Visa Could Rally 40% in 2021

Dow component Visa Inc. (V) price action has tracked the evolution of world economies during the COVID-19 pandemic, with credit and debit card spending plunging in the first quarter and recouping a good share of losses during the second and third quarters. Surprisingly, U.S. sales numbers are ticking higher in the fourth quarter despite surging infections around the world, forcing analysts to lift 2021 growth targets, especially in the United States.

Visa Breakout Pattern

Better yet, Visa has completed the last stage of a cup and handle pattern, with a breakout having the potential to lift the digital payments giant at least 30% to 40% in 2021.  Accumulation readings have already hit new highs, highlighting growing optimism about economic growth under a Biden administration. Even so, the winter of 2020 – 21 could throw a few curveballs, especially if hospitals get overwhelmed or the U.S. election dispute takes an unexpected turn.

Visa reported that November spending levels were similar to October on Wednesday, with U.S. payments volume up 6% year-over-year. Debit rose a healthy 19%, highlighting the switch from paper checks to digital transactions for everyday goods, while Credit declined 5%, indicating that more customers were using savings to pay for things. Unfortunately, other countries didn’t fare as well, with the United Kingdom, Italy, and Germany reporting lower payment volumes.

Wall Street And Technical Outlook

Wall Street has been wildly bullish on Visa for years, with a current ‘Strong Buy’ rating based upon 14 ‘Buy’ and 4 ‘Hold’ recommendations. No analysts are recommending that shareholders close positions and move to the sidelines at this time. Price targets now range from a low of $195 to a Street-high $250 while the stock opened Wednesday’s U.S. session about $13 below the median $223 target. This placement should support plenty of upside after a breakout.

The stock topped out at 214 in February after a multiyear uptrend and sold off more than 40% during the pandemic decline. A two-legged recovery wave reached the prior high in September, giving way to a secondary downdraft that found support at the 200-day moving average. Price action bounced back to the prior peak in November, ahead of narrow sideways action that has now completed weekly- and daily-scale cup and handle breakout patterns.

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.

Apple Could Test All-Time High In December

Dow component Apple Inc. (AAPL) posted an all-time high at 137.98 in September and eased into a correction that unfolded through a symmetrical triangle pattern. Buying pressure is now picking up, raising odds the tech superstar will test, and possibly break, range resistance prior to year’s end.  A trio of benign forces should underpin this uptick, with positive seasonality, vaccine distribution, and the surging Nasdaq-100 index encouraging investors to come off the sidelines.

December ‘Window Dressing’

The Nasdaq-100 has now reached within 100 points of the September high, stoking buying pressure throughout the tech universe. This is great news because 2020’s top performers, including the famed FAANG quintet, have underperformed so far in the fourth quarter, with capital rotating into 2021 recovery plays. However, market leaders often end the year at their highs because funds buy shares in December to ‘dress up’ annual reports to investors.

Apple news flow has been quiet in the last month or so, characterized by a Loop Capital upgrade, App store developments, and a few product and partnership announcements. Everyone is waiting on iPhone 12 sales statistics but CEO Tim Cook is unlikely to provide metrics until the end of the 2020 holiday season. This news vacuum can be good news for investors because it fosters speculation on sales strength without the threat of a sudden reality check.

Wall Street And Technical Outlook

Wall Street consensus has grown more cautious in recent months due to Apple’s 68% year-to-date return, with a ‘Moderate Buy’ rating based upon 23 ‘Buy’, 6 ‘Hold’, and 1 ‘Sell’ recommendation.  Price targets currently range from a low of $75 to a Street-high $150 while the stock is now trading about $7 below the median $129 target. Share gains should be relatively easy to achieve into year’s end, given this humble placement.

The stock broke out above the February 2020 high at a split-adjusted 81.22 in June, entering a powerful trend advance that added more than 50 points into the September high. It sold off to 103 a few weeks later, setting the boundaries of a symmetrical triangle that should resolve to the upside. Price action posted the first higher high in this pattern in the first hour of Tuesday’s session, raising odds for a triangle breakout and test of the rally high.

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.

 

 

 

Costco Could Hit 500 in 2021

Costco Wholesale Corp. (COST) has posted impressive growth for years, lifting into the 39th slot in SP-500 index capitalization. The big box retailer sharply increased market share in the first quarter, staying open as an essential services provider while many rivals were forced to close or curtail operations. That benefit has underpinned sales throughout 2020, generating a series of all-time highs. It currently boasts a 31% year-to-date return after booking a 44% return in 2019.

Costco Looks Ahead To 2021

The stock posted an all-time high at the start of Tuesday’s U.S. session and pulled back, highlighting mixed sentiment about COVID-19 beneficiaries while Pfizer Inc. (PFE) and Moderna Inc. (MRNA) load vaccines into refrigerated containers for distribution around the world. However, mega-retailers will benefit from the pandemic far longer than the majority of smaller companies that attracted intense interest in the second and third quarters.

Telsey Advisory Group analyst Joseph Feldman raised his price target to $430 on Tuesday, maintaining an ‘Outperform’ rating. He pounded the table in his commentary, stating “we forecast a total comp of 12.5% vs. 5.3% last year. Excluding a projected net gas and FX headwind of about 150 bps, we estimate a core merchandise comp of 14.0% vs. 4.8% last year, with a US comp, ex-gas, of 14.0% vs. 4.3% last year. Overall, we expect another strong monthly sales report, highlighting high member loyalty, the focus on value, and improvement in digital.”

