(WMT)-owned Jet.com are posing the biggest threats to traditional brick and mortar stores, and Macy’s CEO Jeff Gennette said the company plans to “aggressively grow our digital and mobile business.”

But Kohl’s was a rare bright spot for retail in the first quarter. It beat Wall Street forecasts, and Kohl’s CEO Kevin Mansell said he was “encouraged by the significant improvement in sales and traffic.”

Target(TGT) recently raised its profit forecast and JCPenney(JCP) announced a plan to increase foot traffic by installing specialty toy shops in its stores, raising investors’ hopes for a less-disappointing quarter.

4. Disney earnings: The House of Mouse will report its second-quarter earnings on Tuesday, and Wall Street will be especially interested in ESPN. The struggling sports network has been dragging Disney down, despite the company’s many wins in the box office over the past few years.

In 2016, Disney(DIS) shares remained flat, thanks in large part to ESPN’s falling subscribers and lower ad revenue — all of which led to some high-profile layoffs. In 2017, its stock has continued to struggle.

5. Coming this week:

Monday — Marriott(MAR) earnings

Tuesday — Disney earnings; CVS(CVS) earnings

Wednesday — Mylan(MYL) earnings; 21st Century Fox (FOX)

Thursday — Snap, Blue Apron, Macy’s, Nordstrom and Kohl’s report earnings

 

Published at Sun, 06 Aug 2017 12:06:24 +0000

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Amazon shadow looms large ahead of retail earnings

 

Amazon shadow looms large ahead of retail earnings

NEW YORK (Reuters) – As old and new Amazon.com (AMZN.O) competitors gear up to report earnings, investors are eager to know how they plan to withstand the growth of the No. 1 online retailer.

So far this quarter, Amazon has been brought up in some 130 earnings calls from S&P 1500 .SPSUP components according to a Reuters analysis. About 50 of those came in the last week alone.

More than 30 companies reporting earnings in the following weeks mentioned Amazon during their most recent earnings call or were directly asked about threats or opportunities regarding Amazon’s growth.

“Any retailer, whether it’s an online retailer or has online presence, or just brick and mortar, that tells you they’re not concerned about Amazon, they’re either in denial or lying,” said Steven Osinski, marketing lecturer at the Fowler College of Business at San Diego State University.

Beyond retailers like Wal-Mart (WMT.N) and Target (TGT.N), and following Amazon’s planned acquisition of Whole Foods Market (WFM.O) announced mid June, expect Amazon to pop up on earnings calls from food producers, packagers and retailers including SpartanNash (SPTN.O) and Dean Foods (DF.N).

Amazon mentions in less-expected earnings calls could also give investors an idea of where analysts expect the behemoth to strike next.

“It’ll be interesting to see (Amazon CEO Jeff) Bezos’ next move in terms of wanting to expand into a certain space,” said Daniel Morgan, portfolio manager at Synovus Trust in Atlanta.

He said apparel as well as pharmaceutical distribution were among the areas where Amazon has been said to make its next big move.

“They’ve shown up in places we didn’t think they’d have competitive impact just two years ago.”

In a sign of Amazon’s widening clout, industry bellwethers like McDonald’s (MCD.N), 3M (MMM.N) and Johnson & Johnson (JNJ.N) in their latest earnings calls were asked for the first time about effects of Amazon on their businesses.

(For a graphic on Amazon’s stock growth, see bit.ly/2vxWft0)

NOT-SO-GREAT EXPECTATIONS

Consumer discretionary is the S&P 500 sector expected to post the smallest year-over-year earnings growth this reporting quarter, with a gain of 3.3 percent. Overall, earnings are seen rising 12 percent from last year.

Amazon’s own results weigh on the sector, as it earned 40 cents per share instead of the $1.42 analysts had expected. But its 25 percent revenue increase to $38 billion was seen as a detriment to some competitors and could weigh down expectations for their quarterly reports.

“Expectations have been pushed down because a lot of the retailers, particularly the bricks and mortar ones, have had problems – Amazon and other related – so expectations are pretty low,” said Nuveen Asset Management’s chief equity strategist, Bob Doll.

“Amazon obviously has a very powerful model but on the other hand, they’re not going to put every bricks and mortar retailer out of business. These guys aren’t going to sit and let it happen.”

However, stocks in the sector approach their earnings at relatively rich valuations. Including Amazon, which has an earnings multiple above 100, investors in consumer discretionary stocks are paying more than $19 for every $1 in earnings forecast over the next 12 months. That is near the highest since 2009.

As costly as sector stocks are, Amazon has kept growing faster than most, up more than 31 percent year to date. Amazon’s market cap, near half a trillion dollars, places it at about 20 percent of the S&P 500’s consumer discretionary sector.

