#$txn

Chinese telecoms equipment maker Huawei has a long list of American suppliers, potentially putting the firm at risk of a ZTE-style supply ban after the arrest of its CFO in Canada, who faces accusations that she misled multinational banks about Huawei's control of a company operating in Iran.

This week we made an important update to our consensus change over time charts by adding stock price movement. You will now notice stock prices are available for the 2,300+ equities in our universe.

Why did we do this?

In order to have a holistic view of a company’s overall health and potential future performance, it’s critical to view changes in fundamental expectations and price together. A sudden adjustment in one of these metrics is often indicative of an upcoming move in the other, as they tend to follow one another.

Because the Estimize consensus incorporates new estimates or revisions as they are made, it is the only true ‘real time’ estimates indicator, allowing users to get an early look at momentum. Changes to the Wall Street consensus, on the other hand, tend to be delayed. Sell-side analysts often take 2 - 3 days to update their estimates in response to new information or tend to not update at all towards the end of the quarter when critical new information from other companies in the same industry is available.

How do I use this new feature?

Estimize users can now get a headstart on identifying gaps between the movement of these two metrics by viewing the change over time charts and noticing potential trading opportunities based on the early movement of the Estimize consensus. This is especially true for some of the smaller cap stocks on the platform, that are otherwise not heavily covered by the Street and don't have high trading volumes and can therefore go under the radar.

Below are some great examples of how Estimize’s consensus over time charts with price overlay predicted some high quality buys in the last year.

We start with a couple of examples from the Semiconductors in the latest quarter. The Estimize consensus surpassed the Wall Street consensus for Texas Instruments in the weeks ahead of their Q4 2016 report, and lead the sell-side up until the print. The stock followed suit in the beginning of the year, and when the actual for TXN even beat the higher Estimize expectation, the stock popped.

Similarly, the consensus for Skyworks, which remained in-line with Wall Street for the month of December, rose above at the beginning of the year and stayed higher. SWKS ended up beating the Estimize consensus by a penny, and the stock reacted positively to the surprise, increasing over $10/share in the after-market.

It’s not just the tech stocks that have been privy to these trends. Ulta’s Q1 2016 report is also a good example of the Estimize consensus leading Wall Street, only to be beaten by an actual that came in 11 cents higher, and a stock price that followed suit on the news. Had you followed ULTA that earnings season, you could have capitalized on the over $20/share pop after the report, which rose 18% higher in the following 3 months.

Texas Instruments (TXN) Information Technology - Semiconductors | Reports July 25, After Market Closes

Key Takeaways

The Estimize consensus is calling for earnings per share of 74 cents on $3.21 billion in revenue, 2 cents higher than Wall Street on the bottom line and right in line on the top

Analog and embedded chips make up nearly 85% of Texas Instrument’s total revenue, both of which fell last quarter

The chipmaker is less likely to be severely impacted by declining iPhone sales due to its wide array of products

What are you expecting for TXN? Get your estimate in here!

The rebound in the semiconductor space comes amid a shift away from PCs to high growth markets such as IoT, wireless connectivity, and even automotive technology. Texas instruments is at the forefront of some of the progress made in wireless infrastructure and connected cars. And while they are best known for making calculators their bread and butter is in analog and embedded chips for mobile devices. The chipmaker is less likely to be severely impacted by declining iPhone sales due to its wide array of products. Expectations are still relatively muted heading into its Q2 results with investors skeptical about the industry’s broader turnaround.

The Estimize consensus is calling for earnings per share of 74 cents on $3.21 billion in revenue, 2 cents higher than Wall Street on the bottom line and right in line on the top. Compared to the year earlier earnings are projected positive with flat sales growth. The stock is up over 30% in the past 6 months, but don’t expect any additional jump after its report. Typically, shares remain flat for 30 days at which point it increases by 2%. Texas Instruments currently reports two core segments; embedded and analog chips. The analog segments works on converting real world signals into digital signal and garners about 60% of total revenue. On the other hand, embedded chips consists of microcontrollers, processors and wireless connectivity device. The company earned about 25% of its total revenue from this segment with the remainder coming from calculators, royalties and other devices. Last quarter saw sharp declines in both embedded and analog chips for a number of reasons including currency headwinds, macro volatility and a decline in iPhone sales. This quarter it wouldn't be shocking to see the same concerns persist.

Texas Instruments (TXN) Information Technology - Semiconductors | Reports April 27, After Market Closes

Key Takeaways

The Estimize consensus is calling for earnings per share of $0.63 on $2.99 billion in revenue, 1 cent higher than Wall Street on the bottom line and $8 million on the top

Texas Instruments is the market leader in analog semiconductors best known for its TI calculators used in schools around the world

Texas Instruments’ frequent efforts to remain competitive have left its balance sheet highly leveraged

What are you expecting for TXN? Get your estimate in here!

