High Expectations Ahead of Apple Report

Dow component Apple Inc. (AAPL) reports Q1 2021 earnings after Wednesday’s closing bell, with analysts looking for a profit of $1.41 per-share on $103.2 billion in revenue. If met, earnings-per-share (EPS) will mark a 72% profit decline compared to the same quarter in 2020. The stock sold off nearly 6% after beating Q4 top and bottom line estimates in October, with shareholders hitting the exits on a $2 billion shortfall in iPhone revenue.

Heading Into iPhone Supercycle?

Market players will be scrutinizing the earnings release, looking for confirmation of a new iPhone sales supercycle. Sales disappointed in the prior quarter but October’s iPhone 12 launch has been well-received, with analyst channel checks confirming surging demand that could rival the glory days of iPhone 6. However, COVID-19 has the power to undermine optimistic forecasts so a downside surprise can’t be ruled out.

Wedbush analyst Daniel Ives pounded the tables ahead of the report, noting “For the March quarter we believe builds for total iPhones ticked up again another 5% over the last few weeks and are now in the 60 million to 70 million range. For the June quarter we believe initial builds are in the low 40 million range with potentially an upward bias. We have not seen a launch uptrend such as this in a number of years for Apple and the only iPhone trajectory similar would be the iPhone 6 in 2014”.

Wall Street and Technical Outlook

Wall Street consensus has grown more bullish in the last three months, with an ‘Overweight’ rating based upon 23 ‘Buy’, 5 ‘Overweight’, 10 ‘Hold’, and 3 ‘Sell’ recommendations. Price targets currently range from a low of $74 to a Street-high $175 while the stock opened Wednesday’s U.S. session about $3 above the median $140 target. This placement suggests the earnings report will need to fire on all cylinders to generate sustained upside.

Apple rallied above the February 2020 high at a split-adjusted 81.96 in June and took off in a powerful trend advance that stalled in September at 137.98, just two days after the 4-for-1 stock split. A quick decline to 103.10 defined the lower end of a trading range, ahead of a steady uptick that’s now stretched about five points above the prior high. A rally toward 150 will confirm a breakout in this configuration while a selloff through 138 reinforces range 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.

Facebook Stuck in Neutral Ahead of Earnings

Facebook Inc. (FB) reports Q4 2020 earnings after Wednesday’s U.S. closing bell, with Wall Street analysts looking for a profit of $3.20 per-share on $26.4 billion in revenue. If met, earnings-per-share (EPS) will mark a 25% profit increase compared to the same quarter in 2020. The stock fell more than 6% despite beating Q3 top and bottom line estimates in October but has carved little upside or downside since that time.

Ad Revenue vs. Political Headwinds

The stock topped out above 300 in August and eased into a trading range, with support below 250. Heavy criticism by the former president weighed on fourth quarter sentiment, with CEO Zuckerberg accused of bias against conservative opinions. The climax reached a boiling point after the insurrection, with Facebook and other social media outlets banning Donald Trump for inciting violence.  Even so, ad revenue is likely to be the final arbiter of 2021 price action.

Credit Suisse analyst Stephen Juour lowered his target to $325 last week, noting “advertiser checks are indicating better-than-expected ad budget growth for both Facebook and Instagram, and we raise our FX neutral revenue growth estimates for 4Q20, which now stand at 26% vs. prior 24%. We have anticipated a slower start to 2021 and have modestly lowered our growth expectations for 2021 to 26% vs. our prior 27%. We maintain our ‘Outperform’ rating”.

Wall Street and Technical Outlook

Wall Street consensus hasn’t budged in the last quarter, with a ‘Buy’ rating based upon 39 ‘Buy’, 3 ‘Overweight’, 6 ‘Hold’, and 1 ‘Sell’ recommendation. Price targets currently range from a low of $205 to a Street-high $397 while the stock opened Tuesday’s U.S. session more than $50 below the median $330 target. Diminishing political headwinds have impacted this humble placement, raising odds for higher prices in reaction to strong quarterly metrics.

Facebook topped out at 219 in 2018 and sold off after a privacy scandal, dropping to a two-year low at year’s end. The stock completed a round trip into the prior high in January 2020 and broke out in May, lifting into August’s all-time high at 304.67. Price action since that time has carved a trading range that now looks like a bearish descending triangle top. However, price structure also looks incomplete, suggesting it will be months before confirmed breakout or breakdown.

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.

AMD Hovering Under 100 Ahead of Report

Advanced Micro Devices Inc. (AMD) reports Q4 2020 earnings after Tuesday’s closing bell, with analysts looking for a profit of $0.30 per-share on $3.02 billion in revenue. If met, earnings-per-share (EPS) will mark a slight profit decrease compared to the same quarter in 2020. The stock fell 4.1% in October despite beating Q3 top and bottom line estimates, with shareholders jumping ship after the company announced it would acquire Xilinx Inc. (XLNX) for $35 billion.

Is AMD Paying Too Much for Xilinx?

The stock has been running in place since early September, trading around the summer rally peak at 94.28. Outsized share gains and concerns the company is paying too much for Xilinx have weighed on buying interest but the overall pattern in the last five months looks bullish, raising odds for a sustained breakout into triple digits.  Even so, Intel Corp (INTC) missteps in the last year have yet to translate into higher AMD profits.