Wall Street And Technical Outlook

Wall Street consensus has been solid as a rock for years, with the current ‘Strong Buy’ rating computed from 17 ‘Buy’ and 5 ‘Hold’ recommendations. No analysts are recommending that shareholders close positions, even though price has nearly doubled in the last two years.  Price targets now range from a low of $310 to a Street-high $435 while the stock opened Monday’s U.S. session about $4 above the median $386 target.

Costco has posted a nearly endless string of higher highs and higher lows since 2009, making it one of the SP-500’s top long-term performers. High volatility hit the uptrend in February 2020 when debate first erupted about potential COVID beneficiaries. It carved a broad triangle pattern into June and broke out, adding more than 100 points into October. The stock is now attempting to break resistance at that level and mount 400 for the first time.

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 Chip Stocks Hitting New Highs

PHLX Semiconductor Index has posted fabulous returns so far in 2020, lifting more 40% since the last trading day of 2019. Sadly, many well-known names topped out with broad benchmarks in September and are working off overbought technical conditions through trading ranges or lower prices. As an alternative, let’s look at a smaller group that’s hitting new highs as we wrap up the month of November, well-positioned for even higher prices between now into year’s end.

A number of 2020 sector leaders have taken market share from Intel Corp. (INTC), which has fallen from grace after a series of self-inflicted wounds. The Dow component has lost 21% so far this year, in stark contrast with the broad-based SOX index, piling up misfires and delays driven by weak management and poor execution. The old school behemoth has lost significant business to more nimble rivals and could descend into oblivion in 2021.

Micron Technology

Micron Technology Inc. (MU) makes memory chips. The stock has booked a respectable 19% return this year but the rally off the first quarter low tells an even more bullish tale, doubling in price and lifting into a critical test at May 2018’s high in the mid-60s. A breakout could presage outstanding 2021 upside because the advance will face little resistance into the all-time high in the 90s, posted at the height of the Internet bubble in 2000.

Applied Materials

Applied Materials Inc. (AMAT) makes semiconductor equipment for mainstream and leading-edge fabrication and is benefiting from the developing technology war with China.  The stock has risen 36% so far in 2020 and just completed a massive cup and handle breakout above the 2000 high in the mid-50s. In addition, it’s gained more than 40% since the end of October, capitulating on strong Q4 2020 top and bottom line results.

On Semiconductor

On Semiconductor Corp. (ON) makes chips for power generation, electric vehicles, cloud computing, and industrial production. It’s lesser known than other chip stocks in this review but has also benefited from Intel’s misfortunes, with accelerating sales surprising many analysts. The stock has just broken out above the March 2018 peak in the mid-20s and is trading at an all-time high. It’s also more than tripled in price off the March 2020 low at 8.17.

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.

General Motors Nears All-Time High

General Motors Co. (GM) rallied within five cents of 2017’s all-time high at 46.76 on Tuesday, at the tail end of a spectacular uptrend off March 2020’s all-time low at 14.32. The uptick translates into a 325% advance in the middle of a pandemic that’s threatened to upend the world economy. GM CEO Mary Barra can thank Elon Musk for a good part of the upside, with Tesla Inc.’s (TSLA) historic uptrend setting off sympathetic rallies throughout the EV space.

GM Raises EV Commitment

The automotive giant is increasing its financial commitment to EVs from $25 billion to $27 billion and expects to offer 30 all-electric models globally by the middle of the decade. Barra also chose to stick with a winner this week, abandoning President Trump’s lawsuit to challenge California emission standards and throwing her hat into Joe Biden’s ring, with a commitment to adhere to more climate-sensitive policies.

Executive VP Doug Parks outlined the initiatives at a Nov. 19 conference, confirming 30 EVs at all price points, with more than two-thirds available in North America. To complete the task, the company is hiring 3,000 electrical system, infotainment software, and controls engineers, plus developers for Java, Android, iOS, and other platforms. GM will also look at third-party licensing for its Ultium EV architecture, batteries, and propulsion systems, along with its Hydrotec fuel cell technology developed with Honda.

Wall Street And Technical Outlook

Wall Street consensus has tracked the rise in share prices, with a ‘Strong Buy’ rating based upon 11 ‘Buy’ and 1 ‘Hold’ recommendation. No analysts are recommending that shareholders close positions and move to the sidelines. Price targets range from a low of $20 to a Street-high $65 while the stock opened Wednesday’s session at the median $45 target. This placement suggests GM is fully-valued, with earnings likely to drive future price action rather than long-term initiatives.

This is General Motor’s fourth trip into this price zone since coming public in 2010. Heavy selling pressure emerged during 2011, 2013 and 2017 advances so it’s best to remain skeptical because the rally has now reached 2017 resistance. In addition, the 8-month uptrend has carved just one consolidation pattern, with support now centered in the mid-30s. As a result, the reward-to-risk profile won’t be favorable until overbought technical readings work out of the system.

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.

