General Electric Under Pressure After Morgan Downgrade

General Electric Co. (GE) fell to a 2-month low in late July after reporting a Q2 2020 loss of $0.15 per-share, $0.06 worse than expectations, while revenue fell a stomach-churning 38.4% year-over-year to $17.75 billion. The release offered no forward guidance, leading many market watchers to theorize the financial outlook is worse-than-expected at the troubled conglomerate, which has been stuck in an historic downtrend since 2016.

General Electric Historic Downtrend

Years of mismanagement at General Electric came home to roost that year, with uncontrolled debt forcing institutional and retail investors to walk away, following a modest 7-year uptrend that failed to mount the 2000 or 2007 rally highs. Selling pressure accelerated into the end of 2018, dropping the stock to the lowest low since 2009 while 2020’s pandemic-driven downdraft sliced through support into an 18-year low.

The stock is under pressure on Monday after JPMorgan analyst Stephen Tusa withdrew their price target, stating “we are more negative on GE as we turn the corner into 2H20. The company continues to have no official guidance, which in our view implies difficulty seeing 3 to 6 months out, while debt maturities and options resets suggest GE does not see normal until 2024.” He ended with a warning that “the collapse of this forward estimate curve is coming soon.”

Wall Street And Technical Outlook

Wall Street is surprisingly upbeat on General Electric, hanging their hats on a well-documented reorganization plan that’s yet to produce positive results. It’s currently rated as a ‘Moderate Buy’, based upon 6 ‘Buy’ and 5 ‘Hold’ recommendations. Oddly, today’s bearish call marks the first ‘Sell’ recommendation, despite the long-term threat of bankruptcy. Price targets range from a low of $6.30 to a street-high $11 while GE opened the session just 20 cents above the low target.

General Electric bounced in May after undercutting the 2009 low by 3 cents, initiating a critical support test that’s still in progress. Buying pressure has been non-existent since that time, raising odds for an eventual breakdown that could signal the next phase in the iconic company’s demise. Unfortunately, a well-heeled suitor is unlikely to come to the rescue because few profitable companies would be willing to take over the enormous debt load.

Spotify On The Defensive After Mixed Quarter

Luxembourg’s Spotify Technology S.A. (SPOT) posted a fiscal Q3 2020 loss of €1.91 in July, much worse than €1.45 estimates. Revenue at the digital entertainment upstart increased 13% year-over-year to €1.89 billion, which also missed consensus expectations. Monthly Average User (MAU) statistics offered a bright spot in an otherwise bearish quarter, growing  29% year-over-year, but inline Q4 guidance gave sidelined investors no reason to jump on board.

Spotify Posts Three Quarterly Losses in 2020

The streaming service has posted losses in the last three quarters even though revenues have booked double-digit growth. In turn, this is raising doubts on Wall Street about long-term profitability. This is especially true after a pandemic wave that, theoretically at least, should have underpinned earnings-per-share expansion, due to quarantine and stay-at-home orders that gave potential customers more time to access all sorts of entertainment offerings.

Spotify filed an anti-competitive complaint against Apple Inc. (AAPL) in 2019, alleging the 30% fee demanded by the tech giant to display the app “tilted the playing field”’ by “placing unfair restrictions on marketing and promotions that benefit consumers.” Messaging app Telegram joined the complaint last month, at the same time that popular video game Fortnite was removed from the Apple Store after parent Epic Games attempted to bypass the fee. Apple Music just added global offerings that appear, at first glance, designed to punish the company for the filing.

Wall Street And Technical Outlook

Wall Street consensus rates the stock as a ‘Moderate Buy’ based upon 12 ‘Buy’, 7 ‘Hold’, and an awkward 4 ‘Sell’ recommendations. A wide range of price targets highlights broad disagreement among analysts about Spotify’s long-term outlook, with a low of $172 and a street-high $357. The stock is currently trading about $13 above the median $266 target in a placement that will make it harder to add to gains in the third quarter.

Spotify posted an all-time high at 299.67 on July 22 and sold off into the 240s in mid-August. Those extremes now mark the edges of a broad trading range that may contain price action into the fourth quarter, when investors will get another look at the company’s balance sheet. Accumulation-distribution readings haven’t budged since topping out at a new high a few days after price, reinforcing a holding pattern that reflects growing caution.

Microsoft Rallies To New High Ahead Of TikTok News

Dow component Microsoft Corp. (MSFT) broke out to an all-time high this week, completing a 7-week basing pattern just above 200. The rally follows media reports that a deal for TikTok US is getting close, just one month after the tech giant disclosed it wanted to buy the controversial but wildly-popular Chinese social media application. However, there are no guarantees that Mr. Softee will emerge as the winner because other suitors have stepped up in recent weeks.

Microsoft Sell-The-News Reaction After Earnings

The stock sold off more than 9% in July despite beating fiscal Q4 2020 profit and revenue estimates. The company earned $1.46 per-share during the quarter while revenue rose 12.8% year-over-year to $38.03 billion. The highly-successful Intelligent Cloud segment underpinned revenue growth, rising 17% to $13.4 billion, super-charged by 47% year-over-year growth of the Azure public cloud computing system.

