Microsoft Hit By Worldwide Hack Attack

Dow component Microsoft Corp. (MSFT) could trade lower on Monday after a cybersecurity firm revealed at least 30,000 U.S. organizations, including local governments and small businesses, have been hacked by an aggressive Chinese cyber espionage unit. According to KrebsOnSecurity, the hack  exploits “four newly-discovered flaws in Microsoft Exchange Server email software, and has seeded hundreds of thousands of victim organizations worldwide with tools that give the attackers total remote control over affected systems.”

Microsoft Testing Breakout Support

Mr. Softee has sold off with other big tech names since posting an all-time high in February but has traded better the majority of its mega-cap peers, holding steadfastly to new support generated by a January triangle breakout. It bounced strongly at that price level and the 50-day moving average on Friday, in a perfect position to attract fresh buying interest. However, the post-market bombshell could have the final say on short-term price direction.

The Chinese hacking crew, dubbed “Hafnium”, is believed to be conducting “targeted attacks on email systems used by a range of industry sectors, including infectious disease researchers, law firms, higher education institutions, defense contractors, policy think tanks, and NGOs”. Microsoft responded by releasing an emergency update on Mar. 2, plugging security holes in Exchange Server versions 2013 through 2019.

Wall Street and Technical Outlook

Wall Street consensus has been pristine in the last year, with a ‘Buy’ rating based upon 30 ‘Buy’, 3 ‘Overweight’, and 2 ‘Hold’ recommendations. No analysts are recommending that shareholders close positions and move to the sidelines. Price targets currently range from a low of $245 to a Street-high $315 while the stock ended the week more than $12 below the low target. This weak placement highlights Main Street caution after years of outsized share gains.

Microsoft entered a powerful uptrend in 2016 and hasn’t traded below the 20-month moving average in the last five years. It broke out above the February 2020 high in June, posting strong gains into the September peak at 232.86. Price action then eased into a symmetrical triangle, ahead of a January 2021 breakout that hit an all-time high at 246.13 in February. The stock has been testing new support since that time, with a decline through 224 signaling a failed breakout.

For a look at all of today’s economic events, check out our economic calendar.

Disclosure: the author held no positions in aforementioned securities at the time of publication. 

Beyond Meat Could Sell Off into Double Digits

Beyond Meat Inc. (BYND) initially traded higher despite missing Q4 2020 top and bottom line estimates by wide margins on Feb. 25, attracting a large supply of bulls who promptly got trapped in a 21-point decline. The stock has continued to struggle in the last week and is now testing February support in the 130s, raising odds for a breakdown that relinquishes the last tranche of January’s vertical assault to an 18-month high.

Partnership with McDonald’s

Investors forgave the quarter and a profit warning after the company announced partnerships with McDonald’s Corp. (MCD) and Yum! Brands Inc. (YUM). The Mickey D. news, in particular, stoked buying interest after a failed trial of Beyond’s plant-based meat in Canada in 2020. However, pleasure turned to pain when the fast food giant “clarified’ the partnership, advising the McPlant burger would be limited to franchises that choose to carry the item.

BTIG Research analyst Peter Saleh reiterated a ‘Neutral’ rating after the news, noting “While the announcements are encouraging, we don’t anticipate much revenue from these partnerships in 2021, as the domestic quick service industry remains focused on core menu items and chicken, rather than plant-based meat. While we continue to believe in the long-term consumer adoption of plant-based meat, we don’t expect the Beyond Burger to be tested or make its debut in the U.S. in 2021, as McDonald’s and the industry remain focused on chicken.”

Wall Street and Technical Outlook

Wall Street has turned bearish on Beyond Meat’s outlook in the last year, posting a consensus ‘Hold’ rating based upon 2 ‘Buy’ and 8 ‘Hold’ recommendations. More importantly, four analysts now recommend that shareholders close positions and move to the sidelines. Price targets currently range from a low of $112 to a Street-high $184 while the stock is set to open Wednesday’s U.S. session about $2 below the median $140 target.

The stock soared after coming public at 46 in May 2019, lifting to an all-time high at 239.71 in July. The wheels came off into 2020, with the momentum crowd jumping ship in reaction to insider selling and secondary offerings. It fell within two points of the IPO opening print in March and turned higher, posting three higher highs into January 2021 when it topped out just 19 points below the 2019 peak.  Aggressive sellers have taken control since that time, with a decline into the November low at 113.26 the path of least resistance.

For a look at all of today’s economic events, check out our economic calendar.

Disclosure: the author held no positions in aforementioned securities at the time of publication. 

Zoom Trading Sharply Higher After Blowout Quarter

Zoom Video Communications Inc. (ZM) is trading higher by more than 8% in Tuesday’s pre-market after reporting blowout Q4 2021 top and bottom line results. The company posted a profit of $1.22 per-share in the quarter ending on Jan. 31, much better than $0.79 estimates, while revenue surged 368.8% year-over-year to $882.49 million, beating $810.97 million expectations.  Gross margin rose to 69.7% from 66.7% as a result of a seasonal decline in audio usage.

Managing Post-COVID Growth

The video conference software provider sharply raised Q1 and FY2022 EPS and revenue guidance but still expects high churn rates through the year, with many customers getting vaccinated and leaving their homes, returning a sense of normalcy. Zoom had 467,100 customers with more than 10 employees at the end of the fourth quarter, up 470% on an annualized basis, and heads into the new reporting year with $4.24 billion in cash and equivalents.

