MomentumOptions.com Mid-Market Update for 4/26/2017
Cypress Semiconductor (CY) Earnings Preview/ Profit Alert (STM)
Cypress Semiconductor (CY) will announce earnings on Thursday, after the closing bell, and shares could be in store for a major move on the news. Wall Street will be looking for a profit of $0.11 a share on revenue north of $511 million.
The company has topped estimates in three of the past four quarters by a penny while matching estimates in the other. While I would like to see more than a penny beat, the high estimate is pegged at 12 cents with the low estimate at 11 cents. In other words, a match or a penny is nearly a given, according to the suit-and-ties, but a 2-cent beat might be a stretch.
This means another revenue beat might be needed to get more analysts to upgrade the stock and their price targets. In February shares jumped from $11.85 to close at $12.91 following a nearly $5 million revenue beat. Last October, Cypress also beat revenue estimates by roughly $5 million but shares closed lower by 15 cents to $10.11 the following session.
Last July 2016, sales came in $1 million over forecasts and when the company matched estimates for a profit of 12 cents. Shares closed at $11.68 going into the announcement but fell 4 cents the following session after peaking at $12.36. The stock tested a low of $10.57 by mid-August.
And finally, in the year ago period, or late April 2016, revenue topped estimates by $400,000. Shares fell a penny to close at $9.03 and rallied past $10 a month later.
Analysts have also been bullish in recent months over the stock.
Earlier this month, SunTrust upgraded shares to Buy from Hold with a $17 price target. In late March, two bullish Price Targets upgrades on the same day came from Needham and Pacific Crest. Needman upped its Price Target from $14 to $18 while Pacific Crest nearly copied with its upgrade from $14 to $17.
I have traded Cypress Semiconductor (CY) a number of times over the past few years and have been bullish on the stock since the single-digits. While I’m hopeful shares rally past $15 on the news, I also understand there is risk to $13.50 and the 50-day moving average, or worse, on an earnings or revenue miss.
Our current trade on CY was more on a technical setup but my fundamental research over the years has also been bullish. The company could see a huge jump in earnings in the coming quarter on the launch of the iPhone 8 and have recently raised prices on some of their chips. This might help with another revenue beat depending on how much increase they captured in the quarter.
I also went with CY June options to give the trade nearly two months to play out. This would lessen the blow of an earnings miss and realize the trade could take a substantial hit, if so. There has also been takeover chatter and a rebuffed offer of $15 a share in the past year. This should keep interest high in the stock and might renew chatter on a pullback.
Earnings trades are tricky and while I like them for their risk/ reward potential, I do try to limit my exposure to my portfolio with them. There are too many factors that have to go right and any curveball from management usually spells trouble. With CY, they have a proven on top and bottom line beats and the management team seems solid.
Turning our focus to the market, the bulls are trying to keep their very strong momentum going and have done well maintaining a steady pace with fresh record highs in play.
The Dow is gaining 38 points to 21,034 while the S&P 500 is adding 3 points to 2,391. The Nasdaq is slipping a half-point to 6,025 and the Russell 2000 is surging 10 points to 1,421.
I have updated our current trades, including a Profit Alert for STM, so let’s go check the tape. I could also add another new trade or two ahead of the closing bell so stay locked-and-loaded.
Special notice: After many long weekends this month, I have finally updated and completed my “Watch List”. I have basically taken the 24 S&P Industry Groups and divide them into their respective industries. Each sector covers 3-4 stocks and the best ones to trade in the group.
This information will help you develop your own Watch List as you can simply follow stocks and sectors you know. If you would like a free copy, send me an email at Rick@MomentumOptionsTrading.com.
Also, I should have a spreadsheet ready in the next day or two for all 2017 trades YTD.
Momentum Options Play List
Closed Momentum Options Trades for 2017: 23-10 (70%). All trades are dated and time stamped for verification. New subscribers can look at the past history to see how the trades have played out or to research our Track Records.
Do not risk more than 5% of your trading account on any one trade but do try to take all of the trades. Please remember, all “Exit Targets” and “Stop Targets” are targets. You should not have any “Hard Stops” entered to close any trades or “Exit Orders” in your brokerage account unless I list one. I will send out a “Profit Alert” or “New Trade” if I want you to close a position or if a new trade comes out. Otherwise, follow instructions at all times in the 8am and 12pm–2pm (EST) updates. Also, I will usually give you a heads-up if I think I’m going to send a Trade Alert outside of these time frames.
Cisco Systems (CSCO, $33.55, up $0.13)
CSCO May 34 calls (CSCO170519C00034000, $0.46, up $0.03)
Entry Price: $0.42 (4/25/2017)
Exit Target: $0.85
Stop Target: None
Action: Resistance is at $33.50-$33.75. Support is at $33.25-$33.
Snap (SNAP, $21.48, up $0.14)
SNAP May 23 calls (SNAP170519C00023000, $0.90, up $0.05)
Entry Price: $0.75 (4/21/2017)
Exit Target: $1.50
Stop Target: None
Action: Fresh resistance is at $21.50-$21.75. Rising support is at $21.25-$21.
Cypress Semiconductor (CY, $14.01, down $0.23)
CY June 14 calls (CY170616C00014000, $0.85, down $0.10)
Entry Price: $0.85 (4/20/2017)
Exit Target: $1.70
Stop Target: None
Action: Support is at $13.75-$13.50. Resistance is at $14.25-$14.50.
Square (SQ, $17.96, down $0.26)
SQ June 18 calls (SQ170616C00018000, $1.15, down $0.10)
Entry Price: $0.95 (4/20/2017)
Exit Target: $1.90
Stop Target: $1.05
Action: Support is at $18-$17.75. Resistance is at $18.25-$18.50.
STMicroelectronics (STM, $15.77, down $0.32)
STM May 15 calls (STM170519C00015000, $1.25, down $0.20)
Entry Price: $1.15 (3/31/2017)
Exit Target: $2.30
Stop Target: $1.20 (Stop Limit)
Action: The Stop Limit at $1.20 has tripped on today’s pullback.
While I’m disappointed shares couldn’t keep their momentum and our gains weren’t greater, this trade was down roughly 50% over a week ago before rebounding. The last thing you wanted to do as a trader is go back into the red on a trade after showing a profit.
I will keep shares on my Watch List as I’m certain we will be back to play STM again. The chart remains very bullish.