 

General Electric Up 70% In The 4th Quarter

General Electric Co. (GE) rallied to an 8-month high in the first hour of Tuesday’s U.S. session following an Oppenheimer upgrade. The stock has risen more than 70% so far in the fourth quarter, underpinned by growing optimism the four-year downtrend has finally come to an end. The former icon of innovation fell an astounding 82% from the 2016 high into May 2020’s 29-year low, and more than 92% since posting an all-time high in August 2000.

GE Paying Off Old Debts

The company is working off an enormous debt load after years of bad management. The crash in bond yields is making the job easier, along with key personnel changes designed to end a near-comatose corporate culture. Unfortunately, bad timing is playing a role in GE’s recovery because the aviation division is posting huge losses due to the collapse in air travel and MAX-737 grounding. Fortunately, that crisis will ease as we get closer to wide-scale vaccine distribution.

Oppenheimer analyst Christopher Glynn upgraded General Electric from ‘Market Perform’ to ‘Outperform’, setting a price target of $12 while noting the “rating reflects our view of more pointed read-through of cost reduction initiatives, resulting in early stages of clearer breadth of operating momentum across segments. We believe working capital performance could surprise to the upside in 2021, considering GE is working through widespread facility consolidations and managing working capital amidst that during 2020”.

Wall Street And Technical Outlook

Wall Street is finally jumping on board the bull train, with a ‘Moderate Buy’ rating based upon 8 ‘Buy’ and 5 ‘Hold’ recommendations. No analysts are recommending that shareholders close positions and move to the sidelines. Price targets currently range from a low of $5 to a Street-high $12 while the stock is trading about $1.30 below the high target. This placement makes sense because this is a long-term recovery play rather than a short-term trading vehicle.

General Electric undercut the 2018 low at 6.40 during the pandemic decline, reversing after trading just below the 2008 low at 5.51. The uptick that started in the fourth quarter has established a ‘2B’ buy signal while continued upside that reaches or exceeds the February 2020 high at 13.26 will confirm a bullish double bottom reversal. That level has come into narrow alignment with the 200-week EMA, with a breakout establishing the first uptrend since 2016.

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 Hidden Gems In The Nasdaq-100

Market players tend to focus their capital on just a handful of well-known Nasdaq-100 components, like Apple Inc. (AAPL), Microsoft Corp. (MSFT), and Tesla Inc. (TSLA). Another sizable group just trades the index as a whole, through Investo QQQ Trust or the CME index futures contract. However, many lesser-known components have carved stronger price action since March 2020, or have outperformed their Silicon Valley rivals for a decade or more.

Traders and market technicians can uncover these hidden gems by sorting a list of Nasdaq-100 index components by relative strength. There are many ways to accomplish this task but the most effective method I’ve found is to list securities by relative positioning above or below their 200-day exponential moving averages (EMAs). Not surprisingly, running a list in this mixed autumn market reveals three companies that required searches to find out how they make money.

Pinduoduo

Pinduoduo Inc. (PDD) was added to the Nasdaq-100 index in August. The Shanghai-based company operates a hugely-popular mobile e-commerce platform that specializes in apparel, appliances, and household goods. The stock now sits at the top of the index performance list, carving a series of new highs while better-known tech stocks grind through fourth quarter corrections. However, this isn’t a cheap security by any metric, with a 363% 2020 return-to-date.

Align Technology

Align Technology Inc. (ALGN) manufactures and markets Invisalign clear dental aligners and iTero intraoral scanners, as well as other products for dentists and orthodontists. The stock posted a 3-year low in March 2020 and turned sharply higher, completing a breakout above the September 2018 high near 400 in October. It posted an all-time high at 507 on Nov. 9 and pulled back, testing new gains. It’s now approaching support, setting the stage for further upside.

Cintas

Cintas Corp (CTAS) provides janitorial and safety-oriented uniforms and business services in North America, Latin America, Europe, and Asia. This is one of the top Nasdaq-100 performers in the last decade, despite their relatively humble business model. The stock got cut in half during the first quarter’s pandemic decline and bounced strongly, recouped 100% of the losses into June. An August breakout is now gathering steam, opening the door to significant upside.

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.

Boeing 737-MAX Set For Return To Friendly Skies

Dow component Boeing Co. (BA) rallied to a 5-month high and pulled back in Thursday’s session after the U.S. Federal Aviation Administration (FAA) announced it had cleared the troubled 737-MAX jetliner for a return to flight. Bloomberg then reported that EU approval could come as early as this week, removing the final hurdle to putting the plane back into service since the worldwide grounding in March 2019.

Continued Headwinds

The stock is trading above the 200- day moving average for the first time since November 2019 but Thursday’s reversal acknowledged continued headwinds that won’t be fixed by a return to flight. First, many folks will avoid air travel despite the rollout of effective vaccines because a large minority will refuse to take shots, deterred by the anti-vax movement. Second and more importantly, the virtual meeting space has grown hugely popular with corporations, allowing them to greatly reduce business travel budgets.

Baird analyst Peter Arment upgraded Boeing from ‘Neutral’ to ‘Outperform’ after the news, raising their price target from $165 to a Street-high $306. Ament believes that “risks of 737-Max delays are diminishing with a return to service now imminent” and expects vaccines to aid in the mega cap’s recovery to traditional growth. He also predicts a “multiyear air travel recovery” that requires investors to be patient, looking “further out with each year improving year-over-year”.