A Microsoft blog commented on TikTok negotiations earlier this month, noting the “two companies have provided notice of their intent to explore a preliminary proposal that would involve a purchase of the TikTok service in the United States, Canada, Australia, and New Zealand and would result in Microsoft owning and operating TikTok in these markets. Microsoft may invite other American investors to participate on a minority basis in this purchase”.

Wall Street And Technical Outlook

Wall Street has been wildly bullish on the tech giant for many years, with good reason, while current consensus translates into a ‘Strong Buy’ rating, based upon 26 ‘Buy and just 3 ‘Hold’ recommendations. No analysts are recommending that shareholders sell positions at this time. Price targets currently range from a low of $195 to a street-high $260 while the stock is now trading right on top of the median $228 target.

Microsoft broke out above February 2020 resistance in June and added about 30 points into the July peak near 216. It then eased onto a narrow consolidation above the 200 level, finally lifting to an all-time high earlier this week. A rising highs trendline going back to April suggests initial upside into the 240s where the blue chip could enter another trading range. The stock pays a modest 0.92% forward dividend that might add a few bucks to potential upside.

Salesforce.Com Soars After Blowout Quarter

Salesforce.Com Inc. (CRM) is trading higher by more than 20% in Wednesday’s U.S. session after beating fiscal Q2 2021 profit estimates by $0.77 per-share and guiding fiscal year top and bottom line above consensus. The San Francisco-based cloud software company earned $1.77 per-share during the quarter while revenue rose an impressive 28.9% year-over-year to $5.15 billion, triggering a strong buy-the-news reaction despite lowered Q3 EPS guidance.

Salesforce.Com Added To Dow Jones Industrial Average

The keepers of the Dow indices announced on Monday that Salesforce.com would be added to the Dow Jones Industrial Average, one of three blue chips replacing the departing Pfizer Inc. (PFE), Exxon-Mobil Corp. (XOM), and Raytheon Technologies Corp. (RTX). The bullish news lifted the stock more than 3.0% in Tuesday’s session on the heaviest trading volume since June 2019, ahead of this morning’s vertical slingshot.

Monness Crespi and Hardt analyst Brian White raised his target from $195 to $275 after earnings, noting the company “reported excellent 2Q 2021 results and provided a strong 3Q 2021 outlook while sharply increasing FY2021 guidance. Although we expect this new economic reality to mask Salesforce’s true growth potential over the next year, we believe this crisis will prove a catalyst for digital transformation initiatives and Salesforce will emerge from this downturn even stronger.”

Wall Street And Technical Outlook

Wall Street consensus is off-the-charts after this week’s bullish events, with a ‘Strong Buy’ rating based upon 28 ‘Buy’, 2 ‘Hold’, and just one ‘Sell’ recommendation. Price targets currently range from a low of $160 to a street-high $300 while the stock is now trading just $26 below the high target. This placement is a two-edged sword because it could persuade some analysts to raise price targets while others issue downgrades based on valuation.

Technically speaking, Saleforce.com is nearing historic extremes in overbought readings, with relative strength indicators approaching levels that set off major sell signals in 2017 and 2019.  The stock has also rallied more than 20% on Wednesday and more than 40% in the last four weeks. Taken together with approaching Wall Street targets, the vast majority of investors should stand aside and look for lower-risk buying opportunities with greater upside potential.

Chipotle Mexican Grill At Resistance After Big Breakout

Chipotle Mexican Grill Inc. (CMG) met Q2 2020 earnings and revenue estimates in July, prompting a sell-the-news reaction that held short-term support. Revenue fell 4.8% year-over-year, with comparative sales slumping badly in May and June but rising 2% in June. The popular fast food chain noted a healthy sales escalation throughout July, with a 6.4% increase in comparative restaurant sales.

Chipotle Posts Impressive Return Since 2018

Chipotle Mexican Grill operates 2,580 Mexican-themed fast food restaurants in the United States, along with 39 international locations. The stock was a top NYSE and restaurant sector performer until 2015 when it got blamed for a major food poisoning outbreak that uncovered questionable sanitizing procedures. The downtrend finally bottomed out at a 6-year low in 2018, giving way to a strong recovery that’s gained more than 500% in the last 2½ years.

Bernstein raised their target from $1,300 to $1,600 on Tuesday, with analyst Sara Senatore noting that, “Chipotle Mexican Grill appears to have taken the first small steps toward the margin part of the recovery path with delivery fees; we expect modest pricing could also play a role as could a slacker labor market. Even relatively modest fees support margins. Mobile order ahead has also tripled; reduced delivery support will likely translate into ordering channel shift, not lost traffic.”

Wall Street And Technical Outlook

Wall Street consensus rates the stock as a ‘Moderate Buy’, with an even split of 15 ‘Buy’ and 15 ‘Hold’ recommendations. No analysts are recommending that shareholders sell their positions and move to the sidelines. Price targets currently range from a low of $751 to a street-high $1,600 while Chipotle Mexican Grill is now trading $60 above the median $1,207 target. This placement could put a lid on returns, especially with the astronomical 140.46 price-to-earnings ratio (P/E).

The stock broke out above the 2015 high near 750 in August 2019 and failed the breakout in the first quarter’s pandemic swoon. It bounced back to the rally high in May and broke out once again, entering a rising channel that’s contained price action into August. Fortunately for bulls, this pattern significantly lowers risk because stops can be placed relatively close to price action, allowing an easy exit during the first stages of an intermediate correction.

