Warning Signals: Apple’s Earnings and the Shadow Over Tech Stocks | Next Week on the Trading Floor

Jon Najarian 0:00
And they’d lost a lot. They gained back 170 billion in one day.

Andrew Brill 0:12
Welcome to next week on the trading floor. I’m Andrew brill, your host here on wealth young, and we’re here to help you keep and grow your money. Next week on the trading floor was developed to explore current trading ideas, market trends and opportunities to watch. It’s real time insight to help you make informed decisions on the ever evolving financial markets and in conjunction with market rebellion will give you information that will help you in the week ahead.

And here he is Jon Najarian of market rebellion. John, let’s get this party started. How was your week?

Jon Najarian 0:49
Ah, it was a pretty good week. That is a definition of something that when whenever I’m trading Andrew, I’m going to lose about 20% of the time. And I recognize those losses and I try to learn from them. But I wouldn’t have done anything different. It wasn’t that I overstayed my welcome. It was just some of the readings didn’t work out. But because we are very, very disciplined and cut our losses, were able to feast on the good trades. And there were a number of those. So my definition of a good weekend grew is if we’re winning on 80% of the trades, and either cutting losses or trying to break even on 20%. That’s a good week.

Andrew Brill 1:37
And if we put it in terms that we both understand any sports team that’s winning 80% of the time, John has a really good chance of winning a championship, I think.

Jon Najarian 1:47
Yeah, exactly. You know, we talked about 400 hitters in baseball, and there haven’t been there hasn’t been one since Ted Williams. But hitting 400 would be fantastic. In baseball, it wouldn’t be so great in trading or investing. So our goal is always to cut those losses, move on, and just feast on the good trades.

Andrew Brill 2:11
So John, let’s take a quick look back at some of the big movers this week. And they’re they’re kind of the names who have gotten beat up a little bit in the in the most recent past. Yeah,

Jon Najarian 2:21
and, you know, China’s been kind of a culprit against both of the two of the biggest stocks that made moves this week. Tesla, they came out with their earnings, the earnings were great. But they were on the low end of the earnings per share or EPS. But they had some really good news about Baidu bi d u, which is going to help them map China. They also have good news out of China that they had been Andrew in the penalty box with China for some of their full self driving, or f s d as they like to put acronyms to everything. Full self driving. China wasn’t all that comfortable with it. Obviously, Elon Musk, assuage those fears, and now they’re going to be doing more and more of the full self driving over there. So Tesla really popped. And I think some of it Andrew was, there were a lot of shorts that had lined it up lined up in there. And you and I know shorts means people that have sold the stock in hopes of buying it back at a cheaper price. So there were a lot of those in this particular stock TSLA and a lot of them really got hit pretty hard, because they were chasing that stock up. 15 $20 you know like that. That’s tough. They overstayed their welcome on the short side, I guess, Andrew,

Andrew Brill 3:47
and they’re also coming out with a few, a few new models is Tesla. So look for a couple new models for them to get into other markets as well. And we’ll see if that can continue on its way up. The another one, John that’s been beat up. And you know, China’s been a big problem and their cell phones have been settling well in China, Apple, Apple, also popped this week after some bad bad news in the last quarter. Pretty good news this coming quarter this this quarter.

Jon Najarian 4:15
Yeah, I mean, they had lost a lot of market share in both China and a lot of market capitalization. Just multiply the share count times the price folks and you get to the capitalization. And they’d lost a lot. They gained back 170 billion in one day, Friday, they came back $170 billion and maybe even a little bit more. They’re still down about 4% year to date. So just like you said, Andrew, people were feasting. On the short side, those same people were you know, chasing the stock higher to buy it back because generally speaking that’s what short sellers have to do. They feast to the downside I’d and then when it makes a big move like 11 or $12. Pop, I think it was about 172 A share prior to the earnings Thursday night. And when those earnings came out, and by the way, we did have unusual activity. This is what we refer to as buying call options into the actual earnings. Those call buyers really reap some big rewards because the stock popped by 11 or $12. And that’s enough to put a big smile on a lot of faces of option traders, and stock traders, Andrew, and

Andrew Brill 5:35
one of the those two letters that we’ve been hearing all about AI which Apple is into, that’s what they’re looking at, to get them over the hump of the the lagging, sales in China and other places. So AI, Apple, one of the biggest investors into AI trying to get their product back on track and get their product back to the top of the heap when it turned comes to cell phones and other stuff like that. Absolutely.