Wall Street And Technical Outlook

Wall Street consensus hasn’t changed much despite last week’s upgrade, with a cautious ‘Hold’ rating based upon 9 ‘Buy’, 10 ‘Hold’, and 1 ‘Sell’ recommendation. Price targets currently range from a low of $137 to a Street-high $306 while the stock closed Friday’s session just $1 below the median $200 target. It isn’t likely to stray too far from the round number in coming weeks, with the pandemic surging in a second wave and 737-MAX approval in the rear view mirror.

The stock broke down from a two-year double top pattern in February 2020 and fell to a 7-year low in double digits. It remounted the broken 200-month moving average at 160 in June and tested that level successfully ahead of last week’s news. However, June resistance at 234 remains in place while the 50-month moving average is descending into narrow alignment. This formidable barrier will be tough to break without major upticks in revenue and order flow.

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.

United Airlines Warns Of Rising Cancellations

United Airlines Holdings Inc. (UAL) reduced guidance on Thursday, noting a deceleration in bookings and increase in cancellations as a result of the surging COVID-19 pandemic. Major airline carriers had booked stronger-than expected traffic over the summer months, as the virus faded from the front pages in most parts of the world. Several CEOs upwardly revised dismal forecasts during that period, allowing complacency to overcome common sense.

Business Travel Will ‘Go Away’

Former Microsoft Corp. (MSFT) Bill Gates put a damper on Boeing Co. (BA) and the airline sector on Wednesday, declaring that 50% of business travel will ‘go away permanently’ because of technology like the virtual meeting software offered by Zoom Video Communications Inc. (ZM). He also predicted 30% of people will be working from home in the long-term, allowing corporations to become leaner and meaner, with fewer-owned properties and multiyear leases.

United Airlines now expects fourth quarter capacity to drop ‘at least’ 55% compared to same quarter in 2019. It also guided for a 67% reduction in revenue, below prior forecasts. The company will also burn cash at a faster rate, eating up approximately $15 million to $20 million, plus $10 million of average debt principal and severance payments per day. None of these forecasts bode well for Delta Air Lines Inc. (DAL) or American Airlines Group Inc. (AAL).

Wall Street And Technical Outlook

Wall Street consensus has deteriorated in recent months, now standing at a neutral ‘Hold’ rating based upon 5 ‘Buy’, 7 ‘Hold’, and 2 ‘Sell’ recommendations. Price targets currently range from a low of $32 to a Street-high $54 while the stock is set to open Thursday’s U.S. session right at the median $41 target. Capacity news and vaccine updates should drive price action into 2021 with this mid-range placement, suggesting limited upside.

The stock posted an all-time high at 97.85 in 2018 and entered a narrow consolidation that broke to the downside in February 2020, also breaking multiple support levels going back to 2013. The 2016 low in the upper 30s is now getting tested while continued upside will run into a buzz saw of resistance in the 50s, where the 2017 low and 200-week moving averages are narrow-aligned. On the downside, bears will gain control of the tape if a selloff pieces rising 2020 lows near 30.

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

Excitement Builds Ahead Of NVIDIA Report

NVIDIA Inc. (NVDA) reports Q3 2020 earnings after the close of Wednesday’s U.S. session, with analysts expecting a profit of $1.92 per-share on $4.42 billion in revenue. If met, earnings-per-share (EPS) will mark an 8% profit increase, compared to the same quarter in 2019. The stock closed unchanged after beating Q2 top and bottom line estimates in August but hit an all-time high less than two-weeks later.

NVIDIA Unveils Data Processing Units (DPUs)

The graphics powerhouse has benefited from rollout delays and weak management at Intel Corp. (INTC), taking market share in key semiconductor channels. The company unveiled a new class of processors called Data Processing Units (DPU) at an industry conference during the quarter, characterized as a “an innovative data-center-on a chip that is optimized to offload critical networking, storage, and security tasks from CPUs.”

Needham analyst Rajvindra Gill pounded the tables on the chip set recently, declaring “by offloading tasks to the DPU, the server CPU is optimized and doubles in performance. This leads to a dramatic acceleration in performance, a reduction in the infrastructure, which ultimately leads to lower total cost of ownership for the end customer” He sees major applications in AI in coming years, stating “we believe NVIDIA is at the forefront of this trend”.

Wall Street And Technical Outlook

Wall Street consensus is highly bullish, even though new coverage has been sparse during the quarter. It’s now rated as a ‘Strong Buy’, based upon 26 ‘Buy’, 4 ‘Hold’, and 1 ‘Sell’ recommendation. Price targets currently range from a low of $400 to a Street-high $700 while the stock opened Wednesday’s session about $55 below the median $585 target. There should be plenty of room for upside if NVIDIA beats earnings expectations after the close.

The stock broke out above the 2018 high at 292 in May and entered a trend advance that posted an all-time high at 589 on Sept. 2. Price action then eased into a triangular trading range, with support around the 50-day moving average. Buying interest has remained strong throughout the correction but long-term relative strength readings have flipped into sell cycles, predicting sub-par performance into 2021. That won’t be surprising, given the 126% year-to-date return.