Roku Stuck In Neutral After Second Quarter Bounce

Roku Inc. (ROKU) is the global leader in the rapidly-growing connected TV market (CTV), boasting an installed base of 43 million customers. Wall Street analysts expect the company, which has traded publicly for less than three years, to grow at an annual 30%+ rate in the next one to three years, underpinned by ad spending that may double from the current $8 billion. This volatile growth play could benefit from this revenue expansion and trade well above current price levels in coming years.

Roku Expects To Lose Money Until 2021

Even so, Roku sold off on August 5th despite beating Q2 2020 profit and revenue estimates by wide margins. Shareholders, who have suffered through an endless string of losses since the 2017 IPO, walked away after the company said it expects to lose money through year’s end. The stock currently sports a market cap of $18.28 billion and the COVID-19 pandemic has lowered advertising revenue because many small businesses have been forced to cut back.

Deutsche Bank analyst Jeffrey Rand just issued a ‘Buy’ call with a $185 target, proclaiming the company is “the market leader in the CTV market, with close to 50% market share of global CTV streaming hours, and is seeing strong growth opportunities as more consumers and advertisers spend time and money on streaming content. It’s done an impressive job building out the largest installed base in the industry and monetizing it through its Platform business.”

Wall Street And Technical Outlook

Wall Street consensus currently rates Roku as a ’Moderate Buy’ based upon 10 ‘Buy’, 6 ‘Hold’, and 2 ‘Sell’ recommendations. Price targets currently range from a low of $65 to a street-high $208 while the stock is now trading more than $13 below the median $160 target. There’s plenty of potential upside in this placement but prospective investors may wish to sit on their hands until a positive catalyst shows up on the newswire.

Roku posted an all-time high at 176.55 in September 2018 and sold off to an 11-month low in March 2020. A two-legged recovery rally stalled 10 points under the prior high in July, giving way to a trading range with support near 144. The stock has been testing range support for the last two weeks, setting the stage for a bounce that could eventually reach the 2018 high, or a breakdown that targets the psychological 100 level.

Advanced Micro Devices Near All-Time High After Historic Breakout

Advanced Micro Devices Inc. (AMD) soared after beating Q2 2020 profit and revenue estimates in July, underpinned by a remarkable 45% year-over-year increase in Computing and Graphics division sales. The smaller Embedded and Semi-Custom division grew 62% during the quarter while Enterprise income fell 4%. The chip manufacturer ended the bullish call by raising Q3 revenue guidance by a wide margin, now expecting to book between $2.45 and $2.65 billion.

Advanced Micro Devices Taking Market Share From Rivals

The company is taking advantage of systemic delays at larger rival Intel Corp. (INTC), expanding a loyal customer base by getting highly-competitive next-generation processors to market at a faster pace. Both central processing unit (CPU) and graphics processing unit (GPU) sales are posting impressive growth, with formerly-loyal NVIDIA Corp. (NVDA) users making the switch. The graphics segment has been growing exponentially since the first quarter.

Cowen analyst Matthew Ramsay raised their AMD target from 90 to 100 last week, noting “We had the opportunity to host AMD CEO Dr. Lisa Su for a series of virtual investor meetings/calls. Messages of road map consistency, execution dependability and much closer collaboration with key customers shone through. With Intel’s road map in flux, but in larger measure due to AMD’s own product innovation, we forecast share gains and strong revenue/margin growth.”

Wall Street And Technical Outlook

Wall Street consensus has eased off extremely bullish levels, with extraordinary share gains lifting Advanced Micro Devices above some valuation targets. It’s currently rated as a ‘Moderate Buy’, based upon 14 ‘Buy’, 11 ‘Hold’, and one ‘Sell’ recommendation. Price targets now range from a low of $50 to a street-high $120 while the stock closed Friday’s session about $3 above the median $81 target. This placement suggests that further upside will be limited without fresh upgrades.

Technically speaking, the stock is extremely overbought after gaining more than 60% so far in the third quarter, raising odds for a multi-week range or deep retracement. The turnaround may have already begun because bear power has increased since the uptrend hit an all-time high at 87.29 more than two weeks ago, forcing weekly relative strength indicators to roll over. Even so, weakening technicals have yet to issue a strong sell signal so an assault on 100 is still possible.

Walmart Could End Long-Term Uptrend

Dow component Walmart Inc. (WMT) hit an all-time high and sold off earlier this week after posting a better-than-expected Q2 2020 profit of $1.56 per-share on a 2.8% year-over-year rise in revenue to $137.7 billion, also beating estimates. U.S. e-commerce sales grew an impressive 97% while quarterly comps rose 9%. Home improvement, sporting goods, landscape, and electronics all reported strong increases while back-to-school sales have lagged due to pandemic shutdowns.

Walmart Picking Up Market Share After Competitors Close

The retail giant surged to an all-time in March, building first quarter market share while smaller competitors shut their doors in reaction to stay-at-home and quarantine orders around the globe. A robust e-commerce portal also allowed Walmart to compete forcefully with Amazon.Com Inc. (AMZN), while both mega-caps picked up permanent market share. However, 2020 leaders have now fallen out of favor, with large chunks of capital rotating into beaten-down recovery plays.