Its growing clout has called for comparisons with rival Wal-Mart, whose growth in the early 2000s raised concerns it would put smaller retailers out of business.

“In some ways I don’t know if the Amazon effect is much different from what we’ve seen with Wal-Mart or Microsoft,” said Jim Paulsen, chief investment strategist at The Leuthold Group in Minneapolis.

“There’s fewer and fewer players and more concentration. It’s the result of winner-takes-all scenarios.”

Reporting by Rodrigo Campos, additional reporting by Caroline Valetkevitch; Editing by David Gregorio

Published at Sat, 05 Aug 2017 01:07:15 +0000

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Treading Cautiously

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By Arulonline from Pixabay

Treading Cautiously

Something’s cooking and although I’m not sure what exactly is going on, my Spidey senses are tingling and that usually means that it’s best to tread cautiously and assume a wait and see position. It’s either that or someone spiked that mushroom soup I had last night, in which case I hope you’ll enjoy my very last post ever. Now all joking aside, my suspicion is that we may be approaching at a temporary bounce in the USD, which may just be the reason why several of my open campaigns are currently in the process of reversing. Let’s take a look:

2017-08-04_DX_Hades

The USD has now descended to a crucial inflection point I highlighted a few days ago. The weekly panel on the left shows you long term support produced by our lower 100-week BB plus two spike lows in the 92.1 vicinity. I hate to be a drama queen but if the Dollar continues straight lower from here then a whole boat load of stops will be triggered and we may just descend all the way into hades with no hope for a bounce until around 87.

By that point you’ll be using Dollar bills as toilet paper or wallpaper if your house is really small. By the way, why is it toilet paper but wallpaper (together)? English doesn’t make any sense and every Spaniard I ever met seems to agree. Anyway, I am somewhat exaggerating of course as the Dollar was just fine in the 80 range between 2011 to 2015 but those were different times and I have an inkling that Draghi and his ECB cohorts weren’t prepared for a 20% increase in the EUR/USD exchange rate when predicting sunny days ahead across the European Union.

Either way, if the Dollar drops this low I’ll be in a very very crappy mood, so you better hope it doesn’t happen. By the way, about the featured image: it is literally this hot here in Valencia right now, except that it’s also humid as hell. When turning on the cold water faucet late in the evening we need to watch out as to not burn our hands – no joke. And they always claim that building standards are so much better over in Europe. Bullpucky…

Campaign Updates

2017-08-04_ZB_update

Alright, let’s observe the damage. Bonds are probably going to be stopped out today as it’s nose diving and is now trading only a few ticks away from my trail. On the upside that would lock in about 2.2R and that’s ain’t bad. Alright, please stop reading now – the rest of the post is not very interesting… have a good weekend!

schneider_weisse

2017-08-04_gold_update

Damn it, you just couldn’t help yourself, could you? Well, gold just gave me a yikes and here I was thinking that the express elevator was waiting. Which apparently it was but it’s going the wrong way. Not stopped out yet but seeing futures drop like this across the board isn’t exactly promising.

2017-08-04_crude_update

Crude has been sickly since my entry and odds of survival are now pretty low. This definitely was worth a shot however as the general setup is extremely juicy until about 48 plus minus a few ticks. There’s a bunch of daily support accumulating there and although it may not help us with with this campaign it seems we at least may get a chance for revenge (yes, I’m joking – never trade your emotions – only trade technically sound setups).

2017-08-04_copper_watch

Now copper has me fascinated right now but clearly today isn’t the right moment to strike. What I would love to see here is a fast drop toward that upper 100-day BB which scares all the children and gives us adults a chance to buy in cheap. I know being long after such an advance may ‘feel’ risky but that’s just an illusion. Statistically trend break outs like these (see 100-week BB) have a good chance of continuation *after a retest and breach of the previous highs*. To be clear – the entry is a coin toss but once it breaches the previous highs the odds of success not only jump to 75% or higher but you often also see big trend moves. Which means that if you aren’t greedy a small position pays off handsomely. Hope that makes sense – if not please do not ask in the comment section  **

One entry however I cannot refuse today:

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It’s not too late – learn how to consistently bank coin without news, drama, and all the misinformation. If you are interested in becoming a subscriber then don’t waste time and sign up here. The Zero indicator service also offers access to all Gold posts, so you actually get double the bang for your buck.

Please login or subscribe here to see the remainder of this post.

** It’s already happening! The lower the Dollar drops the more abusive I get.

Published at Fri, 04 Aug 2017 13:21:20 +0000

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Herbalife Sinks as FTC Regulation Stands to Thwart Growth

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Herbalife Sinks as FTC Regulation Stands to Thwart Growth

By Shoshanna Delventhal | August 2, 2017 — 4:35 PM EDT

Shares of multilevel marketing giant Herbalife Ltd. (HLF) started the day off on Wednesday down over 5% despite the firm posting better-than-expected second-quarter earnings results and lifting its full-year guidance after the closing bell on Tuesday.

