Coach (COH) – An old school short!

Coach beat Wall Street estimates as sales in China continue to boom, but shares sold off amid concerns about slowing North American growth. North American same-store sales rose 6.7% vs. the year earlier, down from 8.8% in the prior quarter and slightly below some estimates.

The luxury handbag and accessories maker said Tuesday that profit rose 24% to 77 cents per share, the third straight quarter of double-digit EPS growth. Analysts expected 75 cents. Sales increased 17% to $1.11 billion, just above estimates of $1.10 billion.

This leaves COH with a broken neck line on heavy volume – an old school move (head and shoulder). This kind of technical move signifies turnaround in a uptrend.  Even though the Asia-Pacific story of this stock is intact, temporarily there is a 10% downside. This trade’s risk to reward ratio is low. So short the stock.

  1. Initiate a short at $72.1
  2. Double it up at $73
  3. Set the stop-loss at $74.1
  4. Cover the short at $65.

Remember the stock as good support at $65-$66. See below. Good luck!

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Netflix is short # 2

First of all which one is short # 1? Well GMCR was short #1 and now it seems to have stabilized. So avoid it.

Let’s look at NFLX –

  • Once upon a time there was a stock that was darling of wall street. Ok let’s restart.
  • Once upon a time there was a suicidal CEO and blah! blah! blah! You know what I mean.

But one question – why is he still running the show?

Netflix came up with its fiscal Q1 numbers. To everyone’s surprise they did good.

Netflix said sales rose 21% to $869.8 million, just topping analysts’ views of $866 million. For the current quarter, based on the midpoint of its guidance, Netflix expects to earn 2 cents a share on sales of $884 million. Analysts were expecting a loss of 18 cents a share, but also were expecting revenue of $895 million. But Netflix said it expects to add 200,000 to 800,000 net new domestic subscribers in Q2, below what analysts were looking for 1.2 million.

The stock is still up 47% for the year, after crashing 77% in the second half of 2011 on an ill-timed price hike and other missteps.

 

 

Initiate a short at $91. Double it at $97. Keep the stop-loss at $103. This stock will move towards. $60.

 

We are in midst of baton transfer..

This might seem to be a writing on the wall now but we are not there yet. We are gradually approaching the correction phase. If the market craters through 1358, the bulls will officially sign off.

We have seen all the phases of transition –

  1. Broken almost 5 month old trend line.
  2. Market tries to capture it but fails.
  3. Market breaches 50 DMA.
  4. It tries to recapture the moving average but fails
  5. And finally we are staring at a lower low after lower high.

This is an old school failure. The shorts will show up every where. Unfortunately if we review last two summers this market might end up going sideways. So be careful while shorting.

I already have 15% of my portfolio invested in TLT, BLV and RWM. I will add some more once the down side is confirmed. As of now I don’t see too many obvious shorts. All the good stocks are either in consolidation phase or approaching 50 DMA.

Portfolio is already 50% cash – will try to create more cash.

Let’s browse some charts. One thing is clear – all the recent breakouts have failed. This is a strong indicator of weak market. Leaders are either consolidating or trying to hang on to 50 DMA. Remember in a correction, leading stocks decline by average 2-2.5 times the general market correction. The ones that end up correcting the least and have strong fundamentals are prospective leaders of next bull market.

Names to follow on Thrusday Morning – FFIV, VMW, QCOM, SCSS, EMC.

The market seemed to be tepid with leaders hanging in there. The leading stocks, stocks that have led from the font in last 3 to 6 months, are still outperforming the S & P 500 index. In a typical correction the leaders tend decline by at least 1.5 to 2.5 times the market. Even if the correction starts, keep an eye out for future leaders. The young leaders will go sideways, form a flat base and will be the one to break out first. As of now URI, ISRG, etc seem to tread those waters.

Once again be defensive dont open big positions now. Just buy 50% of final positions size and wait for market to give the green flag. If needed open BLV and TLT.

Looking at the earnings

FFIV, Force Five solutions, a network hardware and software gear maker, beat on both revenue and earnings. The company has been slowing eating CISCO’s share. The beat wasnt a blowout though.

For its fiscal second quarter ended March 30, F5 said profit rose 24% to $1.09 per share. It said revenue rose 22% from the year-earlier quarter to $339.6 million. Analysts polled by Thomson Reuters had expected $1.07 EPS on sales of $335.3 million.