Telsey Advisory Group raised their target from $140 to $145 on Wednesday, with analyst Joseph Feldman noting “we believe Walmart is well-positioned to gain market share in this volatile market, given its defensive core product mix, renewed focus on discretionary categories, and solid digital/omni-channel initiatives. Furthermore, newer initiatives, such as the expansion of third-party marketplace services, new health clinics, and a potential membership program, should all fuel growth”.

Wall Street And Technical Outlook

Wall Street consensus has deteriorated since the earnings release, with a ‘Moderate Buy’ rating based upon 17 ‘Buy’ and 6 ‘Hold’ recommendations. No analysts are recommending that shareholders sell their positions and move to the sidelines at this time. Price targets currently range from a low of $130 to a street-high $160 while the stock is now trading right on top of the low target. This is dangerous positioning because it could trigger further downgrades.

The stock has been under aggressive selling pressure since February, despite a volatile uptrend that carved four new highs between March and August. This odd conflict establishes a major bearish divergence, warning that smart money has been using higher prices to unload large positions. This is a potent combination that often precedes major tops, telling shareholders to take defensive measures and consider moving to the sidelines.

First Solar At Cusp Of Long-Term Uptrend

First Solar Inc. (FSLR) rallied to the highest high since April 2018 earlier this month after the Arizona-based manufacturer beat top and bottom line Q2 2020 estimates, earning $0.35 per-share on $642.41 million in revenue. A project sale drove the 9.8% year-over-year revenue increase, adding to investor optimism about a realigned business strategy following years of sub-par performance.

New California Law Will Increase First Solar Revenue

The company stands to benefit from a California law that mandates solar on all new residential and commercial construction, starting in 2020. The power grid in that state has been shaky at best, with massive blackouts due to unusually hot summer conditions. Locals have been reluctant to fund utility companies in recent years, with that negligence now coming home to roost. Taken together with the long-term transition into alternative energy sources, the stock and solar sector could trade much higher in coming years.

Bank of America Securities analyst Julien Dumoulin-Smith upgraded First Solar from ‘Neutral’ to ‘Buy’ after the quarterly release, noting the company should benefit from positive solar sales trends in the United States, especially with commercial and industrial customers. He states the ongoing shift to new CuRe technology will improve efficiency in wattage and energy density while “cost reductions with CuRe and incremental capacity through site optimization should continue to trend well.”

Wall Street And Technical Outlook

Wall Street has ignored the stock in recent years, issuing a ‘Hold’ rating based upon 4 ‘Buy’, 4 ‘Hold’, and 3 ‘Sell’ recommendations. Price targets currently range from a low of $38 to a street-high $82 while the stock is now trading just $5 below the high target. The street-high makes perfect sense in this case because resistance in the upper 70s has acted as an impenetrable barrier since it was broken on heavy volume in 2011.

Technically speaking, First Solar has rallied into resistance at the top of a multiyear trading range, raising odds for a downside reversal that could easily shed 20 to 30 points, However, the recent buying surge marks the 7th trip into range resistance since 2014, with each test raising odds for a breakout. Accumulation readings don’t support additional upside just yet but that could change in coming years, finally lifting the stock into market leadership.

Fedex Hits 20-Month High After Surcharge News

Fedex Corp. (FDX) has booked substantial upside since March, ending a multiyear downtrend that accelerated after Amazon.Com Inc. (AMZN) revealed it would bring deliveries in-house through a new shipping division. The stock posted an 8-year low and turned higher into April when AMZN reversed gears, returning a fair share of packages to third party carriers so it could concentrate on surging demand, in reaction to the COVID-19 pandemic.

Fedex Adds Fourth Quarter Surcharges

The shipping giant is still trading nearly 70 points below January 2018’s all-time high at 275, despite the 117-point advance into August, telling market watchers it will take months before the former market leader can post a new high. It took a big step in that direction on Tuesday morning, instituting seasonal peak surcharges and fees that will add substantially to revenue between October and mid-January.

A company statement justified the surcharges, noting “FedEx continues to keep commerce moving and delivering critical shipments to homes during the COVID-19 pandemic. As the impact of the virus continues to generate a surge in residential deliveries, we are entering this holiday peak season with extremely high demand for capacity and are experiencing increased operating costs across our network. We anticipate residential volume to continue to surge into the New Year.”

Wall Street And Technical Outlook

Wall Street consensus has improved in recent months, with a ‘Moderate Buy’ rating based upon 14 ‘Buy’ and 8 ‘Hold’ recommendations. No analysts are telling shareholders to close positions and move to the sidelines at this time.  Price targets currently range from a low of $100 to a street-high $235 while the stock opened Tuesday’s session just $19 below the high target. It will be tough for Fedex to add to gains with this placement, but this morning’s news could generate higher targets.

Fedex lifted above the 200-day moving average for the first time since October 2018 in June, signaling a new uptrend. The 5-month uptick has now reached strong resistance just above 200, predicting that price action will roll into a sideways pattern or pullback that shakes out weak hands. A decline into the moving average, currently in the 150s, could offer a low risk entry in this scenario, underpinned by accumulation readings that have now hit new highs.

