NVIDIA Trading Modestly Higher After Earnings

NVIDIA Corp. (NVDA) shook off a modest decline in Wednesday’s post-market and is trading higher by more than 1% on Thursday morning, after investors took a more bullish view of the mostly inline Q2 2021 earnings report. The chipmaker posted a profit of $1.04 per-share during the quarter, just $0.02 better than expectations, while revenue rose an impressive 68% year-over-year to $6.51 billion, about $170 million higher than consensus.

Warning on Supply Constraints

Vertical industry and hyperscale customers generated record data center revenue. Demand for gaming chips also underpinned results, outpacing supply due to the worldwide chip shortage. The company warned that “we will see a supply constrained environment for the vast majority of next year”, raising a red flag for industry rivals. Automotive revenue declined sequentially, as the self-driving juggernaut ran into the impenetrable wall of limited supply.

NVIDIA posted an historic 221% return in 2020 and has added another 49% so far in 2021. Supply constraints haven’t impacted the bullish technical pattern, at least yet, but it will be hard for risk conscious investors to take exposure until mean reversion takes control and prices drop off lofty levels. Even so, there’s little doubt the company is destined for long-term market leadership, given its amazing track record since 2016.

Wall Street and Technical Outlook

Wall Street consensus has declined to an ‘Overweight’ rating in the last three months, based upon 28 ‘Buy’, 6 ‘Overweight’, 4 ‘Hold’, 1 ‘Underweight’, and 2 ‘Sell’ recommendations. Price targets currently range from a low of $130 to a Street-high $300 while the stock is set to open Thursday’s session about $26 below the median $220 target. The modest buy-the-news reaction suggests that price can now ease toward the $200 level.

NVIDIA broke out above the 2018 high at a split-adjusted 73.19 in May 2020, entering a powerful uptrend that stalled just below 150 in September. The stock cleared resistance in April 2021 but momentum didn’t kick into gear until a May buying spree added 74 points into July’s all-time high at 208.75. Mixed weekly and monthly Stochastics readings since that time indicate that price has entered a trading range that could persist well into the fourth 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. 

Cisco Systems Fairly Valued Ahead of Report

Dow component Cisco Systems Inc. (CSCO) reports fiscal Q4 2021 earnings after Wednesday’s closing bell, with analysts expecting a profit of $0.83 per-share on $13.03 billion in revenue. If met, earnings-per-share (EPS) will mark a slight improvement compared to the same quarter last year. The stock closed marginally higher in May after meeting Q3 estimates and issuing mixed Q4 guidance. The company has met EPS guidance every quarter in the last five years so a downside surprise isn’t likely.

Strong 2021 Returns

Cisco underperformed throughout 2020, with contracts in the Commercial, Public Sector, and Service Provider segments impacted by the pandemic. Bulls have returned in force so far in 2021, underpinning a 25% year-to-date return. Even so, the stock is still trading below July 2019’s multiyear high at 58.26, which marks major resistance. A breakout after the news isn’t likely, given the proximity to that peak and the company’s reputation as a slow mover.

It’s been a relatively quiet quarter for the networking giant, with the recently reported acquisition of Israeli start-up Epsagon marking one of the few notable highlights. The transaction, valued at $500 million, will add to Cisco’s capability in the cloud space. It also won an open-ended $1.2 billion contract from the Defense Information Systems Agency to provide Smart Net Total Care and Software Support Services for the Department of Defense.

Wall Street and Technical Outlook

Wall Street consensus has improved in the last three months, now standing at an ‘Overweight’ rating based upon 14 ‘Buy’, 3 ‘Overweight’, and 13 ‘Hold’ recommendations. No analysts are recommending that shareholders underweight or close positions. Price targets range from a low of $46 to a Street-high $65 while the stock will open Wednesday’s session just $1 below the median $57 target. This placement suggests Cisco is fairly valued, lowering odds for big price change after the report.