Zoom Phone could replace lost meeting income in coming quarters. As Stifel analyst Tom Roderick notes: “While the market for IP-based PBX equipment is a competitive one, Zoom has made remarkable strides in short order with Zoom Phone. Looking ahead, we expect Zoom to focus on expanding its relationship with current video customers gained from the pandemic and driving up-sell opportunities through the company’s growing product suite. After experiencing unprecedented customer growth last quarter of 485% among customers with 10+ employees, we are reminded of the powerful addressable opportunity in the enterprise for Zoom.”

Wall Street and Technical Outlook

Wall Street consensus had grown more cautious on the company’s long-term outlook prior to the earnings release, with an ‘Overweight’ rating based upon 13 ‘Buy’, 2 ‘Overweight’, 15 ‘Hold’, and 2 ‘Sell’ recommendations. Price targets currently range from a low of $340 to a Street-high $610 while the stock is set to open Tuesday’s session about $5 below the median $450 target. This mid-range placement could support a rapid advance toward the $500 level.

Zoom broke out above the 2019 high at 107.34 in February 2020 and entered a powerful trend advance that posted an all-time high at 588.84 in October, A pullback accelerated in November after positive vaccine news triggered a rotation out of COVID-19 beneficiaries. The decline reversed at the 200-day EMA in January, yielding a bounce, followed by a successful support test last week. This bullish price action completes a double bottom that should signal the end of the five-month correction.

For a look at all of this week’s economic events, check out our economic calendar.

Disclosure: the author held no positions in aforementioned securities at the time of publication. 

NIO Sellers in Control Ahead of Report

NIO Inc. (NIO) reports Q4 2020 earnings after Monday’s closing bell, with analysts looking for a loss of $0.38 per-share on $6.7 billion in revenue. If met, earnings-per-share (EPS) will mark an 85% loss reduction compared to the same quarter last year, when the Chinese EV manufacturer was trading at just 1/15th of its current price. The stock fell in November after beating Q3 estimates but recovered quickly, posting an all-time high at 66.99 on Jan 11.

NVIDIA Partnership

NVIDIA Inc. (NVDA) and NIO just announced a partnership to develop a new generation of self-driving vehicles, using NVDA’s DRIVE Orin system-on-a-chip to power E7 sedan technology. The first production vehicle is expected to roll off the assembly line in 2022. The stock topped out right after the news in reaction to the fourth debt offering since 2019, reminding shareholders the company still hasn’t posted a profitable quarter.

Still, NIO continues to grow at a phenomenal rate, with January deliveries increasing by 352.1% year-over-year to a record 7,225 vehicles. Breaking it down, the company noted “deliveries consisted of 1,660 ES8s, the Company’s 6-seater and 7-seater flagship premium smart electric SUV, 2,720 ES6s, the Company’s 5-seater high-performance premium smart electric SUV, and 2,845 EC6s, the Company’s 5-seater premium electric coupe SUV. As of January 31, 2021, cumulative deliveries of the ES8, ES6 and EC6 reached 82,866 vehicles”.

Wall Street and Technical Outlook

Wall Street consensus has grown more cautious after strong 2020 returns, with a ‘Moderate Buy’ rating based upon 7 ‘Buy’ and 4 ‘Hold’ recommendations. No analysts are recommending that shareholders close positions and move to the sidelines. Price targets currently range from a low of $54 to a Street-high $80 while the stock is now trading nearly $6 below the low target. The worldwide chip shortage is impacting this poor placement, which has also weighed on Tesla Inc. (TSLA).

The stock topped out at 13.80 just two days after coming public in the United States at 6.00 in September 2018. It mounted that resistance level in July 2020, entering a momentum-fueled advance that lost steam after stretching above 50 in November. A January breakout above that barrier failed about two weeks ago, dropping NIO into an intermediate correction that’s held, so far at least, above December range support at 38.43.

For a look at all of this week’s economic events, check out our economic calendar.

Disclosure: the author held no positions in aforementioned securities at the time of publication. 

Three Top Earnings Plays This Week

Major benchmarks sold off last week in reaction to wild action in the normally sedate bond market. Bonds recovered a good portion of weekly losses on Friday but broad volatility took its toll, dropping the SP-500 and Nasdaq-100 to weekly lows. Many popular names entered corrections during the rout, predicting weakness well into the second quarter. Expect the new week to start with bears pressing their bets and attempting to push prices to even lower levels.

Zoom Video Communication Inc. (ZM) steps to the earnings plate on Monday, with the stock struggling after shareholders picked up stakes and moved on to COVID recovery plays. Big box retailers highlight the week’s other big releases, led by Target Inc. (TGT) on Tuesday and Costco Wholesale Corp. (COST) on Thursday. COST has entered a correction after posting strong 2020 returns while TGT is caught in a trading range near January’s all-time high.

Target

Wall Street expects Target to post a profit of $2.54 per-share on $27.4 billion in revenue. If met, earnings-per-share (EPS) will mark an impressive 50% profit increase compared to the same quarter last year. The company consistently beat estimates in 2020, forcing analysts to raise price targets several times. The stock has now pulled back to support at the 50-day moving average and is perfectly positioned for a multiday bounce in reaction to another strong quarter.

Costco

Costco consensus predicts earnings of $2.31 per-share on $42.7 billion in revenue. If met, EPS will mark a 10% profit increase compared to the same quarter last year. A strong uptrend stalled above 380 in October, yielding two slightly higher highs, followed by a head and shoulders breakdown in January. The stock is now trading below the 200-day moving average for the first time since April 2020 and is rapidly approaching the H&S measured move target near 320.