NVIDIA Bulls In Charge Ahead Of Wednesday Report

NVIDIA Corp. (NVDA) reports Q2 2020 earnings after the close of Wednesday’s U.S. session, with Wall Street analysts expecting a profit of $1.68 per-share on $3.66 billion in revenue. The graphics card manufacturer beat top and bottom line Q1 estimates in May and raised Q2 revenue guidance, with personal computer, video game, and mobile device sales surging as a result of COVID-19 pandemic shutdowns and self-quarantines.

NVIDIA In Talks To Buy UK Chip Designer

The company is engaged in talks with SoftBank to acquire U.K. chip designer Arm for £40 billion. The local press is calling on the British government to intervene, worried about potential job losses. Arm, which supplies technology to Apple Inc. (AAPL), was put up for sale in April, with Goldman Sachs Inc. (GS) contracted to ‘sound out buyers’. NVIDIA has emerged as the sole suitor, with a potential deal expected to close by year’s end.

Raymond James analyst Chris Caso added to bullish sentiment last week, stating, “we reiterate our Outperform rating on NVIDIA and raise our price target to $500 ahead of Q2 results. While the stock has had a good run, we consider NVDA to have among the strongest product cycles in semiconductors, given the continued ramp of Ampere for datacenter, and the upcoming ramp of the new gaming chip, for which it appears the launch will occur on August 31.

Wall Street And Technical Outlook

Wall Street consensus on NVIDIA is highly bullish, with a ‘Strong Buy’ rating based upon 25 ‘Buy’, 3 ‘Hold’, and just 1 ‘Sell’ recommendation. Price targets currently range from a low of $260 to a street-high $540 while the stock is trading more than $50 above the median $433 target. Q2 profit and revenue numbers on Wednesday will need to fire on all cylinders to justify this lofty placement, especially with the expensive 91.0 price-to-earnings ratio (P/E).

The stock completed a 19-month cup and handle breakout above 290 in May and has added more than 190 points since that time. It’s also more than doubled in price since the last trading day of 2019, with both metrics setting off extremely overbought technical readings. However, channeled price action since May lowers the risk of new long positions, with nearby channel support allowing traders and investors to place relatively tight stop losses.

Royal Caribbean Cruises Rallies To 2-Month High

Royal Caribbean Cruises Ltd. (RCL) rose 16% last week despite reporting a Q2 2020 loss of $6.13 per-share, much worse than estimates for a $4.15 loss. Revenues plunged 93% year-over-year to a paltry $175.8 million, beating expectations by more than $17 million. The company had little good news during the August 10th release, warning the “magnitude, duration, and speed of COVID-19 remains uncertain” Even so, they noted that 2021 bookings have improved to ‘historical trends’.

Royal Caribbean Cruises Pandemic Headwinds

Cruise ship stocks got crushed in the first quarter after on-board COVID-19 infections forced a number of ships to quarantine passengers at harbors around the world. The industry then shut down with other travel sectors and has failed to reopen, due to continued worries about closed ventilation systems. U.S., Europe, and Australia-based operations have extended shutdowns to October 31st but most aren’t expected to sail again until 2021.

Royal Caribbean Cruises Chairman and CEO Richard D. Fain discussed major headwinds in the release, advising “the COVID-19 pandemic is posing an unprecedented challenge to our industry and society. Our teams are working tirelessly to return to service soonest and doing so by developing new health and safety protocols to protect the well-being of our guests, crew and destinations we visit.” “In the meantime, we are using this time to refine our operations to be as efficient as we can while providing the great experiences that so many people are eagerly awaiting.”

Wall Street And Technical Outlook

Wall Street consensus didn’t budge after the quarterly report, with a ‘Moderate Buy’ rating based upon 7 ‘Buy’, 8 ‘Hold’, and just 2 ‘Sell’ recommendations. The mix looks highly unrealistic, given the possibility that the company will run out of lending facilities and be forced to declare bankruptcy.  Price targets currently range from a low of $35 to a street-high $75 while the stock closed Friday’s session about $6 above the median $54 target. This lofty placement suggests it’s more than fully-valued at this time.

Royal Caribbean Cruises faces major technical hurdles despite last week’s rally because it’s still trading well below the 200-day moving average, which was broken on heavy volume in February.  The first quarter swoon also broke a three-year topping pattern, establishing heavy resistance in the upper 80s. Buying volume offers the only bright spot in this otherwise bearish scenario, with heavy bottom fishing and short covering lifting accumulation readings near all-time highs.

Buffett Buyers Lift Bank Of America Shares To 2-Month High

Bank of America Corp. (BAC) is trading near a 2-month high after legendary investor Warren Buffett and his Berkshire Hathaway Inc. (BRK/A) purchased more than 20 million shares. The transactions, dated between July 28 and July 30, place a $520 million bet that U.S. bank chains will recover from adverse economic conditions in the next one or two years. The high stakes wager looks dangerous from an outsider’s viewpoint, given high odds for a protracted recession in a low interest rate environment that weakens industry profits.

Bank Of America Plagued By Industry Headwinds

The commercial banking sector has lagged major indices since the 2008 economic collapse, undermined by weak investment, low interest rates, and the funneling of corporate profits into stock buybacks, rather than capital spending that generates consistent loan income. Bank of America has underperformed both broad benchmarks and industry peers during this period and is now trading at October 2008 price levels.