Cisco Systems posted an all-time high at 82 in 2000 and has traded below that peak for the last 21 years. A multiyear uptrend topped out in the upper 50s in 2019, giving way to a pullback that accelerated to a two-year low during the pandemic decline. The stock posted a higher low in November and bounced strongly, reaching within three points of the prior peak this week. An extension into resistance is possible after the report but additional gains may take time to unfold.

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. 

Home Depot Could Sell Off to 300

Dow component Home Depot Inc. (HD) is trading lower by more than 3% in Tuesday’s pre-market after beating Q2 2021 top and bottom line estimates by slim margins. The home improvement giant posted a profit of $4.53 per-share during the quarter, $0.10 better than expectations, while revenue rose a modest 8.1% year-over-year to $41.12 billion, less than $400 million above consensus. US sales rose just 3.4%, highlighting tough ‘comps’ after last year’s COVID-driven windfall.

Post-Pandemic Hangover

The company generated historic revenue in 2020, underpinned in the first half by pandemic lockdowns that freed up time for at-home activities, and in the second half by the migration of the Zoom crowd to new parts of the country.  Mean reversion has now resumed control of quarterly performance, easing toward historic norms that underpinned years of higher prices. However, the stock has already gained 22% so far in 2021, raising doubts about second half performance.

Other big players in the retail space are dealing with similar headwinds, as evidenced by an identical sell-the-news reaction after Walmart Inc. (WMT) also beats estimates on Tuesday.  Amazon.com Inc. (AMZN) remains the poster child for this 2021 performance hangover, posting a 0% return since July 2020 after soaring 81% earlier that year. All in all, this malaise perfectly illustrates the old market adage that “the bigger the move, the broader the base”.

Wall Street and Technical Outlook

Wall Street consensus is locked into an ‘Overweight’ rating based upon 19 ‘Buy’, 4 ‘Overweight’, 20 ‘Hold’, and 1 ‘Sell’ recommendation. Price targets currently range from a low of $300 to a Street-high $391 while the stock is set to open Tuesday’s session about $27 below the median $350 target. A descent to the low target is possible with this configuration, which makes sense because support at June’s rangebound low is situated just below that level.

Home Depot broke out above 2018 resistance just above 200 in September 2019 and topped out at 247.36 in February 2020, ahead of a pandemic decline that dropped the stock to a three-year low. The subsequent uptick mounted first quarter resistance in June, yielding a two-legged advance that posted an all-time high at 345.69 in May 2021. A persistent pullback found support at 303.83 in June while the bounce into August has reversed at the .786 Fibonacci selloff retracement level. In turn, this also raises odds for a quick trip to 300.

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. 

Is It Time to Buy Lockheed Martin?

Lockheed Martin Corp. (LMT) has underperformed broad averages since the 2020 election, with the Biden administration expected to focus on domestic priorities and put a lid on defense spending. That hopeful sentiment got blown out of the water over the weekend, with the rapid fall of Afghanistan setting the stage for a resurgence of Middle East terrorism. Reverberations will be felt worldwide in the next few years, with the usual cast of ‘bad actors’ sensing American weakness and vulnerability.

World’s Largest Defense Contractor

Headquartered in Maryland, Lockheed is the world’s largest defense contractor, with $1.36 billion in 2019 government contracts. Their product catalog is legendary in military circles, with state-of-the-art missile systems and fighter jet fleets displaying colorful monikers like Lightning, Nighthawk, and Starfighter. Even so, the stock hasn’t budged in the last two years, held down by shifting sentiment, the pandemic, and political polarization.

The company beat Q2 2021 estimates in July and raised fiscal year guidance but that didn’t end a steady downtick that’s now reached a five-month low. Cutting EPS guidance just one week after earnings didn’t help, with a previously undisclosed charge of $4.75 per share to reduce outstanding pension obligations. CFO Kenneth R. Possenriede retired at the same time, suggesting some instability in the otherwise rock-solid management team.