Lately the semiconductor industry has been a case of the haves and have-nots, with some names performing incredibly well, while others completely miss the mark. Texas Instruments, the market leader in analog semiconductors, is coming off a mixed fiscal 2015 where it missed in three quarters but also massively beat in one. The company’s portfolio features calculators that most of us are far too familiar from high school math classes. TXN also produces semiconductors in amplifiers, clocks, and power management tools, just to name a few. Their impressive product line and market share unfortunately are not expected to boost earnings this quarter which look rather meager.

The Estimize consensus is calling for earnings per share of $0.63 on $2.99 billion in revenue, 1 cent higher than Wall Street on the bottom line and $8 million on the top. Compared to a year earlier, profits are forecasted to rise 4% while sales could fall as much as 5%. Despite volatile earnings, the stock is a perennial mover during earnings season. In the days following earnings, shares, on average, increase 1% and get as high as 2% 30 day post earnings. If past trends are indicative of the future, this would be a nice gain for a stock that is up 8.46% in the past 12 months.Texas Instruments is best known for its analog products but it also receives significant contributions from its embedded processing segment. Between the two divisions, this accounted for nearly 85% of the company’s revenue in 2015. Demand appears to be picking up with both analog and embedded processing products which should give a nice boost to the company’s bottom line. Meanwhile, Texas Instruments continues to invest in restructuring initiatives that will expose them to high growth areas. They include, the Internet of Things, automotive markets, and expanding its geographical footprint.

On the downside, Texas Instruments operates in a more conservative space where demand has been waning in the past few years. Last quarter the company reported a 2% decline in revenue with reports that the first quarter should be just as bad. Furthermore, they must compete in a heavily concentrated industry with tech giants like Broadcom and Intel. Many of Texas Instrument’s recent efforts to do so have left the balance sheet in shambles. The company’s finances remain highly leveraged with net debt around $1.08 billion. Do you think TXN can beat estimates? There is still time to get your estimate in here!

Texas Instruments, $TXN, broke a falling expanding wedge to by moving higher to start October.  It consolidated briefly under the 200 day SMA before gapping higher to the prior high from March.  It has consolidated since then.

The price action in consolidation is a bullish Deep Crab harmonic.  That is good news for long holders.  But the pattern looks for a reversal higher, after attaining the Potential Reversal Zone (PRZ) at 53.18 below.  This would close the gap as well.

The momentum indicators are supporting a continued move lower, lining up with this view.  The RSI is running down and into the mid line with the MACD is falling.  There is support lower at 56 and then at 53 followed by 51.80 and 51.15.  Resistance higher comes at 57.75 and 59.65.  Short interest is low at 2.3%.

Looking at the options chain this week shows large open interest at 60 and 60.5 above on the call side.  There is also big open interest at 57 above on the put side.  These could influence it higher by the end of the week.  In the December chain the open interest is large at 50 on the put side and 60 on the call side.  January options see open interest spread but mostly to the downside.

Texas Instruments, Ticker: $TXN

Trade Idea 1:  Sell the stock short on a move under 56 with a stop at 57.  A straight stock trade.

Trade Idea 2:  Buy the November 27 Expiry 56/53 Put Spread (offered at 80 cents late Friday).  Looking for down side with defined risk.

Trade Idea 3:  Buy the December 4 Expiry 56/ December 11 Expiry 53.5 1x2 Put Diagonal (free). Looking for downside with a possible entry at 51 in mid December.

Trade Idea 4:  Buy the November 27 Expiry/December 57.5 Call Calendar (54 cents). Looking for upside but for the longer term.

Trade Idea 5:  Buy the November 27 Expiry/December 57.5 Call Calendar and sell the December 50 Puts (30 cents). Adding leverage to the longer term upside.

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Contact me at [email protected] use the code GO CAVS in the message to get either an annual subscription for $556 (an additional 10% off the already 40% discounted rate compared to the monthly) or an annual subscription plus my book signed for $600.

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After reviewing over 1,000 charts, I have found some good setups for the week. These were selected and should be viewed in the context of the broad Market Macro picture reviewed Friday which, heading into November Options Expiration and the last week before the shortened Thanksgiving holiday, sees the Equity markets have again shown an inability to make new highs, without giving up the positive longer term perspective.  

Elsewhere look for Gold to continue its downtrend, but with a possible short term reversal while Crude Oil works lower.  The US Dollar Index looks to continue higher while US Treasuries are biased lower, but also may see a short term reversal.  The Shanghai Composite is building energy for another leg higher while Emerging Markets are biased to the downside again.  

Volatility looks to remain above the lower range, making things difficult for equities, but looking for a pullback after the spike in short order.  The equity index ETF's SPY, IWM and QQQ, all look better to the downside this week.  Use this information as you prepare for the coming week and trad'em well.

We just provided a preliminary update to our model portfolio, “25 Stocks for November 2015 -- Preliminary Update.” 

See how we manage real-time derivations of these signals on InvestFeed, StockViews, and on Marketocracy for non-tax and tax-efficient portfolio derivations.

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