Trading The Analysts' Color - View From The Quant Corner And Case For Johnson & Johnson, Apple, And Ciena Corporation

Includes: AAPL, CIEN, JNJ
by: Mitch Bulajic

Last week, there was plenty of analysts' comments and activity on the highly followed stocks worthwhile looking-into.

In this article, we'll investigate and find trading opportunities for Apple Inc., Ciena Corporation, and Johnson & Johnson.

September will be interesting in many ways, particularly the set-up for the Q3 earnings reporting season.


Last week, there was plenty of analysts' comments and activity on the highly followed stocks, as if they are already preparing and starting to cover in anticipation of what will be a very interesting earning season. In this article, we'll investigate and find trading opportunities for the following selected stocks: Apple Inc. (AAPL), Ciena Corporation (CIEN), and Johnson & Johnson (JNJ) commented by analysts over the week and implications it will have on price and volatility scenarios.

Analysts and Our Ratings and Target Prices

Table #1 (Courtesy of Clarendon Global)

Events and Analyst Comments & Our Take and The Trades


The Events


  • "Trump's Friday tweet in which he demanded U.S. companies move out of China is an impossible scenario for a company the size of Apple, Wedbush analyst Daniel Ives said on Bloomberg TV Monday morning. In fact, it's impossible for Apple to shift more than 5% to 7% of its total production outside of China in an 18-month period. If the company were to divest 20% of its Chinese exposure, Ives said it would take the company at least three years to do so. The Street can quantify potential risks for a company like Apple, but the bigger risk is a disruption to the supply chain. Under a worst-case scenario, the company could see 10% to 12% in earnings downside. Encouragingly, Ives said Trump's "bark is worse than the bite" even though there is "no doubt" that Apple is the poster boy for the U.S.-China trade war.
  • Nomura cuts its FY20 EPS estimate for Apple from $12.98 to $12.55 compared to the $12.74 consensus. Analyst Jeffrey Kvaal thinks Q1 iPhone estimates might prove overly optimistic and notes that the "shape of the 5G cycle remains uncertain." Consensus expects 63M iPhone shipments in Q1 with an ASP of $786.20. Nomura reiterates a Neutral rating and $185 price target. Apple has an outperform average Sell Side rating.

Our Take

What these two analysts see in these two different issues is exactly what we see from the Quan side. This is a textbook example of conflicted forces at work - institutional money-flow have been deteriorating since May, speculative money-flows have been slowly rising since, while the momentum and cyclical indicators are flat on a daily cycle and very confusing on the weekly cycle. All this leads to a range market confined between 190 and 225 for at least 30 days, with consistently elevated volatility at top half of the percent range - 58%. Chart #1.

Good and relevant to this subject matter Seeking Alpha articles we recommend is by Stone Fox Capital: Apple's Tariff Impact Drastically Overstated.

Chart #1 - AAPL Daily & Weekly (Courtesy of TD Ameritrade ThinkorSwim)

The Trade

This forecast scenario gives us a good trading opportunity by constructing a short-term October 20th Iron Condors within the wings at the mentioned 190 support and 225 resistance levels. Chart #2: SELL -10 IRON CONDOR AAPL 100 18 OCT 19 220/225/190/185 CALL/PUT @2.02 LMT

Chart #2 - AAPL Options Strategy P&L (Courtesy of TD Ameritrade ThinkorSwim)


The Event

Seeking Alpha: Ciena will report Q3 results on September 5. Consensus estimates expect $930.66M in revenue and $0.57 EPS.


The Analyst Rosenblatt upgrades Ciena from Neutral to Buy and raises the target by $2 to $47. Analyst Ryan Koontz cites optimism ahead of the Q3 report, seeing "steady growth from U.S. and European carriers" that should offset slowing hyperscale sales. Koontz notes that Ciena has zero direct Chinese exposure and minimal supply chain exposure.

Out Take

We're fairly bullish on Ciena going into the June 6th earning report, due to the following reasons: a) the support at the 39-47 range developed after the June 6th earnings (which is bullish by itself) is holding very strong, b) the weekly cyclical money-flows and particularly the sentiment have been consistent and strong since the late 2017 - even though this year's severe implied volatility. What is particularly interesting is that implied volatility heading into the June 6th earning is noticeably higher than the implied volatilities we saw to the prior earnings reports (prior average @50%, current @60%), even more so when comparing the near earnings expirations. Chart #3

Good and relevant article whose views we share was written for Seeking Alpha by Abrar Hassan Saadi: You Don't Want To Miss On Ciena, and good analysis on the upcoming earnings, although neutral overall, was written by Zack's Equity Research: Ciena (CIEN) Earnings Expected to Grow: Should You Buy?

Chart #3 - CIEN Daily & Weekly (Courtesy of TD Ameritrade ThinkorSwim)

The Trade

This forecast scenario gives us a good trading opportunity which creates in our view a long price short volatility strategy by taking advantage of very high relative implied volatility, particularly skewed to the near month expiration right after the earnings and construct a Bullish Long Calendar Spread: Chart #4: BUY +10 CALENDAR CIEN 100 18 OCT 19/6 SEP 19 45 CALL @.59 LMT.

This strategy is bullish because the highest profits are if CIEN finishes around near expiration @ 45 - which is just about the maximum upside that the market makers are pricing for the earnings expiration, while at the same time taking advantage of the Implied Volatility Skew. The given P&Ls of this trade assumes closing the entire position at about the near expiration, however, a trader with a longer-term bullish view of CIEN can just close the short expiring Leg of the position and maintain a long call position going into its October 18th expiration.

Chart #4 CIEN Options Strategy P&L (Courtesy of TD Ameritrade ThinkorSwim)


The Events


  • Morgan Stanley's David Lewis said Oklahoma Verdict A Near-Term Sentiment Positive. The Oklahoma decision was better than feared but does not materially alter Morgan Stanley's view on the path forward and the eventual outcome for the company. Morgan Stanley analyst David Lewis maintained an Equal-weight rating on Johnson & Johnson with a $145 price target for the shares of Johnson & Johnson.
  • Barclays analyst Kristen Stewart maintained an Equal Weight rating and $140 price target.
  • BMO Capital Markets analyst Joanne Wuensch maintained at Outperform, with a $157 price target.
  • Moody's maintains its Aaa rating on Johnson & Johnson but revises its outlook to negative to reflect its potential financial exposure to opioid-related litigation.

Our Take

We would be a little bit more pessimistic here with hands off approach and no trade recommendation until a lot of market and stocks specific factors come into play during September. Looking at the weekly cycles, the money-flows (particularly institutional money-flows which are crucial for long-term trends and outcomes) and sentiment have been mediocre at best and bearish formation developing since early 2018, looking at the daily cycles money-flow have been deteriorating rapidly and didn't even blink to the upside when the (supposedly) good news came out. To make things worse, the health sector is not doing much better and yet slightly outperforming JNJ. JNJ will need to hold the 12/24 low of 121, consolidate at current levels (30 days minimum) and break the 134.1 resistance of 8/14 in order to null the bearish pattern. Chart #5

Chart #5 - JNJ Daily & Weekly (Courtesy of TD Ameritrade ThinkorSwim)


September will be interesting in many ways and in addition to all the ongoing and well-known catalyst in the market, particularly the set-up for the Q3 earnings reporting season will be very interesting - volatile and very event-driven most likely.

Disclosure: I/we have no positions in any stocks mentioned, but may initiate a long position in CIEN over the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.