Wall Street and Technical Outlook

Wall Street consensus stands at an ‘Overweight’ rating based upon 12 ‘Buy’, 1 ‘Overweight’, and 9 ‘Hold’ recommendations. Price targets currently range from a low of $385 to a Street-high $479 while the stock is set to open Monday’s session more than $25 below the low target. This depressed placement highlights investor apathy after four years of the more hawkish Trump administration and uncertainty about America’s role on the world stage.

Lockheed Martin posted superior returns between 2013 and February 2020’s all-time high at 442.53, ahead of a steep slide that shed nearly 180 points in just six weeks. It bounced within 30 points of resistance in June 2020 and settled into an oscillating pattern that’s carved two lower highs and one higher low. Overall, this looks like a long-term consolidation that’s unlikely to yield a breakout or breakdown in the next year, unless America gets a 9-11 style ‘wake-up call’.

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

Disclosure: the author held Lockheed Martin in a family account at the time of publication. 

Perfect Time to Take Target Profits

Target Corp. (TGT) reports Q2 2021 earnings ahead of Wednesday’s opening bell, with analysts expecting a profit of $3.52 per-share on $25.02 billion in revenue. If met, earnings-per-share (EPS) will mark a modest 5% profit increase compared to the same quarter in 2020, when the world emerged from the first lockdown. The stock rallied 6.1% in May after blowing away Q1 top and bottom line estimates and has carved a long series of new highs into August.

Red Hot Two Year Returns

The retail giant has been a blisteringly-hot performer so far in 2021, posting a 48% year-to-date return on top of last year’s 37% return. In fact, it hasn’t touched the 50-month moving average since May 2019 despite repeated trips into that level between 2014 and 2018. Therein lies the problem for sidelined investors, i.e. the stock is universally loved and extremely overbought, significantly raising odds for an intermediate correction lasting weeks or months.

Target has benefited from the pandemic, capturing retail market share from less-prepared rivals. Skyrocketing GDP in the first half also underpinned performance, with Americans catching up on deferred purchases. The Delta variant has impacted that trajectory but we really don’t know the extent of renewed headwinds. Walmart Inc.’s (WMT) confessional on Tuesday morning could impact that calculation … and the reaction to Wednesday’s report.

Wall Street and Technical Outlook

Wall Street consensus has eased to an ‘Overweight’ rating, based upon 19 ‘Buy’, 2 ‘Overweight’, and 6 ‘Hold’ recommendations. One analyst recommends that shareholders close positions and move to the sidelines. Price targets currently range from a low of $176 to a Street-high $305 while the stock closed Friday more than $3 above the median $258 target. This indicates that Target is fully-valued, raising doubts that earnings will yield a buying opportunity.

Target underperformed between 2015 and 2019, held down by a well-publicized data breach. It broke out in August 2019, entering a powerful uptrend that tested new support successfully in March 2020. The stock has almost tripled in price since that time while carving just one deep pullback. It’s been glued to the top 20-month Bollinger Band throughout 2021 but long term relative strength just hit the most extreme overbought technical reading since 1967.

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. 

Walmart Set to Test 2020’s All-Time High

Dow component Walmart Inc. (WMT) reports Q2 2021 earnings next week, with analysts expecting a profit of $1.56 per-share on a staggering $135.7 billion in revenue. If met, earnings-per-share (EPS) will match results in the same quarter last year, when the retail behemoth benefited from pandemic shutdowns. The stock rose 2.2% in May after beating Q1 top and bottom line estimates and is now testing December’s all-time high in the low 150s.

Strong August Recovery

The company has shaken off mediocre first half performance in recent weeks and is now posting a positive 4% return for the year. Big upside last year generated extremely overbought technical readings that have worked out of the system through time rather than price, raising odds for continuation of the strong uptrend. Even so, accumulation is lagging price action by a country mile, with volume indicators situated well below 2019 and 2020 peaks.