Zoom Video Communications

Zoom will beat earnings posted in the same quarter last year but it won’t mean much because the period doesn’t include the pandemic. The stock has lost its luster since Pfizer Inc. (PFE) vaccine results triggered a massive rotation out of COVID beneficiaries and into recovery plays. The company has released new products to an attempt to diversify its revenue stream but is still working off massively overbought technical readings in reaction to its historic rally.

For a look at all of this week’s economic events, check out our economic calendar.

Disclosure: the author held no positions in aforementioned securities at the time of publication. 

NVIDIA Trading Lower Despite Strong Quarter

NVIDIA Inc. (NVDA) is trading lower by more than 3% in Thursday’s pre-market despite beating Q4 2020 earnings estimates by a wide margin. The company posted a profit of $3.10 per-share during the quarter, $1.12 better than expectations, while revenue surged a healthy 61.1% year-over-year to $5.0 billion, $180 million higher than consensus. Q1 2021 revenue guidance was raised during the presentation, from $4.53 billion to a range between $5.19 and $5.4 billion.

Record Revenues

Q4 Data Center revenue posted a new record at $4.19 billion, up 97% compared the same quarter last year. $6.70 billion full-year revenue for the division posted a record as well, up 125%. Q4 Gaming revenue grew 10% compared to the prior quarter and 67% year-over-year, posting records of $2.50 billion for the quarter and $4.76 billion full-year.  Automotive results were less spectacular, with full-year revenue down 23% to $536 million.

Cowen analyst Matthew Ramsay raised his target to $665 after the report, noting “NVIDIA printed a strong beat/raise despite supply constraints. Valuation warrants scrutiny, but being underwhelmed that gaming is the larger relative source of AprilQ upside is a nitpick in our view. We note DC guidance still materially beat consensus. NVIDIA remains the industry’s best open-ended AI-driven growth story. Visibility to auto revenue growth is next catalyst. Outperform; PT to $665.”

Wall Street and Technical Outlook

Wall Street consensus hasn’t changed much in the last three months, with an ‘Overweight’ rating based upon 25 ‘Buy’, 5 ‘Overweight’, 7 ‘Hold’, 1 ‘Underweight’, and 1 ‘Sell’ recommendation. Price targets currently range from a low of $370 to a Street-high $700 while the stock is set to open Thursday’s session more than $50 below the median $613 target. Clearly, there’s a major disconnect between analysts’ enthusiastic targets and investor perceptions of value.

The stock broke out above the 2018 high at 292.76 in May 2020, and entered a momentum-fueled advance, underpinned by management missteps at Intel Corp. (INTC). The uptick topped out at 589.07 in September, giving way to a triangular trading range that yielded a breakout and all-time high at 614.90 on Feb. 16. It bounced after a pullback to triangle support ahead of the news, setting the weekly low at 535.58 as the bullish line-in-the-sand.

For a look at all of this week’s economic events, check out our economic calendar.

Disclosure: the author held no positions in aforementioned securities at the time of publication. 

Snap Rockets to All-Time High After Major Shakeout

Snap Inc. (SNAP) is trading near an all-time high in Wednesday’s pre-market after shaking off Tuesday’s 11% decline and lifting more than 24% off the midday low.  Wild price action tracked similar market behavior after the social messaging app sold off in reaction to better-than-expected Q4 earnings on Feb. 5. The enthusiastic dip buying highlights exceptionally strong interest that could eventually lift the stock well into triple digits.

Snap Analyst Day

The company’s first analyst day as a public entity was well received by Wall Street, with members of that community calling the event a ‘resounding success”.  Focus on the ‘five pillars” — Camera, Map, Communication, Stories and Spotlight – gained the respect of participants. Head of Product Development Peter Sellis then surprised the group, boasting “revenue growth north of 50% for multiple years”, well above current expectations.

Pivotal Research Group raised their Snap target to $95 after the event, noting “CFO Derek Anderson wrapped the event with a frame work around: a) TAM for SNAP relative to smart phone penetration — still relatively nascent b) reiterated the 50% multi-year growth goal and c) provided a frame work around revenue opportunities for the five pillars. In spite of the gross margin commentary, we would expect a material increase to 2022-2024 revenues and EBITDA. We are increasing our PT to $95 from $81.50 based on 17x 2023 EV/Revs.”

Wall Street and Technical Outlook

Wall Street consensus stands at an ‘Overweight’ rating based upon 26 ‘Buy’, 1 ‘Overweight’, and 8 ‘Hold’ recommendations. However, four analysts now recommend that shareholders close positions and move to the sidelines. Price targets currently range from a low of $15 to a Street-high $92 while the stock will open Wednesday’s U.S. session about $3 below the median $75 target. Sustained upside is possible with this placement, fueled by momentum traders.

The stock broke out above the 2017 high at 29.44 in October 2020 and took off in a powerful uptrend that entered a rising channel, confirming strong institutional sponsorship. It topped out in the mid-50s in December and eased into a rectangle that worked off overbought technical readings through time instead of price, ahead of a February breakout that’s stair-stepping to new highs. This marks a nearly picture-perfect upstand that’s likely to continue for months to come.

For a look at all of today’s economic events, check out our economic calendar.

Disclosure: the author held no positions in aforementioned securities at the time of publication. 

Square Drops 10% Overnight

Square Inc. (SQ) reports Q4 2020 earnings after Tuesday’s closing bell, with analysts expecting a profit of $0.24 per-share on $3.1 billion in revenue. If met, earnings-per-share (EPS) will mark flat growth compared to the same quarter last year. The stock rallied nearly 23% after blowing away Q3 2020 estimates in November and has added another 39% in the last three months, carving a series of new highs.