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

 

Tesla Breaks Triangle Resistance After S&P-500 News

Tesla Inc. (TSLA) is trading higher by more than 10% in Tuesday’s U.S. session after being added to the S&P-500 index, effective at the open of trading on Monday Dec 21. The move caught market players and true believers asleep-at-the-wheel after the S&P Dow Jones Indices committee snubbed the EV manufacturer in September. CEO Elon Musk is currently in quarantine after testing positive for COVID-19 and hasn’t commented on the inclusion.

Tesla Bulls Hoping For New Highs

Bulls hope the addition marks the start of a breakout but index changes usually trigger one-day ‘events’, rather than sustained trends in either direction. It looks like price action has already settled into a trading range between 440 and 462, which has technical implications going forward. In addition, the stock has just reached the midpoint of the two-month trading range, lowering odds for a rapid ascent, especially after mixed Q3 earnings in October.

Tesla’s SEC-mandated 10-Q recently disclosed that capital expenditures will increase to the $4.5 billion to $6.0 billion range in the next two fiscal years while cash flow is expected to exceed spending. As the document notes “our business is now consistently generating cash flow from operations in excess of our level of capital spend, and in the third quarter of 2020 we also reduced the use of our working capital credit facilities. We expect our ability to be self-funding to continue as long as macroeconomic factors support current trends.”

Wall Street And Technical Outlook

Wall Street consensus has deteriorated in reaction to historical share gains and uneven quarterly performance, with a ‘Hold’ rating based upon 9 ‘Buy’ and 10 ‘Hold’ recommendations. A stomach-churning 9 analysts now recommend that shareholders close positions and move to the sidelines. Price targets currently range from a low of just $40 to a Street-high $578 while the stock is now trading about $60 above the median $382 median target.

Tesla posted an all-time high at 502 just one session after the Aug. 31 five-for-one stock split and entered a symmetrical triangle pattern. The news gap triggered a triangle breakout but price action has already entered a test at new support so we’ll have to wait because a failure swing is possible. The 435 to 440 zone marks the line-in-the-sand between bulls and bears in this scenario while resistance at the September high near 462 has already repelled buying interest.

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

Zoom Heads Lower After Moderna News

Zoom Video Communications Inc. (ZM) resumed an aggressive decline in Monday’s U.S. session, dropping more than 25 points to 377, after Moderna Inc. (MRNA) reported 94% efficacy in its vaccine candidate. The stock bounced about 11 points below that price level last week after selling off more than 200 points and 37% in just 17 trading days. Overbought technical readings triggered the first part of the furious downdraft while Pfizer Inc.’s (PFE) blockbuster vaccine news prompted the second.

Zoom Enters Steep Correction

The COVID-19 beneficiary posted a 2020 return in excess of 850% into the Oct. 19 all-time high at 588, underpinned by its wildly popular Zoom virtual meeting software. However, market players are now turning their attention to a post-pandemic world that permits more human interaction, both in the work place and between family and friends. And, despite more than 200 points of downside, the stock’s price-to earnings ratio (P/E) still stands at an astronomical 482.

Zoom just took a big step in alleviating a series of security and privacy concerns that arose in the first quarter when the software first gained popularity, settling a Federal Trade Commission (FTC) complaint that requires the company to “implement a robust information security program to settle allegations that the video conferencing provider engaged in a series of deceptive and unfair practices that undermined the security of its users”.

Wall Street And Technical Outlook

Wall Street has been quiet as a church mouse since the selloff began in October, issuing no tier one upgrades or downgrades. Consensus now stands at a cautious ‘Moderate Buy’ rating, based upon 12 ‘Buy’, 12 ‘Hold’, and 1 ‘Sell’ recommendation. Price targets finally match reality after the downdraft, with a low of $315 and a Street-high $611, while the stock is now trading about $90 below the median $478 target.

The stock pulled back to the 50-day moving average in early November and broke down last week, dropping to a 2-month low. Meanwhile, the Sept. 1 gap between 326 and 410 remains partially unfilled, with the bottom of the big hole marking a magnetic target and potential buying opportunity. The narrowly-aligned .786 Fibonacci rally retracement level and 200-day moving average near 310 could offer even lower risk entry for conservative market players.

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

Baidu Completes Double Bottom Reversal

Chinese search engine Baidu Inc. (BIDU) reports Q3 2020 earnings after Monday’s U.S. closing bell, with analysts looking for a profit of $13.08 per-share on $27.5 billion in revenue. If met, earnings-per-share (EPS) would mark a 750% profit increase compared to the same quarter in 2019.  The stock fell more than 6% after posting mostly in-line results in August but recovered quickly and is now trading at a 10-month high.

Baidu Marketing On The Mend

Baidu’s marketing division produces 85% of total revenue, exposing price action to cyclical economic trends. That division took a hit during the first quarter shutdown but is now back on the growth track. Search inquiries and revenue driven by the hugely-popular mobile app rose 28% in Q2 2020 and double digits year-over-year, raising prospects for strong performance in coming quarters. In addition, the company expects to enhance average revenue per user (ARPU) through membership, gaming and live streaming initiatives.