Wells Fargo analyst Edward Kelly upgraded Walmart to ‘Overweight’ last week, noting, “Our positive view is based on: 1) Normalizing consumer behavior should allow WMT to recapture share lost to conventional grocers during the pandemic. 2) We remain positive on the lower-end consumer despite numerous cross currents. 3) We see more earnings certainty in 2022 than at other retail peers. 4) The services narrative is likely to continue to improve. 5) Valuation looks attractive given significant underperformance to peers, especially when pulling out Flipkart.”

Wall Street and Technical Outlook

Wall Street consensus stands at an ‘Overweight’ rating based upon 21 ‘Buy’, 5 ‘Overweight’, 7 ‘Hold’, and 1 ‘Underweight’ recommendation. In addition, two analysts recommend that shareholders close positions. Price targets currently range from a low of $127 to a Street-high $185 while the stock is set to open Thursday’s session about $15 below the median $165 target. A rapid ascent through the 150s is possible if Q2 earnings beat consensus by a wide margin.

Walmart cleared 2018 resistance in June 2019 and carved an uptrend that gathered strength after March 2020’s pandemic decline. The rally stalled just above 150 in September while a November breakout failed after posting an all-time high at 153.66. The stock fell more than 25 points into March and turned higher, carving a two-legged recovery that’s now stretched within four points of the prior peak. Even so, a sustained rally to new highs could take time to evolve, with deficient accumulation readings raising odds for whipsaws.

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. 

Southwest Airlines Lowers Q3 Revenue Guidance

Southwest Airlines Co. (LUV) is trading lower on Wednesday after warning about Q3 2021 revenue due to “close-in’ cancellations and bookings as a result of the Delta variant. The news is bearish for the broader airline industry, for two reasons. First, it tells us that leisure travelers are having second thoughts about vacations and trips to see grandma while second, it defies predictions that widespread business travel would resume in the fourth quarter.

Red Flag for Airline Industry

The airline has outperformed its peers since March 2020, with a domestically-focused schedule avoiding the gauntlet of international travel restrictions. The recovery wave reached the 2018 peak in March 2021 before reversing, unlike American Airlines Group Inc. (AAL), United Airlines Holdings Inc. (UAL), and Delta Air Lines Inc. (DAL), which stalled well below similar levels. In turn, this raises odds that rivals will follow with identical warnings in coming weeks.

According to the release, Southwest “recently experienced a deceleration in close-in bookings and an increase in close-in trip cancellations in August 2021, which are believed to be driven by the recent rise in COVID-19 cases associated with the Delta variant. Based on the assumption that COVID-19 cases remain elevated in the near-term and current revenue trends in August continue into September, the current outlook for Q3 2021 operating revenues has worsened by an estimated three to four points.”

Wall Street Asleep at the Wheel

Wall Street consensus has ignored the Delta variant, with a ‘Buy’ rating based upon 16 ‘Buy’, 3 ‘Overweight’, and 4 ‘Hold’ recommendations. No analysts are recommending that shareholders reduce positions or move to the sidelines. Price targets range from a low of $57 to a Street-high $85 while the stock is set to open Wednesday’s session about $7 below the low target. This disconnect indicates that Main Street understands the current risks better than the analyst community.

Southwest posted an all-time high at 66.99 in December 2017 and entered a trading range that broke to the downside in February 2020, dropping the stock to a 6-year low. The subsequent uptick stalled within three points of that peak in April 2021, giving way to a correction that pieced the 200-day moving average in the 50s in July. Two tests at that level have failed while this morning’s decline is holding within a short-term trading range. Accumulation has dropped to a 52-week low, raising odds for continued downside into the lower 40s.

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. 

Walt Disney Accumulation Drops to 8-Month Low

Dow component Walt Disney Co. (DIS) reports Q3 2021 earnings after Thursday’s closing bell, with analysts looking for a profit of $0.55 per-share on $16.76 billion in revenue. If met, earnings-per-share (EPS) will mark a 687% profit increase compared to the same quarter in 2020 when movie production, theme parks, and cruise ships were shut down. The stock fell 2.6% in May after missing Q2 revenue estimates and has failed to recoup those losses in the last quarter.