Cowen analyst Matthew Ramsay raised his target to $110 earlier this month noting, “We expect a strong Q4 and raise our 2021 revenue estimates as AMD’s share gains in PC, server, and console markets continue to track above consensus. 2021 EPS ticks down entirely due to higher 15% tax rate, and we introduce well-above Street 2022 numbers. We upgraded Intel today on the potential of the CEO change, but AMD’s momentum is here and now (and increasing).”

Wall Street and Technical Outlook

Wall Street consensus has deteriorated to an ‘Overweight’ rating after historic share gains, based upon 18 ‘Buy’ and 12 ‘Hold’ recommendations. Two analysts now recommend that shareholders close positions and move to the sidelines. Price targets currently range from a low of $13 to a Street-high $120 while the stock opened Monday’s U.S. session about $6 below the median $100 target. A breakout after an upside surprise is possible with this placement.

The stock topped out in the mid-90s in September and has failed three breakout attempts into January 2021. Price action has held high in the 5-month trading range but selling pressure has increased, dropping accumulation-distribution readings to the lowest low since July when AMD was trading more than 40 points lower. Higher-than-expected quarterly profits could overcome this deficit while an earnings miss is likely to drop price into fourth quarter support in the 70s.

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.

Mixed Messages Ahead of Starbucks Report

Starbucks Corp. (SBUX) reports Q1 2021 earnings after Tuesday’s closing bell, with analysts expecting a profit of $0.55 per-share on $6.91 billion in revenue. If met, earnings-per-share (EPS) will mark a 30% profit decline compared to the same quarter in 2020.  The stock sold off in October after the company guided Q1 EPS below consensus but it recovered quickly and has now broken out to an all-time high in triple digits.

Looking for a Q2 Recovery

The coffee king expects U.S. business to fully recover by the end of the March (Q2) quarter. The projection could prove optimistic, given the ongoing second pandemic wave and painfully slow vaccine rollout. In addition, the company is struggling to get through the winter months, with fiscal Q1 revenue projected to fall 5% to 6% overall and 7% to 10% in December, driven by increased restrictions and tougher comparisons during the 2020 holiday season.

Credit Suisse analyst Lauren Silberman posted upbeat comments ahead of the report, noting “We continue to like SBUX on both near-term & long-term fundamentals. Near-term, SBUX should benefit from reopening & increased commuter traffic, a reduction in industry supply, and easy comparisons. Long-term, we remain positive SBUX can return to outperformance, noting strong resilience amidst a challenging breakfast backdrop, with beverage innovation and a powerful digital ecosystem to drive the most meaningful contribution”.

Wall Street and Technical Outlook

Wall Street consensus reflects skepticism about the 2021 outlook, with a ‘Moderate Buy’ rating based upon 14 ‘Buy’, 18 ‘Hold’, and 0 ‘Sell’ recommendations. Price targets currently range from a low of $94 to a Street-high $122 while the stock closed Friday’s U.S. session $8 below the median $111 target. This humble placement reflects ongoing concerns about the restaurant sector, with investors keeping their power dry while the world awaits vaccine distribution.

Starbucks’ stock completed a round trip into resistance at the 2019 high near 100 in November and broke out in early December, posting an all-time high at 107.75 on the first trading day of 2021. It’s carved a rectangular consolidation since that time and is now trading just three points above the breakout level. The company has done a good job setting expectations ahead of the report, but odds are now equally weighted between a rally continuation and 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.

ViacomCBS Set to Enter Streaming Wars

ViacomCBS Inc. (VIAC) is trading higher on Thursday after a tier one analyst upgrade. The company, formed by the 2019 merger of Viacom and CBS, has been a solid performer since October, gaining more than 54% as investors reprice the entertainment powerhouse as a streaming service, following in the footsteps of Walt Disney Co (DIS) and other distributors entering that space in the last two years.

Launching New Streaming Service

VIAC is launching the Paramount+ streaming service in the United States, Latin America, and international markets on Mar. 4.  CBS All-Access, in service since October 2014, will be folded into the new offering, which will also feature more than 6,000 movies and 1,400 episodes from owned channels that include Showtime, MTV, Comedy Central, and Nickelodeon. The company still hasn’t announced monthly subscription prices.

Needham analyst Laura Martin raised her target from $36 to $55, noting “VIAC will be revalued upward as a streaming company in 2021, after the launch of Paramount+. We project VIAC will report $2.2B of streaming revenue in FY20, $3.1B in FY21, and $4.3B in FY22. Based on an average of NFLX and ROKU’s current EV/22E revenue multiple, VIAC’s streaming businesses would be valued at approximately $58B, which is greater than VIAC’s total EV today.”

Wall Street and Technical Outlook

Wall Street consensus is less enthusiastic, with a ‘Hold’ rating based upon 5 ‘Buy’ and 7 ‘Hold’ recommendations. Three analysts recommend that shareholders close positions and move to the sidelines. Price targets currently range from a low of $26 to Needham’s Street-high $55 while the stock will open Thursday’s session about $6 above the median $37.50 target. The average target has dropped more than 13% in the last quarter, reflecting continued skepticism.