Square Payment Solutions

The company provides digital payment and point-of-sale solutions used by Europay, MasterCard Inc. (MA), and Visa Inc. (V). The stock has benefited from the pandemic, with surging revenue as a result of contactless and tap-based technologies. It also offers a suite of small business software for point of sale, terminals, appointments, restaurants, invoicing, as well as loyalty and rewards programs. Last but not least, it’s benefited from a timely $50 million Bitcoin investment made in October 2020.

Deutsche Bank analyst Bryan Keane raised his target to $330 last week, noting, “Depending on the pace of the recovery and timing of incremental stimulus, we see potential in our upside model for gross profit growth to reach as high as 85% year-over-year in fiscal year 2021, which would represent 40% above consensus and our model (we are conservatively modeling the recovery in our core model). In 2021, we expect SQ to continue delivering strong operating leverage, offset by incremental investments for future growth.”

Wall Street and Technical Outlook

Wall Street consensus translates into an ‘Overweight’ rating based upon 24 ‘Buy’, 2 ‘Overweight’, 16 ‘Hold’, and 1 ‘Underweight’ recommendation. Three analysts now recommend that shareholders close positions and move to the sidelines. Price targets currently range from a low of $140 to a Street-high $380 while the stock has opened Tuesday’s U.S. session less than $5 above the median $247 target.

Square fell to a two-year low during 2020’s pandemic decline and turned higher, breaking out above 2018 resistance at 101.15 in June. It’s been on a tear since that time, gaining ground within a rising channel that reveals intense institutional sponsorship. The rally paused above 240 in December while a breakout earlier this month posted an all-time high at 283.19. Many shareholders are taking profits ahead of the report, dropping price 10% overnight.

For a look at all of today’s economic events, check out our economic calendar.

Disclosure: the author held no positions in aforementioned securities at the time of publication.

U.S. Market Wrap and Forecast for Tuesday

Weak price action targeted big tech stocks on Monday, dropping Nasdaq-100 to a three-week low. SP-500 posted smaller losses while the Russell-2000 retraced Friday’s trading range, with the outperformance consistent with positive seasonality.  The WTI crude oil contract surged above 61 after Brazil’s strongman installed an army general to run Petróleo Brasileiro S.A. (PBR), one of the world’s largest oil and gas multinationals. That stock fell more than 20%.

Tesla Breaks Down

Tesla Inc. (TSLA) broke support near 780, completed a double top breakdown, and closed below the 50-day EMA for the first time since November. Dow component Apple Inc. (AAPL) fell nearly 3%, dropping into negative 2021 returns. Boeing Co. (BA) initially shook off the 777 grounding, squeezing short sellers after dropping more than 9%, but still closed in the red. Royal Caribbean Group (RCL) acted like a momentum play despite a billion dollar loss, surging to a 52-week high.

Gold had a strong session while Bitcoin faltered, lifting the yellow metal to the highest high in a week. Bonds slumped at 11-month lows while the 10-year Treasury note lifted above 1.3%, renewing anxiety about surging inflation. Kohl’s Corp. (KSS) rose over 6% as activist shareholders tried to take over the boardroom, just ahead of department store earnings that should confirm miserable conditions in America’s shopping malls.

Homebuilders on Tap

Tuesday’s Home Depot Inc. (HD) earnings will set the tone for mega-caps, with the housing boom likely to translate into a strong quarter. NVIDIA Inc. (NVDA) volatility is surging ahead of its Q4 release later this week. Bears could have the final say, given sell-the-news reactions after other chip reports in the last month. Square Inc. (SQ) could also generate fireworks after its report, with the stock glued to an all-time high after massive upside in the last 11-months

Home Depot will provide just one metric in a week chock-full of housing catalysts.  Home price data will also be released in Tuesday’s pre-market, followed by mortgage applications, January new home sales, and Lowe’s Cos. Inc. (LOW) earnings on Wednesday. Existing home sales wraps up the data flood, telling market players to keep close watch on SPDR S&P Homebuilder’s ETF (XHB), which is trading at an all-time high.

For a look at all of this week’s economic events, check out our economic calendar.

Boeing In Retreat After Engine Failure

Dow component Boeing Co. (BA) is trading lower by more than 8% in Monday’s pre-market after a 777 jet blew an engine and dropped debris on a Denver neighborhood. The jet landed safely after the incident, prompting the carrier to remove the planes from service.  The Federal Aviation Administration has ordered inspections on all aircraft with similar Pratt & Whitney engines manufactured by Raytheon Technologies Corp (RTX), who also fell after the news.

Boeing Takes Quick Action

Boeing acted quickly, telling other airlines flying the Pratt-equipped 777 to also ground their fleets. The United States and Japan had 128 of those jets in service at the time of the incident. The quick response contrasted sharply with the 2019 Ethiopian 737-MAX crash when former CEO Dennis Muilenberg initially refused to ground the airplanes and called former President Trump to stop the FAA from taking action.

The news could impact investor sentiment and passenger confidence following the recertification of the MAX in the fourth quarter of 2020. Southwest Airlines Co. (LUV) just announced the troubled jetliner would be back in service on Mar. 11 while Boeing recently reported modest improvement in its January order and delivery update, raising hopes the aerospace giant was finally putting the crash and the pandemic behind them.

Wall Street and Technical Outlook

Wall Street consensus stood at a ‘Hold’ rating ahead of the news, based upon 9 ‘Buy’ and 8 ‘Hold’ recommendations. More importantly, four analysts recommend shareholders close positions and move to the sidelines, despite the MAX recertification. Price targets currently range from a low of $165 to a Street-high $307 while the stock is set to open Monday’s session nearly $25 below the median $235 target. It’s hard to gauge what impact the weekend events will have on ratings.