Over-Optimism and Renewed Headwinds

Shareholders are growing nervous with the stock’s lackluster performance, dropping accumulation readings to 8-month lows. Disney is down 3% so far in 2021, highlighting overly-optimistic post-COVID expectations. The Delta variant isn’t helping matters, with nervous folks pulling back from movie attendance and reconsidering trips to theme parks. Weaker-than-expected The Suicide Squad box office last weekend may reflect this growing caution.

Similarly, MKM Partners analyst Eric Handler noted the initially strong box office for Black Widow in July but admitted that “we are also a bit disappointed with how box office expectations for Black Widow seemed to taper off a bit as the weekend progressed, much of which we would attribute to cannibalization from Disney+ Premier Access also showing the film and taking in a solid $60mn (a global number but one which heavily skewed towards North America)”.

Wall Street and Technical Outlook

Wall Street consensus stands at an ‘Overweight’ rating, based upon 21 ‘Buy’, 2 ‘Overweight’, 5 ‘Hold’, and 1 ‘Underweight’ recommendation. Price targets currently range from a low of $147 to a Street-high $230 while the stock is set to open Tuesday’s session more than $50 below the median $212 target. This disconnect with Main Street investors highlights the growing impact of the Delta variant and deceleration of Disney+ subscription growth noted in the Q2 report.

Disney topped out at 153.41 after the launch of Disney+ in November 2019 and fell to a 6-year low in March 2020. The subsequent recovery wave mounted the 2019 peak in December, setting off a strong uptrend that posted an all-time high at 203.02 in March. A selloff into May found support in the 160s but the stock has failed to capitalize on that bounce, treading water while investors await the impact of renewed headwinds and the latest streaming numbers.

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. 

DraftKings In Rally Mode After Gartley Buy Signal

DraftKings Inc. (DKNG) is trading higher by 3% in Monday’s pre-market after announcing the acquisition of Golden Nugget Online Gaming Inc. (GNOG) in an all-stock transaction currently valued at $1.56 billion. The deal, which is expected to close in the first quarter of 2022, will bolster market share in an online sports gaming industry that’s attracted heavy competition since the company came public in its current form in December 2019.

Rapid Growth But No Profits

DraftKings has yet to post a profitable quarter but it beat Q2 2021 estimates in Friday’s release, with revenue surging 319.7% year-over-year to $298 million, more than $50 million higher than expectations. Monthly Unique Players (MUPs) rose 281% compared to the same quarter in 2020, indicating “strong unique player retention and acquisition across DFS, OSB and iGaming, the expansion of our OSB and iGaming product offerings into new states, and the lack of traditional sports for much of the second quarter of 2020 due to the negative impact of COVID-19.”

The Benchmark Company analyst Mike Hickey raised the firm’s target to $70 on Monday, noting that “DraftKings delivered strong Q2 2021 financial results and raised their fiscal year 2021 revenue forecast. Player engagement and monetization have achieved better than expected results and suggests player LTV may be higher than originally expected. DKNG continues to efficiently acquire players at a CAC at or below target.”

Wall Street and Technical Outlook

Wall Street sees a bright future for DraftKings, posting a consensus ‘Overweight’ rating based upon 17 ‘Buy’, 1 ‘Overweight’, and 9 ‘Hold’ recommendations. Price targets currently range from a low of $42.50 to a Street-high $105.00 while the stock is set to open Monday’s session about $19 below the median $72.50 target. This low placement could ignite upside in coming sessions, given the promising quarter and aggressive acquisition.