The decline represents a win for the hedge fund Pershing Square Capital Management and a growing number of HLF short sellers as the company’s guidance renews concerns that a settlement with federal regulators will hamper future growth. (See also: Herbalife Scrambles, Hires New Lawyer as Short Interest Booms.)

Forecast: Revenue to Decline as Much as 5%

Herbalife’s Q2 earnings of $1.51 per share well surpassed the Street’s $1.12 consensus estimate and the company’s guidance of $1.05 at the midpoint. Yet since the Federal Trade Commission (FTC) forced the company to revamp its U.S. operations and cough up $200 million to refund its distributors, investors have been keeping a close eye on indicators that new regulations could present a roadblock for the Los Angeles-based firm. As part of the ruling, Herbalife must prove that a majority of its U.S. revenue comes from consumers instead of its distributors, who are trying to reach income payouts.

Investors were disappointed with weak current-quarter guidance, in which sales are expected to come in flat, or down as much as 5%. The Q3 earnings forecast for $0.75 per share at the midpoint also fell short of the $1.20 consensus estimate by a wide margin.

Herbalife’s latest Q2 report and subsequent sell-off provides some relief to Pershing Square’s billionaire hedge fund manager William Ackman, who has been waging a war against the nutritional supplement and weight loss company since 2012. Ackman has bet $1 billion on short selling HLF, indicating that the global corporation is an illegal pyramid scheme that wrongfully takes advantage of lower socioeconomic groups and minorities. Trading down 1.3% on Wednesday afternoon at $65.59 per share, HLF reflects an approximate 1.7% decline over the most recent 12-month-period and a 36.5% return year-to-date (YTD). (See also: William Ackman’s Crusade to Take Down Herbalife.)

 

Published at Wed, 02 Aug 2017 20:35:00 +0000

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Tesla Price Levels to Watch After Earnings

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Tesla Price Levels to Watch After Earnings

By Alan Farley | August 2, 2017 — 11:31 AM EDT

Tesla, Inc. (TSLA) earnings take center stage on Wednesday evening, providing a long overdue reality check into the Model 3 rollout after months of flamboyant marketing by controversial CEO Elon Musk. It will be tough for quarterly metrics to live up to the hype, but shareholders are likely to forgive growing pains because it could be months or years before Wall Street analysts can gauge the long-term demand for the Model 3.

Tesla stock is not cheap by any stretch of the imagination, holding a higher market capitalization than rivals General Motors Company (GM) and Ford Motor Company (F). Even so, Tesla has attracted the type of euphoric coverage usually reserved for market icons like Apple Inc. (AAPL), speaking to a new generation in language often misunderstood by older demographics. Even so, high levels of skepticism are warranted due to the lack of actual sales in recent years. (See also: Opinion: Right Now, Tesla Is More Than Ever a Carmaker.)

TSLA Long-Term Chart (2010 – 2017)

The company came public at $19 in June 2010 and carved a short-term trading range between $15 and $30.50. The stock broke out in November, but buying pressure faded quickly, yielding broader range-bound action between the low $20s and mid-$30s. Those levels held in place for more than two years, ahead of a 2013 breakout that caught fire, drawing in a large supply of momentum capital.

The stock rose nearly fivefold between May and October 2013, carving one of the strongest uptrends of the current bull market cycle. The rally’s trajectory eased when it neared $200, but continued buying pressure finally pierced that level in 2014, ahead of the September top at $291.42. That peak signaled the start of an intermediate correction that posted a two-year low at $141 in the first quarter of 2016, ahead of an April 2017 breakout and rally to $387 in June. (For more, see: The Case Against Tesla.)

The monthly stochastics oscillator ended a six-month sell cycle in November 2016, with a new buy cycle supporting the early 2017 breakout. The indicator hit the overbought level in June and has now crossed into a fresh sell cycle that predicts relative weakness for the rest of 2017. In turn, this raises the odds that the June rally high will also mark the 2017 high ahead of weaker performance into 2018.

TSLA Short-Term Chart (2015 – 2017)

July 2015 and April 2016 breakout attempts ran into aggressive selling pressure, while a slow-motion pullback into November 2016 improved the technical tone ahead of an April 2017 breakout that added about 100 points into June. The subsequent decline shook out a sizable population of weak hands, while the bounce into last week exhibited strong sidelined interest looking for relative bargains. (See also: Elon Musk Says He Might Be Bipolar.)

The early July decline into $302 marked the first test at new support generated by the April breakout. The stock has been sitting on the 50-day exponential moving average for the past two weeks, failing to bounce back to the rally high while signaling a holding pattern that should yield a sizable trend swing following this week’s earnings report. Weekly and monthly cycles favor lower prices following the release, but it is really a toss-up given relatively narrow trading ranges in place since May.