The stock broke down from a 7-year double top pattern in the fourth quarter of 2019 when it sold off through the upper 30s, hitting an 11-year low during the 2020 pandemic decline.  Steady upside remounted resistance at the start of January but price action has now lifted into 50-month EMA resistance and a major Fibonacci retracement level. Given those obstacles, sidelined investors may wish to wait for a test of new support in the 30s before jumping on board.

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.

Bank Earnings Off to a Rough Start

Even so, the group has booked major gains since November when positive vaccine data from Pfizer Inc. (PFE) triggered a sustained rotation out of COVID-19 beneficiaries and into 2021 recovery plays. As a result, current selling pressure appears technical in nature, driven by overbought readings.

Bond yields are rising while the yield curve steepens, signaling a more favorable banking environment that should generate higher profit margins. Revenue remains a major obstacle, with most quarterly reports so far posting substantial year-over-year revenue declines as a result of the pandemic. Dow component JPMorgan Chase and Co. (JPM) is the only bank of the big three to grow revenue in the quarter, in line with its longstanding market leadership.

JPMorgan Chase

JPMorgan Chase lifted to an all-time high ahead of last week’s strong earnings report and pulled back in a notable sell-the-news reaction. Two days of profit-taking could mark the start of an intermediate correction that targets unfilled gaps at 120 and 126. The Nov. 9 breakout gap between 105 and 110 remains unfilled as well, but that might not come into play until later in the year. When it does, it should mark a low-risk buying opportunity.

Bank of America

Bank of America Corp. (BAC) lost nearly 1% on Tuesday after beating Q4 2020 profit estimates and falling short on revenue, with a 9.9% year-over-year decline. Credit loss provisions dropped sharply during the quarter, indicating less stress on customer budgets as the world adjusts to the COVID-19 pandemic. The company announced it would buy back up to $2.9 billion in common stock in the first quarter, after getting Federal Reserve approval.

Citigroup

Citigroup Inc. (C) has booked the greatest downside of the three banks after beating Q4 2020 earnings by a wide margin on Friday. However, revenue fell 10.2% year-over-year, triggering a shareholder exodus that’s now relinquished nearly 8%. Unlike Bank of America, Citi credit losses went in the wrong direction during the quarter, rising to 3.73% of total loans, compared to just 1.84% in the same quarter last year.

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.

Union Pacific at New High Ahead of Earnings

Union Pacific Corp. (UNP) reports Q4 2020 earnings in Thursday’s pre-market, with analysts expecting a profit of $2.23 per-share on $5.12 billion in revenue. If met, earnings-per-share (EPS) will mark a 10% profit increase compared to the same quarter in 2019. The stock sold off more than 6% in October after missing Q3 top and bottom line estimates, and fell another 6% into month’s end. However, it’s recovered since that time and is now trading at an all-time high.

Union Pacific Raises Guidance

This is America’s largest railroad, with 32,340 route miles linking the Pacific and Gulf coasts and Great Lakes. The company issued upside guidance on Jan. 8 and now expects to report revenue of $5.1 billion, compared to prior estimates of $5.06 billion. It also projects an adjusted operating ratio of 55.6%, marking a 4.1 point improvement over the same quarter in 2019. The stock rallied 3.4% after the news, breaking out to a new high.

United Pacific is the highest capitalized component in the Dow Jones Transportation Average, with a $146 billion market cap about $5 million higher than runner-up United Parcel Service Inc. (UPS). The stock posted a modest 14% return in 2020, which was enough to lift the Average above 3-year resistance to an all-time high. UNP price action is highly vulnerable to economic cycles, which impact shipping volume carried across the rails.

Wall Street and Technical Outlook

Wall Street consensus is mixed, with a ‘Moderate Buy’ rating based upon 11 ‘Buy’, 6 ‘Hold’, and 0 ‘Sell’ recommendations. Price targets currently range from a low of $160 to a Street-high $250 while the stock opened Tuesday’s U.S. session about $3 below the median $222 target. The pre-announcement triggered just one upgrade but more could follow if Q4 earnings-per-share also exceeds current expectations.

Union Pacific has been grinding higher since 2017 when it broke out above 2015 resistance near 125. Price action since September 2018 has tracked a rising highs trendline that’s now come back into play for the third time. This tells sidelined investors the reward-to-risk profile isn’t favorable, unless a bull surge generates a trendline breakout. The sky’s the limit if that happens, opening the door to 300 and beyond.

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.

IBM Waking Up From the Dead

International Business Machines Corp. (IBM) reports Q4 2020 results after Thursday’s U.S. closing bell, with analysts expecting a profit of $2.05 per-share on $20.57 billion in revenue. If met, earnings-per-share (EPS) will mark a troubling 56% profit decline, compared to the same quarter in 2019. The stock fell 6.5% in October after meeting modest top and bottom line estimates, consistent with the company’s long-term status as a market laggard.

IBM Acquisition Binge Ahead of Spin-Off

However, bullish stars are aligning for strong price action that could catch analysts and traders off-guard. In October, IBM announced the spin-off of its Managed Infrastructure Services (MIS) business into a publicly-traded entity, in a transaction expected to close at the end of 2021. In addition, the company has been on an acquisition binge since the last report, scooping up cloud and fintech firms TruQua Enterprises, Instana, Expertus Technologies, Nordcloud, 7Summits, and Taos Mountain.