DraftKings fell to 10.60 in March 2020 and turned sharply higher, breaking out to a new high in April. The rally carved three waves into March 2021’s all-time high at 74.38, ahead of a correction that’s been crisscrossing the 50- and 200-day moving averages for the last three months. Accumulation is now surging, indicating the pullback may have come to an end, setting the stage for a strong uptick that could easily reach and exceed the first quarter peak.

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.

eBay Nearing Support Ahead of Earnings

eBay Inc. (EBAY) reports Q2 2021 earnings after Wednesday’s closing bell, with analysts looking for a profit of $0.95 per-share on $3.0 billion in revenue. If met, earnings-per-share (EPS) will mark a 12% decline compared to the same quarter last year. The stock sold off more than 10% in April, despite meeting Q1 estimates with a 26.4% year-over-year revenue increase, and rallied into July’s all-time high in the mid-70s.

Riding the Non-Fungible Token (NFT) Wave

The e-commerce provider has outperformed larger rivals so far in 2021, posting a 30% return compared 2.7% for Amazon.com Inc. (AMZN) and less than 1% for Dow component Walmart Inc. (WMT). The explosive growth of non-fungible tokens (NFT) has underpinned revenue and investor sentiment since sales were introduced in May. It’s a perfect place for this initiative, with digital trading cards, music, entertainment, and art backed up by blockchain technology.

eBay discussed this emerging growth channel at the time of the release, noting that “NFTs offer greater access to a broader audience of collectors and creators. In the same way digital publishing brought more exposure for writers, digital collectibles bring greater opportunity for artists and creators. We plan to double down on this idea – combining eBay’s global reach with the principle that anyone can find almost anything on our platform”.

Wall Street and Technical Outlook

Wall Street consensus remains unenthusiastic, with an ‘Overweight’ rating based upon 7 ‘Buy’, 2 ‘Overweight’, 10 ‘Hold’, and one ‘Underweight’ recommendation. No analysts are recommending that shareholders close positions. Price targets range from a low of $59.20 to a Street-high $81.00 while the stock closed Friday’s session on top of the median $66.00 target. This suggests the company will need to raise Q3 guidance to trade at higher prices.

eBay completed a round trip into the 2018 high at 46.99 in June 2020 and broke out, entering an uptrend that stalled just above 60. The stock cleared that barrier in June 2021, lifted into July’s all-time high at 74.13, and turned south into August. It’s currently trading below the 50-day moving average for the first time since May and testing support in the mid-60s. So far at least, this looks like garden variety profit-taking, suggesting even higher prices in coming months.

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

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

General Motors Sells Off Despite Strong Quarter

General Motors Co. (GM) is trading lower by more than 2% in Wednesday’s pre-market despite beating Q2 2021 top and bottom line estimates by healthy margins. The automaker earned $1.97 per-share during the quarter, $0.12 better than expectations, while revenue rose 103.8% year-over-year to $34.2 billion, more than $4 billion higher than consensus. The company raised full year 2021 earnings-per-share (EPS) guidance from the $4.50 – $5.25 range to the $5.40 – $6.40 range.

Production Hampered by Chip Shortages

Chip shortages continue to weigh on quarterly metrics and investor sentiment. The sell-the-news reaction comes just one day after General Motors announced the shutdown of three North American pickup truck plants due to shortages. These closures follow a hopeful June statement that outlined a series of steps to achieve higher production levels. Sadly, one of those initiatives focused on a Flint, Michigan pickup assembly that’s impacted by the latest shutdown.

Analyst Dan Niles at Wedbush Securities outlined the bull case on General Motors last month, posting an ‘Outperform’ rating while noting that “going forward GM continues to be a re-rating story as the Street treats the Detroit automaker no longer as a traditional auto company trading based on book value, but a broader disruptive technology play that can start to trade at multiples similar to the likes of Tesla and other pure-play electric vehicle companies.”