Short-term levels generated by July price action should be watched for clues following the release. The July 5 gap established new resistance at $350 that held firm last week, triggering a reversal at $347. On the flip side, the July low at $303 marks the top of a breakout support zone between $280 and $300 that needs to hold at all costs to keep the long-term uptrend intact. (For more, see: Tesla’s Model 3: Musk Warns of ‘Manufacturing Hell’.)

The Bottom Line

Tesla entered a holding pattern after hitting an all-time high at $386.99 on June 23, while intermediate and long-term cycles have flipped from bullish to bearish. This cycle shift lowers the odds for a strong buy-the-news reaction following this week’s earnings report, but downside remains limited given the solid technical tone. (For additional reading, check out: Tesla Stock Is at Risk of a Major Breakdown.)

(Disclosure: The author held no positions in the aforementioned securities at the time of publication.)

 

Published at Wed, 02 Aug 2017 15:31:00 +0000

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Technical Buy Points for Strong Trending Stocks

 

Technical Buy Points for Strong Trending Stocks

If searching for trade ideas, one of the first places to consider looking is at stocks that have significantly outperformed the major indexes over the past six months, the past year or year to date (YTD). This can be done by sorting stocks by performance, from high to low, and then going through the stocks and looking for trade setups. The stocks toward the top of the list will likely be in strong uptrends (although not always, as they may have recently started trending lower), and the setups to watch for include pullbacks that have stalled out. Once the pullback has stalled out or consolidated, showing that selling has slowed, traders can watch for a breakout back to the upside.

RingCentral, Inc. (RNG) stock is up 72% YTD after a nearly uninterrupted run higher between February and early June. Since June, the price has been oscillating in a range. Based on the upside momentum prior to the range forming, probabilities favor an eventual upside breakout. Some traders will be watching for a rally above the $39 high to signal an entry, while others will be watching the short-term descending trendline that connects the June high and July swing highs. A daily close above $36.25 would break the trendline and indicate that the price is heading back toward the high and potentially above it over the longer term. For the latter entry, a stop-loss order would be placed near $34. An initial profit target could be placed at $39, but based on the size of the range (added to the top of the range), the longer-term target is $44.50 if the price moves above $39. (For more, see: The Anatomy of Trading Breakouts.)

Technical chart showing RingCentral, Inc. (RNG) stock in an uptrend near support

Shares of OraSure Technologies, Inc. (OSUR) are up 102% YTD, and pullbacks throughout the year have typically been 10%. After peaking at $19.33 on July 18, the stock has once again pulled back almost 10% and has been consolidating for three days near rising trendline support. Traders will be watching for a rally above the consolidation high at $18.03 to indicate that the pullback may be over. A stop-loss could be placed below the consolidation low. If the price moves slightly lower, before triggering a long trade, it is advisable to wait for another consolidation to form (and then a breakout above it) before going long. The upside target is $20 to $21, based on the size of prior waves and the top of the rising trend channel. (See also: OraSure Technologies in Focus: Stock Jumps 8.2%.)

Technical chart showing OraSure Technologies, Inc. (OSUR) stock in an uptrend near trendline support

DuPont Fabros Technology, Inc. (DFT) stock just pulled back to (near) its descending trendline after reaching a high of $66.18 in late June. The stock is up 44.5% YTD. The pullback in February/March saw the price decline approximately 10%, and the June/July pullback was near that magnitude as well. The price fell, consolidated, moved up a bit, consolidated again and then rallied aggressively on July 31 and Aug. 1. With the initial entry points (at either of the consolidation breakouts) having already passed by, another option is to wait for another pullback to $60. Traders could wait for the price to consolidate and break to the upside, showing that the pullback (if it develops) has slowed and that upward momentum is reasserting itself. For those already in the trade, the upside target is the top of the rising channel at $70. (See also: Opinion: Data-Center Reality Disconnects From Tech Reality.)

Technical chart showing DuPont Fabros Technology, Inc. (DFT) stock in an uptrend near support

The Bottom Line

Looking to top performers for trade ideas can be a rewarding strategy. Top-performing stocks have already shown they can move higher and that there is a lot of buying interest in them. That does not mean that these stocks will go higher forever. Eventually, even strong stocks crack. That is why a stop-loss (or an exit point for a losing trade) must be set prior to the trade. That way, if the trade does not work out, the damage is kept to a minimum. (To learn more, check out: The Stop-Loss Order – Make Sure You Use It.)

Charts courtesy of StockCharts.com. Disclosure: The author does not have positions in the stocks mentioned.

 

Published at Wed, 02 Aug 2017 17:00:00 +0000

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