The spin-off will segregate slow-growing and legacy segments, allowing core operations to focus on rapidly-growing cloud and artificial intelligence businesses. The new IBM should command a much higher multiple than the old school tech behemoth, marking their most important development in decades. The company just took another step on that path, announcing that Senior VP of Global Markets Martin Schroeter will head the spun-off operation.

Wall Street and Technical Outlook

Wall Street has abandoned IBM in recent years, with just six analysts covering developments. It’s currently rated as a marginal ‘Moderate Buy’, based upon 2 ‘Buy’, 4 ‘Hold’, and 0 ‘Sell’ recommendations. Price targets currently range from a low of $135 to a Street-high $160 while the stock closed Friday’s session nearly $7 below the low target. This depressed placement favors higher prices but rapid gains will take time, given years of skepticism.

The stock topped out in 2013 and entered a bear market, posting lower highs and lower lows into March 2020’s 11-year low. This price action had added to a massive triangle pattern that’s carved two higher lows since 2008. Price is now situated at the dead center of the pattern, which is typical just before a trend move, higher or lower. Given positive catalysts, bulls should have a perfect opportunity to break the descending trendline, signaling the first uptrend since 2013.

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.

Netflix Under Pressure Ahead of Tuesday Report

Netflix Inc. (NFLX) reports Q4 2020 earnings after Tuesday’s closing bell, with analysts looking for a profit of $1.41 per-share on $6.62 billion in revenue. If met, earnings-per-share (EPS) will mark a modest 8.4% profit increase, compared to the same quarter in 2020. Of course, all hell broke loose after that report, with a worldwide pandemic boosting subscriptions, especially in more resistant older demographics.

Netflix Growth Concerns

The stock posted an impressive 67% return in 2020 but hasn’t added a penny in the last six months and has lost 8% so far in 2021.  Rivals Walt Disney Co. (DIS) and Roku Inc. (ROKU) have ascended the leader board between then and now, with their rapidly-growing services attracting waves of Wall Street upgrades. On the flip side, growth concerns have plagued Netflix since July, with some analysts expecting 2021 to reveal all sorts of structural weaknesses.

That sentiment is far from universal, as evidenced by BMO Capital Market’s call to sell Disney. Analyst Daniel Salmon downgraded the stock to ‘Outperform’ in December, stating that Netflix “retakes the Top Pick mantle”. However, Needham’s Laura Martin is telling clients to sell NFLX and buy ROKU in a pairs trade that highlights a popular opposing view. She also expects DIS to have more subscribers within 18 to 24 months, given the service’s incredible ingrowth trajectory.

Wall Street and Technical Outlook

Wall Street consensus remains at a ‘Moderate Buy’ ahead of Tuesday’s confessional, based upon 19 ‘Buy’ and 7 ‘Hold’ recommendations. However, three analysts now recommend that subscribers close positions and move to the sidelines. Price targets currently range from a low of $235 to a Street-high $700 while the stock ended last week about $85 below the median $583 target. This humble placement raises the potential for a ‘buy-the-news’ reaction.

Netflix entered a broad rectangle pattern after posting the all-time high last summer and has now reversed at range resistance three times. However, it’s also held four tests at range support near 465, establishing a standoff that will end with one side getting trapped by an adverse trend. Monthly and weekly relative strength indicators are now entrenched in sell cycles, raising odds that committed sellers eventually take control of the tape.

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.

Intel Hits 6-Month High After CEO Announcement

Dow component Intel Corp. (INTC) rallied to the highest high since July on Wednesday after the company took a big step toward recovery, appointing former VMWare CEO Pat Gelsinger to the CEO slot. Current CEO Bob Swan will retire on Feb. 15, leaving behind a battered tech giant forced to treat a series of self-inflicted wounds. The company guided Q4 results above prior guidance at the same time, with both catalysts setting off a 7% rally.

Multiple Upgrades After the News

The news generated a flurry of upgrades, with Cowen, Morgan Stanley, Atlantic Equities, and BMO Capital Markets issuing upgrades and new price targets. Even so, the company faces a long road to higher prices after multiple missteps triggered an exodus to NVIDIA Inc. (NVDA), Advanced Micro Devices Inc. (AMD) and other well-positioned rivals. And, while all three manufacturers should prosper in coming years, Intel has probably lost permanent market share.

Cowen analyst Matthew Ramsay upgraded the stock to ‘Outperform’ with a $75 price target after the news, noting, “We have long believed Intel has the engineering talent, product breadth, access to capital, political backing and scale to eventually reinvigorate its competitiveness — both in products and manufacturing. Bringing former CTO Pat Gelsinger back from VMWare as CEO has the potential to galvanize Intel behind a more credible forward strategy and roadmap.”

Wall Street and Technical Outlook

Wall Street consensus failed to improve overnight, continuing a cautious ‘Hold’ rating based upon 10 ‘Buy’ and 13 ‘Hold’ recommendations. More importantly, five analysts still recommend that shareholders close positions and move to the sidelines. Price targets currently range from a low of $40 to a Street-high $80 while the stock opened Thursday’s U.S. session just $1 above the median $57 target. This placement suggests that Intel is fully-valued at this time.