The stock carved a massive double top pattern between 2018 and February 2020, with support at 292. It broke down on heavy volume during the pandemic decline, hitting a 7-year low at 89.00. A three-legged recovery stalled below the Mar. 9 continuation gap in December, which has narrowly aligned with shallow Fibonacci retracement levels.  It’s currently trading below the 200-week moving average, oscillating across the 50-week moving average, indicating the secular downtrend remains fully intact.

For a look at all of today’s economic events, check out our economic calendar.

Disclosure: the author held no positions in aforementioned securities at the time of publication. 

Three Top Earnings Plays This Week

Major indices sold off this week one year ago when a Kirkland, Washington nursing home reported the first non-travel related COVID cases in the United States. The rest is history, with major benchmarks crashing to multiyear lows, ahead of a relentless recovery underpinned by massive government stimulus programs. Those greenbacks continue to guide price action in 2021, with banks and recovery plays outperforming while pandemic beneficiaries falter.

The next act of this real-life soap opera comes in Monday’s pre-market, when Royal Caribbean Group (RCL) is likely to report another quarter of staggering losses.   Dow component Home Depot Inc. (HD) heads the week’s blue chip earnings schedule on Tuesday while rival Lowe’s Cos. Inc. (LOW) follows on Wednesday. Hot rocket NVIDIA Inc. (NVDA) also reports mid-week, with investors confident the stock will trade above 1,000 in coming years.

Royal Caribbean

Royal Caribbean is expected to report a Q4 2020 loss of $4.99 per-share after posting a $1.42 profit in the same quarter last year. That was also the last quarter the cruise operator made money or had a full fleet sailing around the world. RCL has gone to the capital markets several times since then, attempt to stay afloat, which takes on special meaning in this case. As with other battered leisure segments, the company is counting on vaccines to get them back in business.

Home Depot

Wall Street analysts are looking for Home Depot to earn $2.37 per share on $27.1 billion in Q4 2020 revenue. The stock cleared February 2020 resistance in May and posted an all-time high at 292.95 in August. It failed an October breakout attempt and has traded in a narrow range since that time, working off 2020’s outsized share gains. With the pandemic receding, the retailer could trade higher on a booming housing market and the strengthening U.S. economic outlook.

NVIDIA

NVIDIA is expected to report another strong quarter on Wednesday, with analysts predicting a Q4 2020 profit of $1.98 per-share on $4.82 billion in revenue. The stock just nosed above the September peak at 589.07 but a breakout will require a buy-the-news reaction after the report. That isn’t a sure thing after Advanced Micro Devices Inc. (AMD), the other beneficiary of Intel Corp. (INTC) missteps, sold off in January despite beating top and bottom line estimates.

For a look at all of this week’s economic events, check out our economic calendar.

Disclosure: the author held no positions in aforementioned securities at the time of publication. 

U.S. Market Wrap and Forecast for Monday

Early buying pressure faded during Friday’s expiration session, dropping major indices into the red. WTI crude oil reversed, dropping below 60 as temperatures lifted above the freezing mark in Texas and southern states. The 30-year bond posted another monthly low, continuing the relentless rise in yields across short- and long-dated instruments. Gamestop Inc. (GME) hit a monthly low, forcing another batch of Reddit traders to look for a less stressful hobby.

Roku Rocks

Roku Inc. (ROKU) posted a Q4 2020 profit of $0.49 per-share, well above expectations for a $0.03 loss, lifting the streaming hardware provider to a three-day high. However, rich valuation weighed on buying interest, stalling price well below Tuesday’s all-time high at 486.72. Deere and Co. (DE) reported the second blowout quarter in a row, lifting the agricultural giant to an all-time high above 330. The stock rose more than 55% in 2020 and has added another 20% so far in 2021.

Russell-2000 index ignored blue chip selling pressure, lifting into the midpoint of the weekly trading range. This instrument has rallied 55% since September, carving one of the strongest small cap buying waves since the 1990s. Speculative fervor in the Reddit crowd is driving the upside, with SPACs acting as petri dishes for hundreds of start-up operations. Unfortunately, most small caps won’t succeed down the road due to roadblocks set up by trillion dollar mega-techs.

Post-Options Hangover Ahead

Discovery Inc. (DISCA) could provide early metrics on the paid streaming service it launched in January in Monday’s pre-market earnings release. Home Depot Inc. (HD) and Lowes Inc. (LOW) lead next week’s blue chip calendar, highlighting do-it-yourself income during the pandemic’s second wave. The bubble in mall anchors could break after department stores release miserable quarterly results, which should confirm the slow bleed of long-term customers.

Consumer confidence and durable goods head next week’s economic calendar, along with new home sales. Millennials have entered their nesting stages, scooping up the limited supply of existing homes and driving prices to all-time highs. The supply crunch is forcing many nest builders to take advantage of remote work opportunities and build homes far away from west coast and northeast urban centers, in a phenomenon that will alter US demographics for decades.

For a look at all of today’s economic events, check out our economic calendar.

U.S. Market Wrap and Forecast for Friday

Major benchmarks sold off at the start of Thursday’s session while a congressional committee debated the implications of last month’s Gamestop Inc. (GME) frenzy. Risk-adverse instruments surged to monthly highs in the first half of the day, shaking out a few weak hands. An afternoon bounce pushed a few points above opening prints but SP-500 Volatility Index (VIX) held firmly in the green into the closing bell.