Wall Street and Technical Outlook

Wall Street consensus remains highly bullish, with a ‘Buy’ rating based upon 19 ‘Buy’, 1 ‘Overweight’, and 3 ‘Hold’ recommendations. Price targets currently range from a low of $64 to a Street-high $90 while the stock is set to open Wednesday’s session more than $7 below the low target. This dismal placement tells us that analysts have done a poor job estimating the impact of chronic chip shortages on 2021 share valuation.

General Motors broke out above the 2017 high in the 40s in January 2021, just ten months after posting an all-time low. The uptick carved a series of marginal new highs into June’s all-time high at 64.30, ahead of a pullback that reinforces resistance in the low 60s while generating more than seven weeks of testing at the 50-day moving average. Accumulation has now dropped to the lowest low since January but price action, so far at least, has held horizontal support at 54. That level marks a line-in-the-sand that bulls need to hold at all costs.

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.

Activision Blizzard Under Pressure Ahead of Report

Activation Blizzard Inc. (ATVI) reports Q2 2021 earnings after Tuesday’s closing bell, with analysts expecting a profit of $0.75 per-share on $1.88 billion in revenue. If met, earnings-per-share (EPS) will mark no improvement over identical results in the same quarter last year, when gamers were emerging from lockdowns. The stock bounced off a multi-month low in May after a mixed Q1 report but the uptick failed, with downside since that time reaching the lowest low since December 2020.

Toxic Workplace Allegations

June 2021 video gaming spending rose just 5% year-over-year, failing to overcome tough comparisons after last year’s pandemic sales windfall. Social distancing and the run-up into new console releases by Sony Group Corp. (SONY) and Microsoft Corp. (MSFT) generated the most industry excitement in ages, translating into higher stock prices and extremely overbought technical readings that are partially responsible for year-to-date losses in top sector plays.

Activision is also dealing with fallout from sexual harassment allegations at Blizzard’s “World of Warcraft”, one of the hottest titles of the 21st century. That game no longer tops the sales charts but the toxic culture being exposed by unit employees could damage the corporate brand, which includes many titles directed at female players. California just filed suit, citing a culture of “constant sexual harassment”, so this story is likely to attract attention and potential disgust into 2022.

Wall Street and Technical Outlook

Wall Street consensus remains overly bullish, with a ‘Buy’ rating based upon 24 ‘Buy’, 5 ‘Overweight’, and 3 ‘Hold’ recommendations. Price targets currently range from a low of $100 to a Street-high $145 while the stock is set to open Tuesday’s session more than $18 below the low target. This dismal placement highlights Main Street skepticism after 2020’s 56% return. In addition, analysts have been as quiet as church mice since the scandal broke, most likely because they have no clue how it will impact sales.

Activision topped out at 84.68 in October 2018 and got cut in half in the next four months. A slow but steady uptick reached the prior high in August 2020, yielding a pullback, followed by a December cup and handle breakout that posted an all-time high at 104.53 in February 2021. The subsequent decline completed a descending triangle breakdown after the sexual harassment news, also failing the breakout. None of this bodes well for the stock in coming months.

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

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

Square Trading Sharply Lower After Acquisition News

Square Inc. (SQ) is trading lower by nearly 5% in Monday’s pre-market after missing Q2 2021 revenue estimates and announcing the acquisition of Australian fintech provider Afterpay Ltd. for $29 billion. The San Francisco-based payment processor earned $0.66 per-share during the quarter, $0.35 better than expectations, while revenue rose 143.3% year-over-year to $4.68 billion, nearly $400 million lower than consensus.

Revenue Shortfall Sours Bullish Sentiment

The company hopes the Allpay acquisition will accelerate “strategic priorities for its Seller and Cash App ecosystems”. The all-stock deal is expected to close in the first quarter of calendar year 2022, indicating that a secondary offering will be needed to cover the purchase. Square predicts the transaction will be “accretive to gross profit growth with a modest decrease in Adjusted EBITDA markets expected in the first year after completion of the transaction”.