The stock sold off to the March low in October and bounced to resistance in the low 50s. A secondary decline found support above the prior low in December while this week’s rally has completed a double bottom reversal and filled the July gap. Buying volume posted about three times the 60-day moving average, which wasn’t enough to set off strong buy signals. Taken together with other headwinds, it makes sense to wait for Wednesday’s gap to get filled before getting on board.

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 Restaurant Plays for 2021

National and international fast food chains have entered 2021 in a commanding position to recoup the balance of losses posted in 2020. More importantly, they’re likely to grow market share well above prior highs because tens of thousands of smaller operators have been forced out of business as a result of lockdowns and social distancing. It could take years for a new wave of restaurateurs to obtain financing, given the credit damage caused by bankruptcy filings.

Three top restaurant plays for 2021 offer few unexpected opportunities because they’re all household names that have survived and prospered during the pandemic. These big cap players have also established new delivery channels and expanded drive-through facilities in the last year, putting them in perfect positions to pick up the slack left by the departure of your favorite rib joints and greasy spoons.

McDonald’s

Dow component McDonald’s Corp. (MCD) entered a steep correction in the fourth quarter of 2019 and fell to a three-year low in March 2020. The stock completed a round trip into the prior high and broke out in October but the rally failed, yielding mixed action into January. Price action settled on the 200-day moving average in December and has held that level, raising odds it will soon enter a breakout run, possibly fueled by declining infection rates in the United States.

Chipotle Mexican Grill

 Chipotle Mexican Grill (CMG) isn’t well-known in parts of the world but it’s now the second highest-capitalized restaurant chain, behind Mickey D. The burrito purveyor has posted better-than-expected numbers throughout the pandemic and now offers delivery, after resisting that revenue source for years. The stock broke out to an all-time high in December, after a three-month consolidation, and could post outstanding returns for investors in 2021.

Yum China

 Yum China Holdings Inc. (YUMC), Shanghai-based purveyor of KFC, Taco Bell, and Pizza Hut, was spun off from Yum! Brands Inc. (YUM) in November 2016. It’s now a $22 billion operation that’s outperforming the parent, breaking out to a new high in June when China emerged from the COVID-19 pandemic. The stock has continued to post new highs since that time, culminating in Jan. 11’s all-time high at 61.18.

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.

Wells Fargo Could Book Outsized Returns

Well Fargo & Co. (WFC) is trading at a 10-month high on Tuesday after a key analyst upgrade. The banker has underperformed since 2016 when it got hit with a $185 million fine for creating 1.5 million fake deposit accounts and a half-million fake credit cards. Remediation efforts backfired after 5,300 low level employees were fired, in an effort to deflect blame from the executive office. CEO John Stumpf eventually resigned and gave up millions in compensation.

Bounce-back Effect

The company reports earnings on Friday morning, with Wall Street analysts looking for a profit of $0.61 per-share on $17.4 billion in Q4 2020 revenue. If met, earnings-per-share (EPS) will mark a 34% profit decrease compared to the same quarter in 2019. The stock has posted a negative 20% return since the scandal, underperforming the industry by an astounding 95%. Given these metrics, small improvements in operating results could generate significant upside.

UBS analyst Saul Martinez upgraded the stock to ‘Buy’, noting, “A positive narrative has emerged (for the banking sector): faster economic growth and expansionary fiscal policy drive rising net interest income (NII) and falling credit costs, while the resumption of share buybacks further boosts profitability and EPS. Wells Fargo is now our top pick … and is our sole Buy rated regional bank.”

Wall Street and Technical Outlook

Wall Street consensus has improved in 2021, with widening yields and higher interest rates set to underpin profits. It’s now rated as a ‘Moderate Buy’, based upon 9 ‘Buy’, 6 ‘Hold’, and 0 ‘Sell’ recommendations. Price targets currently range from a low of $27 to a Street-high $40 while the stock opened Tuesday’s U.S. session right on top of the median $34 target. Friday’s confessional could offer a perfect opportunity for analysts to lift ratings and targets.

Wells Fargo hasn’t bounced as strongly as bank sector funds since March 2020’s 11-year low, recouping just one-third of the losses posted since October 2019. However, price action has finally cleared resistance at the 200-day moving average, setting the stage for additional gains up to broken 2019 support in the low 40s. That marks potential upside of more than 30%, making it an interesting January Effect candidate.

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.

Twitter Radioactive After Trump Suspension

Twitter Inc. (TWTR) is trading lower by 12% in the first hour of Monday’s U.S. session, after Friday’s announcement it had permanently suspended President Donald Trump’s account. The social media giant also cleaned house over the weekend, banning hundreds of accounts linked to violent extremist groups that include QAnon. Dozens of users with large numbers of followers reported sharp decreases but the company hasn’t provided exact numbers.

Section 230 Repeal Less Likely

The President wants to repeal FCC section 230, which provides liability protection for social media companies. Democrats had shown sympathy for the action, with Facebook Inc. (FB) CEO Marc Zuckerberg drawing intense criticism after Russian interference in the 2016 election. However, Twitter has gained ‘political capital’ from the suspension, making repeal less likely under the Biden administration. Even so, the voluntary and involuntary departure of sympathizers could impact ad revenue.