Mean Reversion

Traders sold many stocks that had rallied to unsustainable price levels, including Tesla Inc. (TSLA), squaring positions ahead of Friday’s options expiration finale. GME and its companions sold off as well, hitting 4-week lows. High yield plays perked up, attracting buying interest for the first time in 2021.  FAANG stocks ticked lower in unison, displaying none of the leadership that generated impressive 2020 returns.

Marriott International (MAR) closed higher despite a 59% year-over-year revenue decline, with executives hoping vaccines translate into a booking resurgence and travel season that keeps hotels from going bankrupt. Fauci said vaccines were reducing COVID-19 infections this morning, which we assumed long before he reached that conclusion. That now needs to translate into baby boomers leaving their caves and spending billions in their favorite destinations this summer.

Friday Expiration

Friday options expiration is often sloppy and uncomfortable, with position squaring more important to the ticker tape than short-term price patterns. Limited exposure makes sense during this period but stocks that have sold off into popular strikes could offer good trade entries into Monday’s options hangover. Twitter Inc. (TWTR) comes to mind in this regard, dropping three or four points this week before bouncing just above the 70 strike.

Home Depot Inc. (HD) highlights next week’s earnings calendar, with the Dow component grinding through the sixth month of a narrow range price pattern. Macy’s Inc. (M) is also on the schedule, shining a light on one of the fallen angels of last month’s Gamestop squeeze. Sadly, M and the mall anchor group have no future, beyond the lipstick put on the pig in recent months, because e-commerce is an unstoppable monster.

For a look at all of today’s economic events, check out our economic calendar.

Marriott Shaking Off Another Bad Quarter

Marriott International Inc. (MAR) is trading marginally lower in the first hour of Thursday’s session after reporting a staggering 59% Q4 2020 revenue decline. The company posted a profit of $0.12 per-share, $0.02 better than estimates, while $2.17 billion revenue missed consensus by more than $200 million. The company noted renewed U.S. and European weakness after a hopeful resurgence in summer bookings, in line with the winter’s brutal second wave.

Pent-up Travel Demand

The hotel chain tried to be upbeat about 2021, indicating they’re seeing early signs the vaccine rollout is bolstering reservations. Of course, that makes perfect sense unless vaccinations slow down or variants keep world citizens afraid of travel. Market watchers will have an opportunity to measure the impact soon because baby boomers with deep pockets are now getting their shots at a rapid pace, ready to unleash pent-up travel demand. Or, at least, that’s the theory.

Executives outlined challenges in the presentation, noting “we have also seen that progress can be slowed by significant spikes in virus cases, such as we saw in the U.S and Europe towards the end of 2020. Global occupancy remained at 35% in Q4, in line with Q3, and still substantially above the trough in April. While no one can know how long this pandemic will last, we are seeing some small, early signs that the acceleration of vaccine rollouts around the world will help drive a significant rebound.”

Wall Street and Technical Outlook

Wall Street consensus is looking ahead to better times, with a ‘Moderate Buy’ rating based upon 4 ‘Buy’ and 6 ‘Hold’ recommendations. No analysts are recommending that shareholders close positions and move to the sidelines. Price targets currently range from a low of $96 to a Street-high $150 while the stock opened Thursday’s session just above the median $128.25 target. Sustained upside is unlikely with this placement until reservations show actual improvement.

The stock topped out in the 140s in the first quarter of 2018 and sold off to 100. A December 2019 breakout attempt failed in February 2020, dumping Marriott to 6-year low in the mid-40s. A fourth quarter advance mounted broken range support, lifting price within seven points of February 2020 price levels in December. Sideways action since that time marks a holding pattern that’s likely to persist until the next positive or negative catalyst hits the travel industry.

For a look at all of today’s economic events, check out our economic calendar.

Disclosure: the author held no positions in aforementioned securities at the time of publication. 

U.S. Market Wrap and Forecast for Thursday

Major benchmarks sold off overnight and gapped down at the start of Wednesday’s U.S. session. The reversal confirmed channel resistance above 3,900 on the SP-500 index. Selling pressure felt technical in nature rather than a change in sentiment, with parties unknown shifting toward more risk-adverse instruments. The WTI crude oil contract ended regular hours above 61, driven higher by the Texas freeze, while gold rolled over and silver bounced higher.

Bonds Bounce at Lows

January Retail Sales surged more than 5%, much better than 0.8% estimates, catching Wall Street analysts off-guard. $600 per person stimulus checks and debit cards were distributed before Trump left office, which citizens promptly used to buy furniture, electronic goods, appliances, and home furnishings. It’s surprising that economists failed to account for this capital in computing estimates because we’ve been taught they’re infallible.

Producer Price Index (PPI) did exactly what was expected, surging 1.3%, which marked the biggest monthly gain since at least 2009. Bonds bounced at lows after the news in a contrary reaction, suggesting that yields have stretched too far too soon. In any case, inflation has finally turned the corner, suggesting that market participants with less than 20 years of experience read up on prior economic cycles. Google ‘Paul Volcker’ for a quick tutorial.

Heading Into Friday Expiration

Dow component Walmart Inc. (WMT) reports Q4 quarter earnings in Thursday’s pre-market, with analysts expecting a profit of $1.51 per-share on a $147.0 billion in revenue. Wednesday’s retail sales report alters the playing field, perhaps ending a slow drip of selling pressure that’s drained shareholders since late 2020.  The stock is unlikely to break out soon but the news could attract buying interest, especially if they exceed expectations.