But analysts had hoped for a bump up in June quarter guidance. Seattle-based F5 Networks said it expects fiscal Q3 revenue of $350 million to $355 million, and per-share profit of $1.12 to $1.14. Analysts had been expecting $1.14 on sales of $353 million.

As the data load over the network grows be it internet or wireless, I feel FFIV is well positioned to take advantage of this technology macro trend by providing network solutions. Following is a quick peek at FFIV’s solution chest.

  1. F5’s network controllers speed up application and Web servers in data centers. F5’s biggest customers are financial service companies, telecom service providers, tech firms with big Web portals such as Facebook and federal government agencies.
  2. F5’s network controllers speed up application and Web servers in data centers. F5 Networks holds 47% of the ADC market but faces stiff competition from Citrix Systems, startup A10 Networks and Riverbed Technology. As companies build bigger data centers and move to cloud computing, F5 Networks aims to sell more powerful network controllers that handle more computer servers and larger amounts of Internet traffic.
  3. F5 is making a big push in security products that defend data centers from Web-based threats. Internet firewall software runs on F5’s network controllers.
  4. Wireless phone companies use F5’s network controllers to route text messages and email, as well as to manage customer access to data services. F5 in February acquired Israel-based startup Traffix Systems, which sells software for 4G wireless data networks.
  5. In 2013, F5 is expected to release “deep packet inspection” software that enables wireless firms to analyze data traffic flowing over 4G LTE networks.

The market isn’t in the best shape so if you are interested, buy 50% of your usual position size at $129.1. I think it will stick around 50 DMA till market finds some direction.

QCOM, Qualcomm, saddens me. Why? It’s unable to meet the demand.

Qualcomm cannot get enough supply from its existing manufacturer and is seeking additional output, said its chief executive, Paul E. Jacobs.

The company is spending to get its latest chips made by new suppliers, Mr. Jacobs said. The shortfall reflects heavy demand and was not caused by manufacturing problems, he said, adding that the discrepancy should be made up by the end of the year.

“It’s painful not to be able to supply all of the chips your customers ask for,” Mr. Jacobs said.

I mean come on. You are not a school going kid who has run out of capacitor or resistance in a science project. You are a the epi-center of tsunami of smartphones.

For its second quarter, which ended on March 25, Qualcomm reported net income of $2.23 billion, or $1.28 a share, compared with $999 million, or 59 cents, a year earlier. Sales rose 28 percent to $4.94 billion. Analysts on average had predicted earnings of $1.10 a share and sales of $4.84 billion. Mobile phone shipments are estimated to reach 1.7 billion in 2012, a gain of 8.2 percent from 2011, according to IDC. Smartphone shipments, a subset of the mobile phone market, will surge 33.5 percent, the market researcher predicts.

But it got beat up when it guided for Q3. The San Diego-based company estimated that sales for its third fiscal quarter, ending in June, would be $4.45 billion to $4.85 billion. Analysts on average had estimated $4.81 billion, according to data compiled by Bloomberg. Qualcomm forecast net income of 67 cents to 73 cents a share, compared with the average prediction of 77 cents.

So this means opportunity of people such as me to get in. I would get in around $64 with stop at $57.

VMW, VMWare, king of virtualization continues to deliver outstanding results. The growth is organic and among the better seasonally weak quarter.

The leading maker of virtualization software said earnings per share rose 37.5% vs. a year earlier to 66 cents excluding various items. Wall Street had expected 60 cents. That ended two quarters of decelerating growth.Revenue rose 25% to $1.06 billion. That was VMware’s third straight quarter of decelerating sales gains and the smallest advance in more than two years.

Analysts expected $1.028 billion, though VMware last week said it would “meet or slightly exceed” its guidance for $1.02 billion to $1.04 billion.

“Customers are investing in IT for the longer term and we are certainly primary beneficiaries,” said CEO Paul Maritz on the post-earnings conference call.

The company sees Q2 revenue of $1.10 billion to $1.12 billion. Analysts have forecast $1.105 billion and a per-share profit of 63 cents. A year ago, VMware reported revenue of $921.2 million and a per-share profit of 55 cents.

This is another company that is leader in the macro trend of cloud computing and data handling.