Jon Najarian 6:01
And I think that was a very smart move by Apple. I don’t think it’s quite the same as Mark Zuckerberg really focusing in on the metaverse and almost flushing in a we won’t know for a while but it seemingly he flushed 10s of billions of dollars, trying to get ahead of everybody else in that so called metaverse. Apple is going to not flush but they’re going to invest an awful lot of money on AI. And if apples buying artificial intelligence engineers, as well as some of the chips and all the rest, the memory and so forth that you need to run that I wouldn’t want to be one of the other firms, betting against them, because they’ve got a cash hoard that is second to none. And they can put that to work and are putting it to work, I think, Andrew, and that’s partly why just as you said, why we saw such a nice pop out of that stock. And while we’re

Andrew Brill 6:59
recapping we can take a look at the indices, the s&p, the NASDAQ, and the Dow. John, this was like if you went to a park, and you decided, You know what I’m gonna get on that roller coaster with the really high peak, the really low Valley and the high peak that was this week, because the indices started where they started. They dipped considerably all three of them. But all our backup higher than they were at the beginning of the week, a real roller coaster ride this week. Yeah.

Jon Najarian 7:26
And some of it, of course, is that Chairman Powell, Jay Powell or Jay Powell, as many of our referred to him. He had a difficult task, as he almost always does, which is say that the medication that he’s applied is working. But how quickly is it working? And is it going to result in rate cuts, or there were even some rumors about rate hikes, I never bought into that. I’m guessing you never did either into the rate hikes side of it. We haven’t seen inflation picking up at near the pace that you’d have to see it into an election year to have a Fed Chairman decide he’s going to move up rates or she because Janet Yellen was his predecessor, neither one would want to move up rates into an election. So I think a lot of it was relief, that even those real bears out there that were saying we were going to see rate hikes were proved wrong. He basically said in his speech, no, we’re not really seeing the catalyst for any rate hikes. But we don’t think that the job is done yet in terms of us being able to cut rates either. So it’s just a hold. They’re just going to hold it rates for now. And that was enough, though, to kick the NASDAQ, Dow Jones, and Russell, right in the backside, s&p 500 as well and Spike them to the upside. And that spike continued into the end of the week, with these strong earnings that we got out of Apple, I would

Andrew Brill 9:05
get a big kick out of seeing him come out to his next press conference with the glasses and a big gold chain that says Jay Powell on it. And it’s because that’s how people like a rapper, they sit on every single one of his words, exactly the way music buffs do with rappers and I thought, What did he mean by that? And then they will analyze it to see what it all meant. But that’s what happens when they every time they meet and every time they come out with something. That’s exactly what happens to the market takes a little bit of a dip or your doesn’t then it just goes up. So we’ll see where the Fed goes from here. But let’s look take a look back at some of our picks last week. John Goldman Sachs, that was a winner. Yeah,

Jon Najarian 9:48
Goldman Sachs. I mean, it closed last Friday at about $427 a share. When we talked about it last week. We said well, we like it. We think that they’re doing a lot of deals a lot of m&a mergers and acquisitions, as well as trading for their own account. And by the way, clearing some of the biggest hedge funds and trading companies in the world. So they did move up nicely. They kept it going, they traded up through $442 a share. So it was about a three and a half percent move, Nice move. And again, that’s because of all those positive catalysts, they had a lot of levers to pull and pull them they did.

Andrew Brill 10:30
And South West Airlines, we, we heard all about their problems. And

Jon Najarian 10:36
yeah, and southwest. You know, we talked that they’re strictly a Boeing Company, they’ve never had Airbus, they’ve only had Boeing airplanes that has served them well, because you don’t need two sets of mechanics, or anything else, even tools for that matter. You’re able to maintain that fleet, because all your pilots are trained on Boeing aircraft, and so forth and so on. But the problem is that they can’t get enough aircraft because of the problems at Boeing. So they’ve had to cut, we talked about, I think, the four cities that they dropped in the previous week, and then the stock dropped from 27 bucks a share to about 2550. That’s in the neighborhood of a five or 6% drop. So it’s not like we feasted on that. But nonetheless, it was a winner when we said, hey, this is the one we’d like to lighten up on, and not really be bullish on for the short term. And

Andrew Brill 11:35
chemical was it it kind of stayed put, it really didn’t move that much up that much down, kind of stayed where it was. And I’m a I’m going to assume that this is going to move up, you had talked about calls for, you know, month or two from now being in the 55 $60 range. It looks like it could get there.

