The under-performance in Intel (INTC) and Microsoft (MSFT) in 2015 has been on my list of concerns as to the continued health of the Nasdaq rally. These two stocks (that had a sort of renaissance in 2014 given their cheap valuation, solid balance sheets, healthy dividend yield, commitment to large buybacks and perceived benefits of an improving global economy) had been notably absent as the Nasdaq powered back to 5000.
First it was MSFT’s waning momentum and its impending ‘death cross’, from Feb 27th:
has lost a bit of momentum at the $44 level, and is potentially making a troubling technical formation called a death cross (the 50 day moving average crossing below the 200 day):
The waning momentum off of the stock’s lows, the weak results and price action from large enterprise vendor HPQ this week, and the impending death cross have me looking the other way on MSFT all of a sudden (a short biased trade could be coming).
And then on Monday we highlighted some very specific put buying in INTC in March and April 2 weekly puts which did not catch any scheduled events, from March 9th:
Its not just the technical set up that has caught my eye, but put volume today is almost 2x average daily, and its only noon. The most active strikes on the day are 12,000 of the March 32.50 puts, 11,000 March 31.50 puts, 8,000 of the April 2nd weekly 32 puts and 7,500 of the March 33 puts, many bought to open. The largest block on the day was a buy of 4.000 March 31.50 puts when the stock was $32.53, which break-even at $31.28 down almost 4% in 9 trading days.
This morning INTC is trading down 5% as the company cut their Q1 revenue outlook citing weaker than expected demand of large corporations for desktop computers, which probably should not have come as a huge surprise given MSFT’s fiscal Q3 guidance from late January. What’s interesting to me is that INTC gave their current quarter guidance on Jan 15th, 11 days before MSFT. I wonder if things turned a bit at some point in January as the new guidance implies a mid point of 7.25% below consensus estimates for the quarter.
While we do not have positions in INTC or MSFT, the poor price action of both helped contribute to a bearish trade in the QQQ (Nasdaq 100 etf) which both are large components (New Trade – $QQQ The Curtains).
But here is the thing. Circling back to the INTC put buying, regular readers know we do not trade off of unusual options activity but we certainly try to discern intelligent observations that help reinforce or challenge existing trade rationale. Here was my conclusion on the INTC flow from Monday:
So why the flurry of activity? Some of you may remember when INTC used to hold mid quarter updates, tightening up their previous guidance range for investors, which used to come the first week of the third month of the quarter. Is it possible that there are rumblings of a negative pre-announcement? This would not come as a huge surprise given the continued strength of the dollar, and some of the recent commentary about the health of the PC market, specifically the take-away’s from Microsoft’s guidance in late January. INTC is scheduled to report their Q1 results on April 14th after the close.
The put buying in short dated strikes that don’t catch earnings are curious, basically it appears that traders are looking to get the most bang for their buck, and its the April 2nd weekly 32 puts that were bought to open in two blocks of 1895 for .56 and .57 that really put my antennas up for the potential for a pre-announcement. Stay Tuned.
Trading is a mosaic.