Barclay’s analyst Gregory Zhao just upgraded the stock to ‘Overweight’ and raised the price target to $170, noting, “we think both the online marketing services and the new AI initiatives of Baidu Core are reaching an inflection point. Since 2Q20 its marketing division has followed the online ad industry’s recovery trend to gradually restore growth momentum. We also see substantial upside in the potential monetization through membership, gaming and live streaming to fully utilize existing traffic.

Wall Street And Technical Outlook

The stock has underperformed broad technology benchmarks in recent years, despite bullish Wall Street coverage. It’s currently rated at a ‘Strong Buy’, based upon 7 ‘Buy’ and 2 ‘Hold’ recommendations, and no analysts are recommending that shareholders close positions. Price targets currently range from a low of $130 to a Street-high $182 while the stock closed Friday’s U.S. session $14 below the median $160 target.

Baidu posted new three new highs into 2018 and entered a steep decline that hit a 7-year low in the first quarter. It spent the last 8 months working back to the January 2020 high at 147 and just completed the 100% retracement. This level marks a high volume 2019 breakdown through the 2018 low, as well at 200-week moving average resistance. A better-than-expected report and strong guidance may be needed to mount this formidable barrier.

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

Nike Fails Second Breakout Attempt

Dow component Nike Inc. (NKE) opened at an all-time high on Monday in sympathy with COVID recovery plays and sold off, failing a breakout above the September high near 130. The turnaround wasn’t a surprise because the failure of professional sports teams to fill stadiums has weighed on fourth quarter performance, even though NFL TV ratings have shown excellent resiliency compared to MLB and NBA misfires.

Professional Sports Weighing on Nike

The turnaround reinforces a holding pattern in place since September and the uncertain impact of the pandemic’s second wave this winter. Everyone hopes that 2021 soccer and baseball seasons proceed on schedule and the 2021 Tokyo Olympics gets off the ground but it could take more than a vaccine to get that accomplished. Even so, Nike is doing a great job building market share through direct e-commerce sales, which have underpinned revenue since the first quarter.

RBC analyst Kate Fitzsimons initiated Nike coverage with an ‘Outperform’ and $145 price target on Thursday, noting “We see NKE as a best-in-class global athletic play, with its Consumer Direct Acceleration strategies supporting a multi-year mid-high teens EPS CAGR through FY26. While shares at 35x earnings suggest that NKE’s strong fundamentals are well appreciated, we believe FY21/22 can see EPS upside as recovery from COVID-related disruption comes through faster and as gross margin comes in better.”

Wall Street And Technical Outlook

Wall Street consensus is highly bullish, with a ‘Strong Buy’ rating based upon 24 ‘Buy’ 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 $115 to a Street-high $165 while the stock opened Thursday’s U.S. session nearly $20 below the median $146 target. This placement should offer plenty of upside in reaction to news that brightens the light at the end of the pandemic tunnel.

The stock broke out above the first quarter high at 105.62 in August, triggering a rapid advance into the low 130s in September. October and November breakout attempts have now failed, adding to bearish weekly and monthly relative strength readings. Accumulation peaked in September and has posted two lower highs since that time, raising odds for a decline that fills the unfilled portion of Sept. 23 gap between 117 and 119.

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

Netflix Could Fail Second Quarter Breakout

Netflix Inc. (NFLX) sold off nearly 7% on Oct. 21 after missing Q3 subscriber estimates and offering mixed Q4 guidance. It lifted back into the sell gap and dropped like a rock on Monday after Pfizer’s (PFE) blockbuster vaccine announcement triggered a broad-based exodus from COVID-19’s biggest beneficiaries. The decline has now arrived at range support for the fifth time, raising odds the stock will break down and fail the second quarter breakout.

High Churn Levels

Churn levels surged after the August release of the provocative “Cuties” film, which many believe sexualizes young girls. The controversy may have undermined Netflix quarterly performance, with many folks cancelling the service in protest. More importantly, huge subscriber gains in the first and second quarters as a result of pandemic shutdowns may have sapped future demand, especially in older demographics reluctant to abandon traditional broadcasting.

Jefferies analyst Alex Giaimo raised their target to $585 after the October report, noting “while the stock will likely get hit on the net add miss, we see many fundamental positives from the 3Q print (rich pipeline, inflecting FCF story, potential price hikes). History says to accumulate shares on earnings dips and own the stock longer-term, and we recommend sticking to that strategy. While bears will push back on slowing trends, we see many levers the company can pull to maintain healthy double digit revenue growth over time.”

Wall Street And Technical Outlook

Wall Street consensus is mildly bullish after the mixed quarter, with a ‘Moderate Buy’ rating based upon 21 ‘Buy’ and 5 ‘Hold’ recommendations. Three analysts now recommend that shareholders close positions and move to the sidelines. Price targets currently range from a low of $235 to a Street-high $700 while the stock opened Wednesday’s session nearly $100 below the median $580 target. This placement suggests analysts have over-estimated the long-term outlook.

Netflix broke out above the 2018 high near 420 in June and took off in a strong trend advance that posted an all-time high at 575 in July. Price action since that time has carved a near-perfect rectangle pattern, with resistance at that level and support in the 460s. The stock bounced off support for the fifth time this week but accumulation, as measured by the on-balance volume (OBV) indicator, continues to deteriorate and is now at a 4-month low. This bearish divergence raises odds for a failed breakout into the 400 level.