A dysfunctional options expiration tape makes sense at the end of a contract in which novice traders fueled the biggest short squeeze in several decades. Outstanding positions need squaring into Friday’s finale, explaining why SP-500 Volatility Index is getting jumpy. Even so, the longer-term mantra remains the same, with another round of stimulus and dovish Fed policy blowing up the biggest bubble since the late 1990s.

For a look at all of today’s economic events, check out our economic calendar.

Shopify Sharply Lower Despite Blowout Quarter

Shopify Inc. (SHOP) is trading lower by more than 7% in the first hour of Wednesday’s U.S. session despite beating Q4 2020 top and bottom line estimates. The e-commerce juggernaut earned $1.58 per-share during the quarter, $0.37 better-than expected, while revenue surged an astounding 93.6% year-over-year to $977.7 million, more than $60 million above consensus. The stock gained more than 30% in the weeks heading into the report, lifting to another all-time high.

Incredible Growth Curve

The rapid shift into online sales as a result of the pandemic underpinned subscription solutions revenue gains of 53% year-over-year while merchant solution revenue grew 117%. No specific guidance was offered but the company expects ‘rapid revenue growth’ to continue in 2021. The Q4 revenue surge matched spectacular results reported in Q2 and Q3, highlighting rapid business momentum that is showing no signs of slowing down.

Shopify expanded its payment systems to Facebook Inc. (FB) and Instagram last week, marking another expansion of its rapidly growing footprint.  As the company noted “we’re expanding Shop Pay, the fastest and most secure way to shop online, to all Shopify merchants selling on Facebook and Instagram. With Shop Pay now available as a fast and secure payment option on Facebook, people also get access to industry-leading order tracking and carbon offsets from their deliveries.”

Wall Street and Technical Outlook

Wall Street consensus has grown more cautious due to historic share gains, with an ‘Overweight’ rating based upon 10 ‘Buy’, 2 ‘Overweight’, 12 ‘Hold’, and 2 ‘Sell’ recommendations. Price targets currently range from a low of $600 to a Street-high $1,810 while the stock is now trading about $100 above the median $1,270 target. The sell-the-news reaction could settle around the median price before committed buyers return in force.

The stock rallied above the February 2020 high at 594 in April and took off in a momentum-fueled advance, finally stalling near 1,150 at the start of September. Positive price action cleared resistance in December, yielding a 6-week support test, followed by a vertical buying wave that added more than 400 points into the news.  It’s not particularly overbought due to the three-month trading rnage and this selling wave is unlikely to mark a major trend change.

For a look at all of today’s economic events, check out our economic calendar.

Disclosure: the author held no positions in aforementioned securities at the time of publication. 

U.S. Market Wrap and Forecast for Wednesday

U.S. equity markets opened higher on the first day of options expiration week and promptly sold off, dropping SP-500 index back into a rising channel in place since November. Bonds lost ground as well, lifting the 30-year yield to the highest high since March 2020. The 10-year Treasury note pushed against 1.3% at the same time, signaling greater conviction about rising inflation as the stimulus bill works its way through Congress.

Banks Lift into Leadership

Credit card delinquencies held firm at elevated levels in January, reflecting continued stress as a result of high unemployment. However, the United States is rapidly turning the corner on the pandemic, with crashing positives set to translate into reopened restaurants and rehired workers. Dow component JP Morgan Chase and Co (JPM) posted an all-time high, lifting above 2018 resistance. Bank sector funds look solid as a rock at 2½ year highs and could easily break out in coming weeks, benefiting from a perfect storm of financial tailwinds.

The SP-500 index is closing in on the 4,000 level, just 16 months after trading above 3,000 for the first time. It took five years to go from 2,000 to 3,000 and 17 years to make the jump from 1,000 to 2,000. Market players who love two-sided price action have been left behind by this relentless uptrend, which will end as soon as the last bear capitulates. However, it’s anyone’s guess when that will happen.

Looking Ahead to Mid-Week

Walmart Inc. (WMT) and hotel chains lead a light reporting calendar during this holiday-shortened week. Marriott International Inc. (MAR) revenue fell 57% in the quarter ending in September and the run-up into year’s end could look even worse, given international lockdowns and quarantines.  MAR and rivals are trading close to 52-week highs despite obvious headwinds but bullishness may be misplaced, given pressure on business travel in the next few years.

Wednesday retail sales are expected to show a minor uptick after better-than-expected holiday sales. Market players will also examine the Fed Minutes for clues about interest rates but Chairman Powell has done a good job telegraphing the central bank’s intention to keep rates low. Taken together with dovish comments by Treasury Secretary Janet Yellen, there’s little reason to suspect that anyone in government will be tapping on the brakes in 2021.

For a look at all of this week’s economic events, check out our economic calendar.

Blackberry Dead Money After January Squeeze

Blackberry Ltd. (BB) flamed out after posting a 9-year high at the tail end of Gamestop Inc.’s (GME) historic January squeeze and has sold off since that time, giving up nearly 70% of the big ramp. It’s a shame because the company turned the corner in recent months, cutting partnership deals for its innovative autonomous driving software.  Sadly, overhead supply could now undermine improved sentiment, leaving long-term shareholders holding the bag.

Catastrophic Market Share Losses

The stock posted an all-time high in triple digits in 2008 when Blackberry was the undisputed king of mobile devices. Steve Jobs and Apple Inc. (AAPL) then released the iPhone, encouraging millions of loyal users to toss their old units and pick up the new machines. Alphabet Inc. (GOOG) followed suit with the highly-popular Android system, triggering catastrophic market share losses that dumped BB to a 17-year low in 2020.