The stock sold off after July earnings, despite beating top and bottom line Q2 2020 estimates. CEO Brian Moynihan set a somber tone during the conference call, warning that “economic predictions have been revised, and the forward path has deteriorated from last quarter. Baseline projections now extend the length of the recessionary environment deep into 2022. We provide substantial additional reserves for expected future credit losses this quarter to reflect that, and that has impacted our earnings.”

Wall Street And Technical Outlook

Wall Street has issued no upgrades or downgrades since the purchase, maintaining a ‘Moderate Buy’ consensus based upon 5 ‘Buy’, 5 ‘Hold’, and 1 ‘Sell’ recommendation. Analyst caution makes sense, given adverse economic conditions as well as Buffett recently taking a $9.8 billion write down on a losing Precision Castparts bet. Price targets currently range from a low of $23 to a street-high $38 while the stock is now trading about $1 below the $27.50 median target.

Technical speaking, Bank of America remains stuck in a major downtrend after breaking the 200-day EMA on heavy volume in February 2020. It failed a June test at this resistance level while the uptick into August has lifted price back to this inflection point. Unfortunately, even stronger resistance is situated less than three points above this barrier, lowering odds the stock will rally back to the February 2020 high until 2021, at the earliest.

Tesla Surges Higher After Split Announcement

Tesla Inc. (TSLA) is trading higher by more than 8% in Wednesday’s U.S. session after announcing a 5-for-1 stock split, effective for shareholders of record at the close on August 28. The news follows Apple Inc.’s (AAPL) 4-for-1 split announcement on July 31, with both actions intended to attract a greater share of young market participants who opened commission-free broker accounts with U.S. stimulus checks earlier this year.

Tesla Announces 5-For-1 Stock Split

Splits don’t change valuation but they can be effective tools to improve sentiment after a stock has posted out-sized gains. The practice was shunned after the Internet bubble broke in 2000, with public corporations seeking institutional ownership by letting stock prices grow to triple and quadruple digits, making shares less attractive to under-capitalized traders. The introduction of speculative capital this year has shifted the paradigm once again, suggesting many high tech companies will follow suit in coming months.

Tesla CEO Elon Musk discussed the future of electric vehicles in a July 26 interview, noting “There’s two billion cars and trucks on the road in the fleet, and there’s a hundred million made per year, roughly. So this is something I often have to remind people of – even if all cars tomorrow were electric and autonomous, it would take 20 years to replace the fleet. So you’ll have this strange situation, kind of like when they had horses and automobiles going down Main Street at the same time for a few decades.”

Wall Street And Technical Outlook

Wall Street has grown more cautious on Tesla after the 4-month 1,400+ point rally, with a ‘Hold’ rating based upon 4 ‘Buy’, 13 ‘Hold’, and a gut-wrenching 11 ‘Sell’ recommendations. Price targets currently range from a low of just $87 to a street-high $2,400, illustrating broad-based conflict about the company’s long-term outlook. The stock is trading around $1,500 after the news, or more than $250 above the median $1,242 target.

Tesla is extremely overbought, to say the least, following an historic rally that’s driven valuation into nosebleed levels. Theoretically speaking, the company will need to post aggressive quarterly growth to support these lofty prices but, as we learned last night, Musk is willing to do what it takes to keep the faithful picking up shares. As a result, it isn’t wise to bet against the EV manufacturer, who has been crushing wave after wave of short sellers in the last 14 months.

Activision Blizzard Trading Lower Despite Blowout Quarter

Activision Blizzard Inc. (ATVI) sold off after blowing away top and bottom line Q2 2020 estimates last week, but recovered quickly, posting an all-time high at 87.73 in the following session. The video game manufacturer booked a profit of $0.75 per-share while revenue grew an astounding 72.3% year-over-year to $2.08 billion. The company issued upside guidance for fiscal year 2020, raising estimates to $2.46 per-share on $7.625 billion in revenue.

Activision Blizzard Benefiting From COVID-19 Pandemic

Strong 2020 tailwinds predict even higher stock prices in coming months. For starters, COVID-19 shutdowns across the globe have encouraged many gamers to buy new consoles and titles, even though the next generation of Xbox and PlayStation devices is scheduled for release in the fourth quarter. Those releases mark a second notable tailwind, focusing attention on the video gaming industry after several years of mixed results.

Needham analyst Laura Martin raised their Activision Blizzard target to $90 in July, noting the following supportive factors: a) live sports and films/cinemas being dark, b) COVID-19 lock downs generating higher in-game revenue, c) eSports as a key upside driver while ATVI just launched its second pro league, d) cultural bias against video games is ebbing as parents now understand the highly social aspect e) social distancing is valuable during COVID-19.

Wall Street And Technical Outlook

Wall Street consensus on Activision Blizzard is highly bullish, with a ‘Strong Buy’ rating, based upon 21 ‘Buy”, 2 ‘Hold’ and 1 ‘Sell’ recommendation. Price targets currently range from a low of $65 to a street-high $106 while the stock opened Tuesday’s U.S. session $11 below the median $92 target. This placement should support even higher prices but overbought technical readings could delay further upside until Q3 performance trends become more transparent.

The stock sold off from 85 to 40 between December 2018 and February 2019 and spent the next 18 months completing the 45-point round trip into the prior high. A minor breakout to new highs is now fading quickly, with selling pressure reinforcing resistance in the mid-80s. Even so, accumulation readings have already broken out to all-time highs, predicting that price will soon follow, potentially supporting a rapid advance into triple digits.