Twitter issued a statement after the action, noting “in the context of horrific events this week, we made it clear on Wednesday that additional violations of the Twitter Rules would potentially result in this very course of action. Our public interest framework exists to enable the public to hear from elected officials and world leaders directly. It is built on a principle that the people have a right to hold power to account in the open.”

Wall Street and Technical Outlook

Wall Street consensus viewed Twitter as over-priced ahead of Monday’s selloff, with a ‘Hold’ rating based upon 7 ‘Buy’, 17 ‘Hold’, and 1 ‘Sell’ recommendation. Price targets currently range from a low of $36 to a Street-high $65 while the stock opened Monday’s U.S. session about $3 below the median $50 target after closing out last week at $51.48. This placement suggests the stock is now fairly-valued, with good odds the decline will bottom out quickly.

Twitter rallied to a 6-year high in December after breaking out above two-year resistance in the mid-40s. The stock has been pulling back for the last four weeks and opened the session below the 50-day EMA for the first time since Nov. 20. The breakout remains intact at this time, suggesting that committed buyers will return in the mid-40s. However, all bets are off if there’s more violence between now and the Jan. 20 inauguration.

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.

Smith & Wesson Completes Breakout Pattern

Shares of firearms manufacturers have been proxies for American violence for more than a decade so it’s no surprise that Smith & Wesson Brands Inc. (SWBI) had a wild ride last week, taking off for the heavens on Wednesday and sinking like a rock into the weekend. Unfortunately for sane humans, this two-sided price action completed the next leg of a multiyear breakout pattern, predicting both higher prices and continued political tensions on this side of the Atlantic.

Controversial “Sin Stock”

The stock entered a brutal downtrend after the election of ‘gun-friendly’ Donald Trump signaled the end of U.S. firearm control efforts in 2016. The decline completed a double bottom reversal in the first quarter of 2020, yielding a modest uptick into December, when the 156-year old icon of the American West blew away fiscal Q2 2021 (October quarter) top and bottom line estimates, posting a 118% revenue increase.

Smith & Wesson has been down this road before, reacting to protests and acts of violence going back to the start of the Obama administration. It’s also been a hot play for market speculators whenever gun control debates break out, as they do after each mass killing and political catalyst in the United States. And, while Second Amendment rights are not at the top of Biden’s agenda, there’s little disagreement that life in America is growing more dangerous by the day.

Wall Street and Technical Outlook

Three Wall Street analysts cover Smith & Wesson, posting unanimous ‘Buy’ ratings. Price targets currently range from a low of $19 to a Street-high $28 while the stock closed Friday’s session less than $1 above the low target. Additional calls, ratings changes, and price targets are unlikely in the next few months, given high sensitivity after the U.S. Capitol incident. In turn, this should allow price action to track macro influences.

Smith & Wesson has now completed a long-term inverse head and shoulders pattern that projects a multi-month uptick into the 40s, after a breakout above resistance in the mid-20s. Wednesday’s gap between 19 and 19.50 got filled on Friday, suggesting higher prices through the first quarter. However, last week’s volatile whipsaws highlight extreme short-term risk, as well as the reality that political events could spin out of control once again.

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.

Roku Hits All-Time High After Strong Metrics

Roku Inc. (ROKU) is trading at an all-time high on Thursday after Needham upgraded the stock, saying it has “won the streaming wars in the US”. The company just disclosed it finished the fourth quarter with 51.2 million accounts, up 5.2 million and 12% above estimates of 4.6 million, and up 14.3 million year-over-year. Customers also logged 17 billion streaming hours in the quarter, up 56% year-over-year and 6% above 16 billion estimates.

Wildly Successful Hardware

For the uninitiated, Roku came public in 2017, offering a set-top box for streaming entertainment unaffiliated with major providers, allowing the company to cut distribution deals and sell advertising. The hardware has grown enormously successful as streaming services have blossomed, with many customers wanting a single entity that handles all ‘channels’ to avoid convoluted hook-ups and endless button pressing on three or four remote controls.

Needham raised their target to $400 from $315, with analyst Laura Martin noting “investors often ask us to pick winners vs losers in the streaming space. What’s clear to us from 2020 is that ROKU has won the streaming wars in the US. Its CTV focus, platform competitive advantages, moats, and execution excellence all suggest to us that ROKU will continue to take market share in 2021. As a result, we raise our estimates for 4Q20, and FY21 and FY22”.

Wall Street and Technical Outlook

Wall Street consensus has grown more cautious after 2020’s phenomenal 247% return, with a ‘Moderate Buy’ rating based upon 12 ‘Buy’ and 6 ‘Hold’ recommendations. One analyst now recommends that shareholders sell positions and move to the sidelines. Price targets currently range from a low of $200 to a Street-high $414 while the stock opened Thursday’s US session more than $55 above the median $295 target. Investors continue to ignore this lofty placement.