Cloud computing equipment revenue rose 15% in 2011 to $39.4 billion, with Hewlett-Packard, (HPQ) IBM (IBM) and Cisco Systems (CSCO) the leaders, but VMware (VMW) and EMC (EMC) the biggest gainers, says Synergy Research Group.

SCSS, Select Comfort, had another stellar quarter but it seems that the 50% run up in last 3 months wanted more. Select Comfort (SCSS) posted strong first-quarter profit and sales gains that were well above analyst expectations.

The mattress store chain, which operates 382 stores that sell adjustable firmness beds and bedroom accessories, reported after Wednesday’s market close that earnings per share jumped 50% vs. the same quarter a year earlier, to 45 cents a share. Analysts expected 40 cents.Sales climbed 36% to $262.4 million, easily topping estimates of $233.7 million.

The company guided 2012 EPS to $1.38-$1.46, a 19%-36% increase vs. the prior year. The midpoint tops consensus of nine analysts polled by Thomson Reuters by 4 cents.

I would wait till this name consolidates. The exisiting owners please stick around it slides below 50 DMA on heavy volume.

Let’s see what TPX and EMC has in store for us tomorrow. If EMC deliver solid number and goes past 30.7$ with fan fare, I would add some.

Earnings – STX, URI and ISRG

We are not out of the woods yet, but today’s price action is a step in the right direction.  The Dow posted its best day since March 13th gaining 194 points +1.50% and in the process moved back above its 50 day moving average.  The S&P 500 and NASDAQ also moved above their 50 day lines gaining +1.55% and +1.82% respectively. NASDAQ made its biggest gains since Dec 20th, 2011. Advancing stocks led declining stocks by 3.25 to 1 on both the NYSE and NASDAQ. But the turnover was slightly lower in both the exchange.

This rally was courtesy – demand of Spanish bonds and good earnings. The investors showed good appetite for Spanish bonds, even though the yields on 10 year notes spiked. It’s early in the earnings reporting season, but as of Tuesday morning 74% of the 39 companies that have reported exceeded analysts’ expectations. But the fickleness of news and volatility of the market definitely reminds me of last year. So being defensive is not bad at all. That said, I am taking out the small index short but will leave the BLV and TLT in place.

Lastly, a buy order of AAPL set long time ago at $581 got triggered today. Let’s see where it takes us.

EARNINGS –

Seagate technologies, STX, the one that I have advocated for last month or so came out with flying colors.

The hard drive maker brought in revenue of $4.4 billion, up from $2.7 billion in the prior year’s quarter, and above the average analysts’ forecast of $4.38 billion. Excluding items, Seagate earned $2.64 a share on net income of $1.2 billion, up from 25 cents a share and $113 million in the prior year’s quarter. Analysts surveyed by Thomson Reuters were looking for earnings of $2.11 a share.

Seagate also achieved a gross margin of 37% during the third quarter, comfortably above its forecast of 33%. These margins are strongest in company’s history. Seagate reaffirmed its $5 billion revenue target for its fiscal fourth quarter on Tuesday, as well as its $20 billion goal for calendar year 2012. The hard drive specialist also raised its fourth-quarter gross margin forecast from 33% to 34.5%.

This stock has formed a two month-long base and will breakout with a gap tomorrow. If you are interested then set a buy for $28.7 and double it up if it goes below $28. If we are in a bull we will go up till $30 in next few days or so. Following is an older chart of STX but the picture still remains the same expect for another blockbuster earnings.

United Rentals, URI,  is the one that I bought around $42 when it broke out a month ago but got out when it went below $40 and 50 DMA. The company mainly rents construction and industrial equipment in North America, including backhoes, forklifts and heaters. It also sells some new and used gear. The company has moved away from the construction rentals with the purchase of RSC holdings that gave URI quite a bit of industrial exposure.

United Rentals earned 36 cents a share in first quarter, reversing a 32-cent loss in the same quarter last year, and trouncing the Street’s estimate of 5 cents. Sales climbed 25% to $656 million, easily topping projections of $610 mil. For the prior three-quarters, sales grew 13%, 18% and 25%. The company’s rental revenue increased 21% in the quarter, reflecting year-over-year increases of 6.3% in rental rates and 18.4% in the volume of equipment on rent. 

“Once again, we drove profitable growth faster than the construction recovery,” CEO Michael Kneeland said. “Both core areas of our business — general rentals and specialty operations — realized higher rates year-over-year on a fleet that was about $600 million larger on average.”