Canaccord Genuity analyst T. Michael Walkley has downgraded the stock to ‘Sell’, noting “While we believe management has created a cogent long-term strategy and the business is turning the corner towards stronger trends, we await more proof in execution on the new product roadmap, evidence of cross-selling opportunities emerging, growing overall software and services revenue, and the potential for upside to our estimates before becoming more constrictive.”

Wall Street and Technical Outlook

Wall Street hates Blackberry, posting an ‘Underweight’ rating based upon 1 ‘Buy’ and 3 ‘Hold’ recommendations. More importantly, five analysts recommend that shareholders close positions and move to the sidelines. Price targets now range from a low of $4.50 to a Street-high $20 while the stock is now trading more than $4 above the median $12 target. Lower prices are likely with this placement, given the huge overhead supply.

The stock broke 7-year support in March 2020 and fell to a multi-decade low at 2.70. Positive action remounted that level in December, attracting strong buying interest that settled between 6.50 and 9.50 before Reddit chatter triggered a two-week 21-point advance to the highest high since 2011. Most of the parabola was unraveled in just four sessions, leaving a massive supply of trapped bulls at higher price levels. This doesn’t bode well for the emerging uptrend.

For a look at all of today’s economic events, check out our economic calendar.

Disclosure: the author held no positions in aforementioned securities at the time of publication. 

Three Top Earnings Plays This Week

Monthly options expire at the end of this holiday-shortened trading week, hopefully generating much-needed volatility after a long string of low volume narrow range sessions. Major benchmarks are nearing overbought technical readings last hit in February 2020, just before all hell broke loose as a result of the pandemic. While it isn’t wise to expect a repeat any time soon, broad-based complacency has generated ideal conditions for a major shakeout.

Dow component Walmart Inc. (WMT) is the only U.S mega-cap on this week’s top earnings list, followed by China’s Baidu Inc. (BIDU) and Canada’s Shopify Inc. (SHOP). In case you hadn’t heard, the much smaller SHOP has been an absolute monster, rising 365% since the last trading day of 2019.  Three major hotel chains also step to the plate, telling us how many folks gave up overnight travel when the second wave erupted in October.

Shopify

Shopify is expected to report a Q4 2020 profit of $1.21 per-share on $913.3 million in revenue. The e-commerce juggernaut has been grinding through a ferocious uptrend since coming public at 16 in 2015 and is now trading just shy of the $1,500 level. However, the stock has gained a phenomenal 34% in just the last two weeks, setting off all sorts of overbought signals that raise odds for an aggressive ‘sell-the-news’ reaction, especially during options expiration.

Walmart

Wall Street analysts are looking for Walmart to post a Q4 2020 profit of $1.51 per-share on $147.1 billion in revenue, better than the $1.38 earned in the same quarter last year.  The stock posted a respectable 21% return in 2020 but all those gains were booked between March and the end of August. Shareholders have pulled up stakes and walked away since that time, rotating their profits into COVID-19 recovery plays.

Baidu

Baidu should report Q4 2020 earnings of $16.73 per-share on $30.1 billion in revenue, much worse than last year’s $26.54 per-share. However, the stock just broke out to an all-time high, underpinned by the formation of an intelligent electric vehicle company that’s forced Wall Street to reprice the search provider at a higher multiple, in line with other manufacturers. Look for traders to jump on any updates regarding that initiative.

For a look at this week’s economic events, check out our economic calendar.

Disclosure: the author held no positions in aforementioned securities at the time of publication.

U.S. Market Wrap and Forecast for Tuesday

Major index benchmarks traded above Wednesday’s highs at the close of Friday’s U.S. session while market players waited for Congress to wrap up the second Trump impeachment trial and get back to handing Americans the greenbacks needed to bankroll struggling Robinhood accounts.  Crude oil futures posted another round of new highs while the WTI contract closed in on 60 and bonds rolled over, testing 11-month lows.

Disney Lower After Earnings Pop

Dow component Walt Disney Co. (DIS) reversed after spiking above 195 in Thursday’s post-market, drifting into the red when analysts struggled to understand why collapsed movie, theme park, resort, and cruise ship revenue hasn’t weighed more on results. Disney+ added over 20 million subscribers during the quarter but a sweet Indian deal lowered average income per user more than 20%, suggesting the mouse is using the majority of free capital to hire accountants.

Tesla Inc. (TSLA) sold off within five points of range resistance and bounced back over 800 but this support test may continue next week. Many analysts believe the stock is over-priced at current levels and weak performance so far in 2021 could signal an intermediate correction that drops into strong support near 500. Whatever happens in coming weeks, the first quarter’s risk-free market probably won’t define the ‘2021 market’ by the end of December.

Holiday Weekend

U.S. markets are closed on Monday for President’s Day. That means mid-quarter options expiration will evolve over four sessions, instead of five. Small cap short interest plays that went crazy during Gamestop’s ramp are finding some buying interest, suggesting higher volatility than usual into next Friday’s closing bell. Congress will interrogate Robinhood, Melvin, and Reddit executives on Feb 18, ensuring the topic will impact trading through end of the 1st quarter.

Beyond the democratization of world financial markets, traders are squarely focused on free money in the form of $1,400 stimulus checks. The bar has been set so high by Democrats that any disappointment could drop major benchmarks 5% to 10%, despite the complacency you’re feeling right now. Smart money is not only pressing momentum plays at the moment but they’re also hedging bets, waiting to capitalize on the sheer stupidity of the immature trading crowd.

For a look at next week’s economic events, check out our economic calendar.

Disclosure: the author held no positions in aforementioned securities at the time of publication.