A strong uptrend topped out at 176 in September 2019, giving way to a pullback that accelerated to an 11-month low during the pandemic decline. Speculators then realized folks worldwide were stuck at home, with nothing better to do than watch streaming entertainment, triggering an historic advance that mounted 2019 resistance in September. The stock has more than doubled in price since that time, making it one of the market’s strongest performers.

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.

Walgreens Perfect Play for the January Effect

Dow component Walgreens Boot Alliance Inc. (WBA) reports Q1 2021 earnings in Thursday’s pre-market session, with Wall Street analysts expecting a profit of $1.04 per-share on $35.01 billion in revenue. If met, earnings-per-share (EPS) will mark a 24% profit decline compared to the same quarter in 2019. The stock ticked higher after beating Q4 top and bottom line estimates in October and has added a few more points into January 2021.

Waking Up from the Dead

The drug chain is one of the Dow Industrial’s worst long-term performers, losing nearly 40% since it was added to the Average in June 2018. It posted a stomach-churning negative 32% return in 2020 but that’s now good news because the stock has become an attractive January Effect buying candidate. It’s also starting to wake up from the dead, just announcing a key divestiture and partnership intended to shore up a troubled balance sheet.

AmerisourceBergen (ABC) will acquire the majority of Walgreens’ Healthcare businesses for $6.275 billion and two million ABC shares. In addition to the acquisition, the companies will strengthen their “strategic partnership by extending and expanding their commercial agreements”. The current distribution agreement will be extended to 2029 while the partnership includes a “commitment to pursue additional opportunities in sourcing and distribution”.

Wall Street and Technical Outlook

Wall Street consensus is as bad as it gets for a Dow component, with a ‘Hold’ rating based upon 6 ‘Hold’ and 1 ‘Sell’ recommendation. Not one analyst is recommending that investors buy Walgreens at this time. Price targets currently range from a low of $40 to a Street-high $44 while the stock has opened Wednesday’s U.S. session less than $1 above the median $41 target. These targets and ratings are likely to change after tomorrow’s quarterly confessional.

The stock topped out in the 90s in 2015 and lost two-thirds of its value into October’s 8-year 2020 low at 33.36. Accumulation fell to a two-year low at the end of December, highlighting persistent investor mistrust. However, price is acting well at 200-day moving average resistance, trading above that barrier four times since Nov. 10. This persistence is paying off, establishing the first monthly Stochastic buying signal since Sept. 2019.

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 Under-the-Radar Momentum Plays

Momentum in big tech stocks peaked in September, with mixed price action across most household names into year’s end. However, momentum traders are still doing their best to buy high and sell even higher as we enter 2021, lifting lesser-known equities into the stratosphere. These issues could offer more consistent profits in the first quarter than last year’s winners, who are now vulnerable to capital gains tax selling pressure.

Broad-based ‘momentum markets’ are quite rare, unfolding when lots of fresh capital enters the markets, as it did after the U.S. government issued stimulus checks in the second quarter of 2020. More often, these vertical buying impulses recede into a selection of lower-capitalized issues that attract far less attention, at least until a blow-off phase often triggered by sudden media or Wall Street interest.

Let’s look at three of these under-the-radar momentum plays.

GreenPower Motor Company

Vancouver-based GreenPower Motor Company Inc. (GP) manufactures, distributes, and sells all-electric commercial vehicles that include transit, school, and charter buses. The stock is riding high on Tesla Inc.’s (TSLA) coattails, with investor EV sentiment hitting all-time highs. The stock closed 2020 at 29.01 after opening the year at 1.55 and is trading within three points of November’s all-time high at 32.50 in January’s first session.

Bit Digital

As the name suggests, Bit Digital Inc. (BTBT) is engaged in the bitcoin mining business, changing its name from Golden Bull Ltd. in September. The cryptocurrency is on fire these days, lifting more than 400% in 2020. It’s replaced gold as a hedge against central bank scheming and political fears that include the rise of extremism in U.S. politics. Neither of those issues is likely to dissipate in 2021.

Silvergate Capital

Silvergate Capital Corp. (SI) offers banking products and services in the United States and overseas. Momentum traders have taken note because the company also provides cash management services for ‘digital currency-related businesses’ through the Silvergate Exchange Network. The stock caught fire in October after spending most of 2020 trading in the mid-teens, lifting to 74.31 at the end of December.

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.

Wall Street Initiates Airbnb Coverage

Dozens of Wall Street analysts initiated Airbnb Inc. (ABNB) coverage on Monday, following the company’s hugely-successful initial public offering (IPO) on Dec. 10. The mixed consensus marks the next step in its public journey, with lock-up expiration in April the most important date on the calendar because insiders and employees can then sell the majority of their shares, if they choose.

Just Another Travel Stock

This is a travel company despite the hype, subject to the same headwinds as Expedia Inc. (EXPE) and Trip Advisor Inc. (TRIP), who suffered through volatile 2020 price action as a result of the pandemic. While those issues have almost returned to pre-COVID levels, no one really knows how long it will take for the industry to get back on its feet. This is especially true with a highly contagious variant rounding the planet and a painfully slow vaccine rollout.

Needham analyst Brad Erickson initiated coverage with a ‘Buy’ rating on Monday, noting that Airbnb is “the category creator and clear leader in private & alternative accommodations, a market that could expand as much as 5-to-10x from its current size as it democratizes travel. In particular, we like how ABNB is expanding the category on top of usual digital marketplace channel displacement. Our U.S. channel checks indicate further share gains are yet to come”.