PayPal Holdings Could Offer Low-Risk Buying Opportunity

PayPal Holdings Inc. (PYPL) posted stronger-than-expected Q2 2020 earnings in July, booking a profit of $1.07 per-share on an impressive 22% revenue increase to $5.26 billion. The accelerated transition from paper to digital payment transactions underpinned the blowout results, completing a breakout above short-term resistance in the mid-180s. The uptick reversed above 204 last week, setting up a potential low-risk buying opportunity in coming sessions.

Paypal Opens Millions Of New Accounts

Total Payment Volume (TPV) increased 29% to $222 billion while PayPal opened more than 21 million new accounts, marking the strongest quarterly growth since the company came public in 2015.  The outlook for future quarters is equally bullish, with the COVID-19 pandemic signaling a paradigm shift into contactless payment systems.  The stock could post outsized gains well into 2022, given these historic tailwinds.

President and CEO Dan Schulman discussed the bullish metrics, stating” we have seen substantial macro changes that we believe will have a lasting and profoundly positive impact on our business. The world has accelerated from physical to digital across multiple industries including retail. Merchants are embracing a digital-first strategy, and these trends have fueled the rapid rise of digital payments. These are durable and meaningful tailwinds.”

Wall Street And Technical Outlook

Wall Street rates PayPal as a ‘Strong Buy’, based upon 28 ‘Buy’ and 5 ‘Hold’ recommendations. No analysts are recommending that shareholders sell their positions at this time. Price targets currently range from a low of $155 to a street-high $235 while the stock is now trading $15 below the median $209 target. The company carries a lofty 89.53 price-to-earnings ratio (P/E), lowering odds for further upgrades until Q3 performance trends become more transparent.

PayPal has posted a return in excess of 60% since breaking out above 2019 resistance near 120 in May, setting off overbought technical readings that have added fuel to the current downturn. The earnings news triggered a small breakaway gap between 184.75 and 190 while the stock is now trading near 194. Selling momentum could increase into this major support zone, signaling a ‘buy-the-dip’ trade that could book opportune profits.

Alphabet Losing Ground After Weak Quarter

Alphabet Inc. (GOOGL) sold off after reporting the first year-over-year revenue decline in company history on July 31st, settling into support at the 50-day moving average. The tech behemoth beat Q2 2020 top and bottom line estimates, posting a 29% drop in earnings to $10.13 per-share and a 1.7% revenue decline to a $38.2 billion. Quarterly performance suffered from weak advertising income and search activity, slowing 9.8% year-over-year, with small businesses forced to slash ad budgets in reaction to the COVID-19 pandemic.

Alphabet Notes Gradual Improvement

A company spokesman disclosed that ad revenue ‘gradually improved’ during the quarter but cautioned that it was too early to gauge the uptick’s resilience. Google Cloud revenue lifted an impressive 43% year-over-year, partially offsetting the impact of advertising losses, while monthly-based subscription services booked strong growth in user interaction. Alphabet also authorized an additional $28 billion in Class C stock buybacks.

CEO Sundar Pichai expressed caution about the 2021 outlook but noted “we saw the early signs of stabilization as users returned to commercial activity online.” He pointed to “good traction” in YouTube and Google Play subscriptions, with app and game downloads rising 35%, while the Cloud segment added an impressive list of new clients that include Deutsche Bank. Pichai also added that “customers are choosing Google Cloud to either lower their costs by improving operating efficiency, or to drive innovation.”

Wall Street And Technical Outlook

Wall Street consensus remains highly bullish despite the mediocre quarter, with a ‘Strong Buy’ rating based upon 30 ‘Buy’ and just 2 ‘Hold’ recommendations. No analysts are telling shareholders to take profits and move to the sidelines at this time. Current price targets range from a low of $1,500 to a street-high $1,990 while the stock closed Friday’s session $2 below the low target. This depressed placement suggests that Alphabet is over-valued at this time.

Alphabet failed a breakout above the February high on nearly three-times average daily volume after the release and is now wedged between resistance at 1,530 and moving average support at 1,460. A breakout through either end of this narrow trading range could gather steam, lifting the stock to an all-time high or starting the next leg of an intermediate correction that could reach 1,350 before attracting committed buying interest.

 

 

Apple Could Top Out After Stock Split

Dow component Apple Inc. (AAPL) is trading at an all-time high above 445 on Thursday after a dramatic breakout, triggered by blowout fiscal Q3 2020 results. The tech icon earned $2.58 per-share during the quarter, $0.51 better than estimates, while revenue rose 10.9% year-over-year to $59.69 billion, beating $52.56 billion consensus by a wide margin. Double digit growth in iPads, Macs, and wearables underpinned the bullish metrics while iPhone revenue rose 1.5% year-over-year to $26.4 billion, better than $22.0 billion consensus.

Apple Declares 4-For-1 Stock Split

The company declared a 4-for-1 stock split for investors of record at the close on August 24. The news surprised Wall Street veterans because this formerly-common practice has been abandoned in the last 20 years, in favor of buybacks and higher prices to attract more desirable institutional ownership. The recent explosion in commission-free accounts has apparently forced a paradigm shift, with younger, under-capitalized traders favoring cheaper stocks.