Jon Najarian 11:54
Oh, yeah. And it was not encouraging. But it wasn’t discouraging, when they had their earnings report, where they talked about demand and so forth, demand is still through the roof. And, you know, the stock was 49 bucks a week ago, traded down to 46. But very quickly bounced off of that, and got back to 49. And maybe it’s 48 ish. So like I say, a $1 move, after the spectacular upside that it’s had. I’d rather have basically a sideways trade than a straight down loser. And this one ended up being that kind of a sideways trade. So I’m still holding in those June and September options.

Andrew Brill 12:42
Alright, so it’s time now to get to next week. We do call it next week on the trading floor for a reason. And we’re gonna pick a winner for next week. And with that, you’re gonna mess with my cup of coffee. And I’m okay with that. Yeah,

Jon Najarian 12:56
and we both wish that cup of coffee wasn’t so expensive. And I think the start, Starbucks CEO is going to be loath to go back on with Jim Cramer on his mad money show because Jimmy tore into him. This isn’t Howard Schultz, of course, this is the guy that came in to basically that Howard handed the baton Off to On his second time leaving the company. And he gave it to this guy and Jim was just all over him. So I always thought that it would be good and rude to sell an addictive substance like caffeine like nicotine, if we’re talking about cigarettes. And because people keep coming back for it, they can’t quit it, you and I probably can’t quit it. But we can move to a different delivery mechanism for for that so we could go to Tim Hortons, we can go to Dunkin Donuts, we go to McDonald’s, you can go to so many places where you’re paying less than half of what they charge you at Starbucks. So it hit a new 52 week low around 72 bucks. For that reason. I think it’s a buy. Because I still believe in Starbucks, and how much people love the customized drinks that they make. Because of course, if you’re talking about Dunkin or any of those others, you’re really just talking about black coffee, you know, Dark Roast usually, and you’re not getting all the specialty stuff with it. I think at 72 bucks a share. It probably represents a nice bounce area at that 52 week low. And by the way, that’s right around the 50 day moving average. So again, I like Starbucks going into this next couple of weeks.

Andrew Brill 14:45
Not only that they’re moving into a new market much, much bigger than they had they’re getting to China now. And China from what I was reading has a ton of coffee shops, coffee distributors, that sort of thing. So they’re now getting into China and they expect to expand and rapidly into China went like they did here in the United States. So we’ll see if they can expand and grab some of the market share over in China.

Jon Najarian 15:08
True. Yep. And I think they can. So I think SBU X is a buy at around the $72. Level, like I say, a new 52. week high this week. Oh, 52 week low. I misspoke this week. All

Andrew Brill 15:24
right, John. So you’ve got me all caffeinated with Starbucks coffee. Now, let’s head on over to our loser of the week. And we talked about the airline industry last week, and for the loser of the week, we’re going to head into the airline industry once again. This

Jon Najarian 15:39
one is spirit Aerosystems, spr, and Spirit makes like those doors that fell off the Boeing aircraft. They make those doors. Unfortunately, they were improperly drilled, apparently, and spirit has suffered for that. SPR. I think it’s a good company. But when you have a whistle bolt blower like this guy, Josh wood Dean, Boeing already had its own whistleblower against some of the procedures to check out the aircraft and so forth at Boeing. In this case, Joshua Dean was over at Spirit Aerosystems and Boeing, because Spirit was supplying these, and he became a whistleblower, and then suddenly, just like the whistleblower at Boeing, he died suddenly. And, you know, we’re not saying that Boeing or Spirit did anything untoward. They said that he died of a bacterial infection. But my gosh, if you’re looking for some downside, I think SPR, there’s somebody bought 20,000 put options in there. So that’s a pretty big bet, that by the third week in May, we’re just finishing the first week in May, by the third week in May, the stock trades lower and they’re right at the money right at 33 bucks a share. So a put option is of course, the right to sell folks. And for somebody to buy 2 million shares equivalent to sell in spirit Aerosystems tells me everything I need to know I’m short spirit Aerosystems.

Andrew Brill 17:18
So let’s go to your options. This is your bread and butter. This is what you really look at and the unusual options activity. So where are you seeing some unusual option activity this week?