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

Disney Rallies To 10-Month High Ahead Of Earnings

Dow component Walt Disney Co. (DIS) reports Q4 2020 earnings after the U.S. closing bell on Nov. 12, with analysts expecting the entertainment giant to report a loss of $0.65 per-share on $14.14 billion in revenue. The stock rallied nearly 9% after beating Q3 profit estimates by a wide margin in August, even though revenue fell a staggering 41.7% year-over-year. It rallied to a 9-month high on Monday, in reaction to Pfizer’s (PFE) blockbuster vaccine announcement.

Disney Revenue Headwinds

Movie and television production have resumed at a snail’s pace, with California and other venues still under COVID-19 restrictions and reopened theaters bleeding capital. Disney has also reopened a number of theme parks, including Orlando’s Disney World, but visitation has been poor due to air travel fears and continued worries about infection. The second wave sweeping the planet could undermine diminished revenues this winter, reducing confidence in upside potential.

Loop Capital analyst Alan Gould recently upgraded the stock to ‘Buy’, noting “the future, or arguably the present, is all about streaming and sacrificing current profits to be better positioned for streaming. Hence, we anticipate that more resources will be allocated to streaming, Disney will keep its streaming subscription prices lower for longer to encourage subscriber growth and minimize churn. We also expect investors will give Disney a pass on both near-term Covid-19 related losses and increased DTC losses over the next few years”.

Wall Street And Technical Outlook

Wall Street consensus now stands at a marginally positive ‘Moderate Buy’ rating, based upon 10 ‘Buy’ and 4 ‘Hold’ recommendations. No analysts are recommending that shareholders close positions and move to the sidelines, even though revenue may not fully recover for several years. Price targets currently range from a low of $124 to a Street-high $164 while the stock opened Tuesday’s U.S. session more than $4 below the $144 median target.

The vaccine news lifted Disney above tough resistance at 130 and into the .786 Fibonacci selloff retracement level for the second time since August. The stock now needs to hold the 135.00 to 137.50 price zone to set its sights on 2019’s all-time high at 153.41. That seems like a stretch, given continued headwinds and innumerable obstacles to long-term recovery. Even so, market players may ignore those headwinds if the Disney+ streaming service books strong Q4 growth.

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

Pfizer Lifts to 19-Month High After Blockbuster Vaccine News

Pfizer Inc. (PFE) rallied more than 15% at the open of Monday’s U.S. session after reporting a 90% success rate with a vaccine candidate under development in collaboration with Germany’s BioNTech SE (BNTX). COVID-19 beneficiaries sold off on the news while shares of cruise ship operators, movie theaters, and airline carriers took off for the heavens. However, sellers pounced on the opening bid, dropping the pharmaceutical giant more than three points off the high.

Pandemic Headwinds Likely To Persist

The high efficacy rate is good news but major obstacles are likely to delay an early end to the pandemic. For starters, an October survey indicated that just 58% of Americans will take a vaccine as soon as it’s manufactured, due to anti-vax theories and general political unrest. The 10% ineffective rate is also too high for instant relief, asking those most vulnerable to serious illnesses to ‘roll the dice’, hoping for an immune response.

Pfizer CEO Albert Bouria appeared on CNBC on Monday morning, expressing genuine enthusiasm for the compound. He believes we’re finally seeing the light at the end of the COVID-19 tunnel but warned that side effects have been reported. He also views the candidate as the ‘most significant medical advance in the past 100 years’, which seems like hyperbole, given statins, the polio vaccine, and other life-saving drugs introduced in the last century.

Wall Street And Technical Outlook

Wall Street has been caught ‘asleep at the wheel’ on Pfizer’s long-term outlook, posting a sluggish ‘Moderate Buy’ rating based upon 4 ‘Buy’ and 4 ‘Hold’ recommendations.  To their credit, no analysts are recommending that shareholders close positions and move to the sidelines. Price targets currently range from a low of $38 to a Street-high $53 while the stock has descended to the low target after an opening spike to $42.

Pfizer is a slow moving stock that’s underperformed since a 9-year uptrend topped out less than four points below 1999’s all-time high in 2018. This weak performance induced the keepers of the Dow Industrial Average to remove the stock last summer, in an act of near-perfect timing. It posted a four-year low in March 2000 and turned higher, stalling in the upper 30s in June. Monday’s breakout is test new support at that level, with mid-term upside limited to the mid-40s.

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

 

McDonalds Could Beat Q3 Earnings Expectations

Dow component McDonalds Corp. (MCD) reports Q3 2020 earnings in Monday’s pre-market, with analysts looking for a profit of $1.90 per-share on $5.36 billion in revenue. If met, earnings-per-share (EPS) would mark an 11% profit decline compared to the same quarter in 2019. The stock sold off 2.5% after posting a Q2 revenue decline of nearly 30% in July but comparative sales surged 4.6% in the third quarter, lifting the fast food icon to an all-time high.

Strong Third Quarter Sales

The stock missed top line estimates in the first and second quarters as a result of pandemic shutdowns but benefited from the summer’s return to normalcy and could easily exceed modest expectations.  However, the dreaded second wave is now underway, with the potential to force millions of folks back into their homes. Even so, the enormous popularity of drive-through, pick-up, and delivery services should keep a floor under profits and revenue until COVID runs its course.