Wall Street and Technical Outlook

Wall Street consensus translates into a ‘Moderate Buy’ rating after the flood of analyst activity, calculated from 10 ‘Buy’ and 14 ‘Hold’ recommendations. One analyst already recommends that shareholders close positions and move to the sidelines.  New price targets range from a low of just $75 to a Street-high $200 while the stock opened the first session of 2021 just $2 below the median $153 target. This placement indicates that Airbnb is fairly-valued.

Airbnb opened for trading at 147.61 on Dec. 10 after being priced at 68 by the IPO’s underwriters. It sold off to an “all-time low” at 121.50 after a quick buying spike to 165, and entered a more sustained advance that posted an “all-time high” at 174.97 on Dec. 22. The stock has lost altitude since that time and is now trading close to the IPO price in a trading range that could persist through most or all of the first quarter.

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.

Micron Nears Resistance Ahead of Earnings

Micron Technology Inc. (MU) ended 2020 at a 20-year high above 75, booking an impressive 40% annual return. It’s the first chip manufacturer to report earnings in January, with Q1 2021 results set for release after Thursday’s closing bell.  Wall Street analysts now expect the memory giant to book a profit of $0.67 per-share on $5.63 billion in revenue. If met, earnings-per-share (EPS) will mark a 39% profit increase, compared to the same quarter in 2020.

Buy The Pullback

The stock is still trading more than 20 points below the Internet bubble peak posted in the summer of 2000. The vast majority of chip stocks have cleared that formidable barrier, highlighting more than a decade of sub-par performance. However, it’s now engaged in a strong uptrend after mounting June 2018 resistance in the mid-60s and pullbacks should mark buying opportunities as the rally works through the last pockets of overhead supply.

Cowen analyst Karl Ackerman raised his target from $75 to $80 in December, noting, “we raised our estimates and expected a beat-and-raise following MU’s Technology Roadmap, but the company subsequently articulated an even stronger outlook than we expected. We’re raising our target to $80 as we true-up our model on higher numbers. Demand has improved, inventory days should recede, and limited capex investments (particularly in DRAM) should tighten supply and demand.”

Wall Street and Technical Outlook

Wall Street consensus brightened considerably in 2020, lifting to a ‘Strong Buy’ rating based upon 17 ‘Buy’, 1 ‘Hold’, and 1 ‘Sell’ recommendation. Price targets currently range from a low of $35 to a Street-high $100 while the stock closed Friday’s session and 2020 about $4 below the median $79 target. This humble placement should support additional upside in the first quarter, especially if the company beats top and bottom line expectations this week.

Micron sold off after a multiyear uptrend stalled in the 60s in 2018, finding support in the upper 20s at year’s end. It rallied within a few points of the prior peak in February 2020 and collapsed with world markets, reversing just three points above the prior low in March. Buying interest then surged, generating a strong recovery wave that mounted resistance in November. Price action added another 10 points through December, setting the stage for a strong start to 2021.

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.

What’s Ahead for Tesla in 2021?

Tesla Inc. (TSLA) is trading above 700 for the first time on Thursday, just ten days after the company was added to the SP-500 index.  CEO Elon Musk’s creation is set to close out 2020 with a phenomenal 840% annual return, fueled by an incredible recovery after the stock fell nearly 60% in the first quarter’s pandemic decline.  August’s 5-for-1 split didn’t hurt, with so- called ‘Robinhood traders’ loading up on shares ahead of that structural event.

The Future Looks Bright

The stock is unlikely to duplicate 2020’s historic performance in 2021 but the future is bright for the EV manufacturer, who is set to enter the Indian market next year. Even so, competitive challenges are growing, with reports that Dow component Apple Inc. (AAPL) is working on an autonomous automobile line set for production in 2024 while numerous mainline manufacturers have unveiled fully-electric vehicles.

Jefferies analyst Philippe Houchois discussed growing headwinds earlier this month, lowering Tesla to ‘Overweight’ while raising the price target to $650, noting “We don’t believe Tesla can dominate Autos, given industry structure and politics, but multiple challenges to the auto business model (EVs, batteries, software, autonomy, design-to-manufacture and direct selling) ensure a durable competitive edge, with a “messianic” brand reaching far beyond autos.”

Wall Street and Technical Outlook

Wall Street has grown skeptical after historic share gains, posting a consensus ‘Hold’ rating based upon 7 ‘Buy’ and 11 ‘Hold’ recommendations. More importantly, 7 analysts now recommend that shareholders take profits and move to the sidelines. Price targets currently range from a low of $40 to a Street-high $788 while the stock opened the session more than $240 above the median $458 target. There’s no doubt that analysts think Tesla is over-valued, given this placement.

The price chart shows little selling pressure despite heavy-handed ratings, lifting accumulation readings to new highs. A symmetrical triangle correction between September and November worked off extremely overbought readings through time rather than price, setting the stage for a strong run into year’s end. Despite sunny skies, this is a nearly perfect set-up for a January capital gains selloff, with investors booking outsized profits in the new tax year.

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.