To focus on its primary business, Texas Instruments is shifting its focus form the wireless components of its business toward analog. The company is also looking towards a new segment called embedded processing. While the company has high involvement in manufacturing chipsets for popular e-book readers, competitors like Qualcomm, Inc. (NASDAQ: QCOM) are gaining substantial market share for newer smartphones and tablets. Despite competition, and TXN’s decision to step away from the growing wireless market, many analysts have strong recommendations for the stock with price targets in the range of $38 and $40. 

Paper Bought 4,500 CTSH May 65 Puts for $2.40 (2.8 times usual volume) with stock at $66.75
Paper Bought 15,684 WMB May 36 Puts for $0.40 (2.3 times usual volume) with stock at $37.69
Paper Bought 2,766 OSIS May 50 Puts for $2.15 (12.4 times usual volume) with stock at $52.50
Paper Bought 2,000 BLMN May 20 Puts for $0.60 (47.7 times usual volume) with stock at $20.73

Paper Bought 3,000 MET Jun 37 Calls for $0.86 (2 times usual volume) with stock at $35.38
Paper Bought 10,000 KBH May 21 Calls for $0.65 (2.3 times usual volume) with stock at $20.28
Paper Bought 2,418 AMPE Oct 2.5 Calls for $3.40 (8.2 times usual volume) with stock at $5.31
Paper Bought 11,000 UUP May 23 Calls for $0.06 (4.6 time usual volume) with stock at $22.52
Paper Bought 3,111 RIO Jul 45 Calls for $2.55 with stock at $44.07

Paper Sold 1,950 COH May 46 Puts for $0.85 (2.2 times usual volume) with stock trading at $50.49
Paper Bought15,684 WMB May 36 Puts for $0.40 (2.3 times usual volume) with stock at $37.69
Paper Bought 3,000 MET Jun 37 Calls for $0.86 (2 times usual volume) with stock at $35.38
Paper Bought 10,000 KBH May 21 Calls for $0.65 (2.3 times usual volume) with stock at $20.28
Paper Bought 4,500 CTSH May 65 Puts for $2.40 (2.8 times usual volume) with stock at $66.75

Caterpillar experienced a profit dip at the end of last year, though the fourth quarter profits represented the first decline in three quarters.  The manufacturer’s decline in Asia-Pacific sales led the drop, though there were across-the-board disappointments in regional sales.  The precipitous drop in Chinese sales resulted both from a general construction slowdown last quarter as well as stepped-up competition from in-region organizations such as Sany Heavy, who are outstripping the Peoria-based firm on prices.  In order for long-term growth to be expected in any meaningful capacity, Caterpillar will need to regain market share in the Sino-Pacific region, though with China’s recent announcement of lower than expected GDP growth and continued slowdowns in housing and industry it seems doubtful that this will occur.

The primary concern for most analysts is an apparent slowdown in the mining industry, which had come to be regarded as CAT’s primary growth industry.  Nearly all mining-related stocks took a tumble after the announcement of slowing Chinese growth, CAT included.  The mining industry has experienced rapid growth in the past 3 years, but has been provided a reality check in the form of the slow growth in China and resultant weakness in Australia.  Caterpillar’s mining equipment sales are expected to be hit hard by this weakness, and what was formerly their growth sector is expected to become a drag on the company even as the housing market continues to rebound.  The recent decision to fire nearly half of the mining-sector employees in Milwaukee, some 1300 jobs in a factory near Brussels, and 460 at a mining truck plant near Decatur, IL, signals that Caterpillar recognizes the likelihood of a long term slowdown.
—
William Randall
KOTM Contributor
Brady@KeeneOnTheMarket.com

The S&P 500 seems to be in a holding pattern now, as price builds out horizontally to form the right shoulder of a larger head and shoulders. The head of this potential pattern was formed 4/11/13, while the left shoulder was formed during the period of 3/6/13 – 4/5/13. Putting this pattern into context of price levels, the upper end of the range should be roughly $1,567 in the S&P 500 futures and the lower $1,530, but all is not lost in a horizontal market, trade what the market gives you.

There are a variety of options trades that can be put on in the ETF and potentially futures markets in order to capitalize on this thesis. One of which includes an iron condor. The short strikes of the trade could potentially be the aforementioned levels, naturally capped off by another long option…which would benefit should we move horizontal

 Should the head and shoulders in the S&P play out, the symmetrical end of the right shoulder may be around 5/11/13. This would mirror the time spent on the left side of the pattern. And lead to lower prices.

salerno.mark.a@gmail.com