Telsey Advisory Group analyst Bob Derrington raised McDonalds target to $250 last week, noting “same store sales trends accelerated in September to a double-digit increase, yielding its strongest U.S. monthly comps since Sept. 2004, and which carried into early October. While those especially strong September trends were not expected to last, it clearly demonstrated that when its operations, marketing, and product innovation plans are well-aligned, Mickey D is an extremely formidable industry competitor.”

Wall Street And Technical Outlook

Wall Street consensus is highly bullish, with a ‘Strong Buy’ rating based upon 20 ‘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 $203 to a Street-high $265 while the stock closed Friday’s U.S. session about $17 below the median $236 target. This placement should yield higher prices if the chain can overcome investor fears about the second wave.

McDonalds topped out at 222 in August 2019 and sold off more than 40% into March’s 3-year low. The subsequent uptick completed a round trip into the prior high in September, yielding a breakout that failed at the end of October. The stock has been trading below the 50-day EMA for the last two weeks, signaling growing fears about the second wave.  This weak sentiment could keep a lid on gains unless the company issues unexpectedly strong Q4 guidance.

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

Microsoft Surges Off Intermediate Support

Dow component Microsoft Corp. (MSFT) is trading at a 3-week high on Thursday after an analyst upgrade, adding to gains posted following Tuesday’s U.S. presidential election. The stock fell 5% at the end of October despite beating Q1 2021 profit and revenue estimates by wide margins.  Market watchers blamed modest Q2 revenue guidance for the sell-the-news reaction, which has now been fully repealed.

Microsoft Reports Strong Quarter

The company booked exceptionally strong results in the Intelligent Cloud Segment in the fiscal fourth quarter, with Azure posting 48% revenue growth year-over-year. The Productivity and Business Processes segment grew 11% year-over-year, underpinned by Teams corroborative software and Office Commercial products. Windows Server growth waned, generating a new headwind, but the current price is discounting that sales slump.

Oppenheimer analyst Timothy Horan upgraded Microsoft from ‘Perform’ to ‘Outperform’ and raised their price target to $260 ahead of Thursday’s opening bell, stating “a Biden presidency should improve relations with China where Microsoft has significant exposure while a Republican majority Senate should prevent higher corporate taxes. We also expect treasury yields to stay low, making MSFT’s 3% FCF yield attractive.”

Wall Street And Technical Outlook

Wall Street consensus is immaculate, with a ‘Strong Buy’ rating based upon 22 ‘Buy’ and 0 Hold’ recommendations. In addition, not a single analyst is recommending that shareholders sell their positions. Price targets currently range from a low of $235 to a Street-high $260 while the stock is now trading $12 below the low target.  Disconnects between traders and analysts often reflect unrecognized internal issues but the company does seem to be significantly under-valued.

The stock broke out above the February 2020 high at 190.70 in June and added about 35 points into September’s all-time high at 232.86. A broad-based tech decline then set into motion, dropping Microsoft into 50-day moving average support a few weeks later. It’s now ejecting off that level for the second time, trading within 10 points of the prior high.  Long-term relative strength readings have turned south in the last two months, raising odds for continued rangebound action, rather than a sustained assault on new highs.

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

Uber On Fire After California Vote

Uber Technologies Inc. (UBER) soared more than 10% overnight after California voters passed Proposition 22, allowing ride-share drivers to continue classification as independent contractors, rather than employees entitled to a host of benefits. The company and rival Lyft Inc. (LYFT) argued the measure would undermine their fragile business models, forcing Californians back into taxis and other traditional riding methods.

Uber Earnings On Tap

The timing couldn’t be better. Uber reports Q3 2020 earnings after Thursday’s closing bell, with analysts expecting a loss of $0.49 per-share on $3.18 billion in revenue. The company expected to post its first profit at the end of 2020 but the pandemic delivered a knock-out blow, inducing thousands of customers to avoid the service. Fortunately, UberEats has picked up the slack, with at-home food delivery orders surging as result of social distancing.

Market watchers will be listening closely to the conference call, hoping Uber forecasts a new profitability date. CEO Dara Khosrowshahi recently suggested that milestone will take longer than expected, guaranteeing new protections to workers if the measure passed, including 30 cents per mile for gas and other vehicle costs, healthcare subsidies for drivers who work 15 hours or more a week, and occupational-accident insurance coverage while on the job.

Wall Street And Technical Outlook

Wall Street has grown increasingly bullish on the company’s long-term outlook in 2020, with a consensus ‘Strong Buy’ rating based upon 20 ‘Buy’ 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 $34 to a Street-high $50 while the stock is set to open Wednesday’s U.S. session about $1 below the $41 median target.

A rally into February 2020 stalled six points below 2019’s all-time high at 47.08, giving way to a steep decline that posted an all-time low in the teens in March. The subsequent bounce ended in the upper 30s in June, yielding 5 months of sideways action, followed by a post-election uptick that’s now reached within 40 cents of the February peak. Accumulation readings are testing 2020 highs at the same time, raising odds the stock will head into a test of resistance in the upper 40s.

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

Disclosure: the author held Uber shares at the time of publication.