CFO Luca Maestri took note of the historic results, proclaiming “our second quarter performance was strong evidence of Apple’s ability to innovate and execute during challenging times. The record business results drove our active installed base of devices to an all-time high in all of our geographic segments and all major product categories. We grew EPS by 18% and generated operating cash flow of $16.3 billion during the quarter … a record for both metrics.”

Wall Street And Technical Outlook

Wall Street consensus is less bullish than might be expected, with a ‘Moderate Buy’ rating based upon 23 ‘Buy’ and 6 ‘Hold’ recommendations. Two analysts now think the stock is over-priced and are telling shareholders take profits and move to the sidelines. Price targets currently range from a low of $295 to a street-high $500 while the stock is now trading about $18 above the median $427 target. These metrics may presage a major top after the split date later this month.

Apple broke out above the 2018 high at 233 in October 2019 and has nearly doubled in price since that time, setting off long-term overbought technical readings. That hasn’t stopped the stock from gaining ground but is warning new shareholders the uptrend is getting ‘long-in-the-tooth. In addition, the rally has now stretched twice the length of the first quarter selloff, reaching an harmonic Fibonacci extension that favors a reversal lasting weeks or months.

Procter & Gamble Breaks Out To All Time-High

Dow component Procter & Gamble Co. (PG) broke out to an all-time high last week after beating top and bottom line Q4 2020 estimates and guiding fiscal year 2021 earnings-per-share (EPS) above consensus. The household goods giant reported a profit of $1.16 per-share on a 3.5% year-over-year revenue increase to $17.7 billion, underpinned by strong demand for household cleaning, personal health, and cleansing products in the U.S.A. and China.

Procter & Gamble Higher Sales Due To Pandemic

Organic sales rose 6% during the quarter, with the home care segment that includes Tide and Comet cleaning products reporting impressive 14% year-over-year growth. Procter & Gamble’s health care segment lagged badly, booking sales of just 2% after Crest and Oral-B products generated limp growth as a result of retail, electronic, and dental office closures. The company also noted single-digit declines in Gillette and Venus products, insisting that many customers are shaving less often as a result of the pandemic.

CEO David Taylor discussed strong tailwinds in a post-release interview, predicting “there may be a long-term increase focused on the home — more time at home, more meals at home — with related consumption impacts.” However, COO Jon Moeller followed up Taylor’s upbeat commentary, warning the pandemic will dictate trends in the next two years, stating “we’ll likely be operating without a vaccine or advanced therapeutics through fiscal 2021”.

Wall Street And Technical Outlook

Wall Street consensus rates the stock as a ‘Moderate Buy’ based upon 8 ‘Buy’ and 3 ‘Hold’ rankings. No analysts are recommending that shareholders sell their positions and move to the sidelines at this time.  Price targets currently range from a low of $125 to a street-high $153 while the stock has opened Wednesday’s U.S. session about $8 below the median $142 target. This placement suggests that additional gains are likely in coming weeks.

Proctor & Gamble is trading at an all-time high in the 130s after breaking out above the February 2020 high. However, accumulation readings have failed to match bullish price action and are slumping just above the midpoint of the major distribution wave posted between February and June.  In turn, this predicts the rally will stall soon and ease into a holding pattern that tests new support before yielding sizable upside, or a failed breakout.

eBay Could Roll Over Into Intermediate Correction

eBay Inc. (EBAY) sold off 3.1% after last week’s Q2 2020 earnings report, despite beating estimates and guiding Q3 and fiscal year above already-aggressive consensus. The stock has since regained those losses but dwindling volume lowers odds it will challenge the July 13th all-time high at 61.06, at least in the short-term. The apathetic tape also indicates that overbought technical readings are taking hold, raising odds for a long-overdue downturn.

eBay Takes Market Share From Competitors

The e-commerce giant has booked impressive market share gains in the digital retail space as a result of the COVID-19 pandemic. Investors and traders have taken note, more than doubling the stock price since the March low while posting a 57% return in 2020. These outsized gains have raised legitimate doubts about valuation while lifting relative strength oscillators into the most overbought levels in the company’s 22-year public history.

In addition to growing technical challenges, eBay got into hot water in June after the U.S. Attorney’s office in Massachusetts indicted former employees for an alleged cyberstalking campaign that targeted the publisher and editor of a newsletter who wrote critical comments. Early evidence suggests that senior executives were involved in the diabolical decision-making, raising the potential for bearish headlines when testimony is taken later this year.

Wall Street And Technical Outlook

Wall Street rates eBay as a ‘Moderate Buy’, based upon 11 ‘Buy’, 16 ‘Hold’, and 1 ‘Sell’ recommendation. That’s positively bearish compared to other e-commerce plays, suggesting that many analysts think the company is now overvalued. Price targets currently range from a low of $52 to a street-high $82 while the stock is trading $6 below the median $62 target. This placement indicates that price could add additional points with ease, despite growing headwinds.

Technically speaking, eBay has fired on all cylinders since breaking out above 2018 resistance at 46.99 in June. The rally has added 10 points since that time while accumulation readings continue to support higher prices. However, a distribution wave that started in July may be picking up steam, perhaps setting the stage for an intermediate correction that offers a low-risk buying opportunity near the breakout level.