Jon Najarian 17:29
Well, when I talk about AI with you, Andrew, or with Steve Feldman, or whomever over and wealthy on when I talk about AI, we’re of course talking about artificial intelligence, and which are the stocks that benefit which are the picks and shovels. So just like Levi’s was one of the biggest winners in the picks and shovels and pants necessary for the 1849 gold rush in California. This one Palantir is necessary, I think, for artificial intelligence, because these guys strong fundamentals, they basically use all that data that you get the debt, the data that artificial intelligence needs to process. This is one of the players that does that. So we could go to micron tech for memory, we could go to Nvidia for memory and chips and GPUs, we could go to super micro computers as CMI for the rack systems that are necessary, we can go to so many different places for AI. But in terms of analyzing it, and putting out taking that data and turning it into tradable, or investable ideas, I think Palantir is right up at the top of that food chain. So I’d say 20% off their recent highs, mostly on light volume to the downside there buying 10,500 of the made 35 calls. So what does that mean? A 35 Call gives you the right to take stock at 35 bucks a share no matter how high it goes. So a call option gives you the right but not the obligation to take stock at a certain level for a certain timeframe. So I’ve already told you the timeframe May and the so the third week in May, in fact, and the price level 35. Well, the stock was 22 bucks a share when they were buying that. That’s too far out of the money for me, folks. So what I do is I pick something closer to where the stock is trading right now. So if you’re a stock trader, of course you just buy the stock. If you’re an options trader like me, you buy an option at that 22 Strike, or at the 23 strike or maybe even the 20 fives 35 is too high. For me. I’m not really thinking that the stock could jump by $13 As in the next two weeks, but I do think it could jump. And I will reflect that belief by buying an at the money call. And I think that’s going to be a smarter way to play the upside of Palantir.

Andrew Brill 20:12
And I think it last quarter they had when they came out with earnings, they talked about getting a government contract to supply AI for some military stuff. So they should be on the up and up right now trading just above 23 bucks. So whoever was buying those calls, they’re in the money already. So unless, you know, if they’re going to buy at 35, you know, that stock is definitely moving in the right direction. It’s actually a stock that I’ve watched after the earnings came out last quarter, and they, you know, the stock popped, and then it started to drop down a little bit, I’m hoping you’re absolutely correct that that that one’s going to start going up. So explain to us, John, your vertical approach one more time.

Jon Najarian 20:55
Sure. So what I like to do is, when I’m buying an option, there’s a time decay, because that’s one of the trade offs with options, they have a limited calendar, a limited time for them to go in the money. If it’s a call option, you want the stock to go up, if it’s a put option, your hands are out, you’re selling, you want that stock to go down? Well, so my, how I mitigate some of that time decay is by buying that, for instance, Palantir 23, call, I’m buying that call, and I’m starting to sell higher strikes against it, meaning I have the right to take it from somebody at 23. And I’m giving somebody else the right to take it from me and I collect a premium for that, for selling them the 27, the 28, the 30, whatever it is. And so ultimately, I could make the difference between the strike that I own 23. And any of those higher prices that I elected to sell that option. It cuts down on my time decay. And it gives me a little less money on the table. Because of course, let’s say I paid $2 for the 23 call, well, what do I get for selling the 27 may be 50 cents, but it still cut my overall cost down to $1.50. Then the $2 that I paid, and the collection of that 50 cents against the 27 call. And what could happen if the stock trades up and goes through 27 doesn’t have to get anywhere near 35. And I can turn that into a $4 trade. And I paid a buck 50 for it. So that’s much better than a two to one return. I love that. So that’s my vertical trade. That’s why I do so many of those. And John,

Andrew Brill 22:47
here we go again. And we just to recap, Starbucks is on the high side, that’s your buy stock, you have aero systems that you don’t think is going to do so well. And so that’s your your penalty box stock of the week. And Palantir is your AI option of the week. So there you have it. Those are those are your three picks. Thank you so much for joining us and for your insight. It’s always wonderful to talk to you. And we wish you the best week ahead. John, thanks so much for joining us again on next week on the trading floor. Your insights invaluable. I’m sure everybody ran over to their computers or ran over to their pad and wrote down exactly what you’re talking about so they can get into it next week and make some money. Thank you. Thank you for watching next week on the trading floor. We hope you enjoy the insights and forward looking information from John enmarket rebellion. If you need help being financially resilient, please head over to wealthy on.com Sign up for a free no obligation portfolio review with one of our registered investment advisors. If you want to find out more about options trading Head, head over to market rebellion.com And remember to follow us John enmarket Rebellion on social media for the latest news and information to help you invest wisely. If you could like and subscribe to the channel, we’d greatly appreciate it and don’t forget to hit the notification bell that will little one that brings so you can find out when we post new videos to the channel. Thanks again for watching. We’ll see you next week on the trading floor.