Tomorrow URI will open above consolidation. Once again if this is a bull market it will start drifting towards $50. Remember PEAD.

Intuitive Surgical, ISRG, is a medical robot maker and has been one of the strongest leader of this bull.

The medical robotics maker’s earnings rose 35% to $3.50 a share. Revenue climbed 28% to $495 million. Analysts polled by Thomson Reuters expected Intuitive Surgical to earn $3.14 a share on sales of $464.7 million. Intuitive Surgical also forecast 2012 sales will rise about 20% from 2011’s $1.76 billion. It had expected 17% to 19% growth. A key to growth has been winning acceptance for robotic-assisted surgery in more procedures. The company said da Vinci-assisted procedures grew 29% in Q1 from a year earlier.

Gross margin edged up to 71.9% from 71.8%. Revenue from instruments and accessories climbed 32%, while services revenue jumped 27%. Systems revenue grew 24%, as da Vinci systems sold rose to 140 units from 120 units a year earlier. 

With a new product in late 2011, Intuitive Surgical aims to expand robotics-assisted surgery to gallbladder operations and cardiac procedures, such as heart valve repairs.

I am a big fan of this company and owned it’s share for short period prior to last quarter’s revenue. I will add some if the price drops to $555.

IBM and INTC

There were other earnings such as IBM’s better than expected earnings but a slight miss on revenue side. Chipmaker Intel  posted better-than-expected first-quarter results, easing concerns that sluggish PC sales might weigh on its performance. The Santa Clara, Calif.-based company also forecast revenue for the current quarter above analyst expectations. But the company said its gross profit margin would fall this quarter. Intel earned 53 cents a share in the first quarter, down 5% from the year-earlier quarter but 3 cents better than analysts were expecting. Sales rose 0.5% to $12.91 billion, vs. views of $12.84 billion.

Tomorrow’s earnings –

Date After Close Before Open
18-Apr KMP
VMW
MLNX
FFIV
SCSS
PLCM
CLB PII
QCOM
CBST HAL
YUM
EBAY
TSCO

More on the day Ahead

Portfolio As of 4/12/2012

Cash 40%.

Portfolio –

AAPL – 3%

PCLN- 4%

STX – 6%

WDC – 6%

HLF – 3%

SCSS – 4%

SXCI – 4%

QCOM – 6%

BLV – 3%

TLT – 3%

RWM – 3%

FFIV – 3%

F – 6%

APA – 6%

Sold last week –

CLR, WLL, ALLT, GNC, LNKD (I know!)

Reasons for the sale –

  1. Market broke 2 critical supports last week – 4 month old trendline and 50 DMA. Let’s wait till the market moves above 50 MA and makes new high, convincingly  (no double tops please:().
  2. The earnings season is underway. It’s better to reduce the high fliers by 50% to avoid losing profits.
  3. Quite a few breakouts in last couple of weeks have stalled, failed and occurred at below average volume – such as SWI, WDC, LVS, etc.
  4. Old adage – Sell in summer and go somewhere ( dont ask me where!.)

Lastly I added small positions of defensive stocks as mentioned earlier – BLV, TLT and RWM.

Week ahead –

  1. Stay defensive, preserve capital below the prior trading range. Above the range, expect a move back to and above the prior highs.
  2. Do not trade intraday, but rather focus on setups and keep an eye on earnings
  3. U.S. week ahead (Reuters)
  4. Next week’s trading radar (Minyanville)

Good Reads –

Some important earnings in next few weeks –

Date After Close Before Open
17-Apr URI KO
STX GS
INTC JNJ
EWBC
IBM
ISRG
18-Apr VMW
MLNX
FFIV
SCSS
PLCM
CLB PII
QCOM
CBST HAL
YUM
EBAY
TSCO
19-Apr CMG EMC
RVBD TZOO
TPX LUV
LTM NOK
VMI
WYNN NUE
SNDK
23-Apr NFLX DHI
VLTR
ETH
24-Apr AAPL
BIDU WAB
BHI F
BWLD
PNRA
IRBT
QCOR
25-Apr CRUS CAT
AKAM GLW
WLL LAD
NOV
SLAB
26-Apr ASGN AMZN
CELG FIO
IVII BMRN
NUS INFA
POT NANO
PEP MTW
CL SWKS
MIPS
WDC