The sell-the-news reaction reveals shareholder anxiety about Square’s long-term growth trajectory. The acquisition will dilute current shares, requiring an equal uptick in income that isn’t guaranteed, given complex integration issues. Even so, the revenue shortfall is a bigger deal because, as PayPal, Inc. (PYPL) and Amazon.com Inc. (AMZN) underscored last week, 2020 COVID beneficiaries are having a harder time maintaining growth as quarterly metrics revert to historical norms.

Wall Street and Technical Outlook

Wall Street consensus stands at an ‘Overweight’ rating after 2020’s phenomenal 347% return, consisting of 24 ‘Buy’, 1 ‘Overweight’, 15 ‘Hold’, and 1 ‘Underweight’ recommendation. In addition, one analyst recommends that shareholders close positions and move to the sidelines. Price targets currently range from a low of $175 to a Street-high $380 while the stock is set to open Monday’s session more than $40 below the median $281 target. This humble placement suggests that Main Street is worried about post-COVID growth.

Square broke out above the 2018 high at 101.15 in June 2020 and took off in a powerful trend advance that posted an all-time high at 283.19 in February 2021. A rapid decline to 191 set the lower boundary of a trading range that has remained intact for the last five months. Price action has improved since a successful support test in May but the stock is now stuck near the dead center of the sideways pattern, likely months away from a sustained 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. 

Amazon Fails Breakout After Revenue Warning

Amazon.com Inc. (AMZN) became the latest casualty of a tough earnings season on Friday, dropping more than 7.5% after missing Q2 2021 revenue expectations and issuing weak Q3 guidance. The e-commerce juggernaut earned $15.12 per-share, beating estimates by $2.88, while revenue grew 27.2% year-over-year to $113.08 billion, about $2 billion below consensus. Cloud services knocked it out of the park as usual, growing 37% year-over-year, while Prime purchases grew at the slowest pace in four quarters.

Another Post-COVID Hangover

The company detailed limp second quarter Prime growth, which prompted the third quarter warning, noting that folks emerging from the winter’s pandemic wave were spending more time traveling and engaging in other physical activities. Tough 2020 comparisons also drove the aggressive sell-the-news reaction because Amazon and other COVID beneficiaries booked historic market share gains at that time, depleting the pool of potential 2021 customers.

‘Peak growth’ has become a hot topic on Wall Street, with U.S. GDP easing after a torrid first half while inflation expectations settle back to earth. As a result, nervous shareholders have been selling strong second quarter earnings reports at the majority of last year’s big winners, understanding that year-over-year comparisons will be tougher going forward, at the same time that profit and revenue trajectories revert to historical norms.

Wall Street and Technical Outlook

Wall Street hasn’t reacted to the quarterly metrics but downgrades are possible in coming sessions. Consensus now stands at a ‘Buy’ rating based upon 41 ‘Buy’, 7 ‘Overweight’, and just 2 ‘Sell’ recommendations. Price targets currently range from a low of $3,775 to a Street-high $5,000 while the stock closed Friday’s session more than $400 below the low target. This huge disconnect reveals misguided analyst cheerleading, given the mixed third quarter outlook.

Amazon broke out above the 2018 high near 2,050 in April 2020, entering an historic uptrend that topped out at 3,552 in September. A rapid pullback to 2,871 marked the low end of a trading range that stayed intact until a July 2021 breakout posted an all-time high at 3,773.08. It’s been all downhill since that time, with Friday’s selloff completing a failed breakout that exposes another sub-3,000 decline. More importantly, the stock’s return in the last 12 months is now approaching zero, forcing many shareholders to consider a timely exit.

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. 

A Profit Warning Knocks PayPal Down Like a Rock

PayPal Holdings Inc. (PYPL), one of 2020’s hottest stocks, is trading lower by more than 9% in Thursday’s pre-market after issuing downside profit guidance for the third quarter and full year. The digital payments juggernaut beat Q2 earnings-per share (EPS) estimates by just $0.03, posting a profit of $1.16, while revenue rose 18.6% year-over-year to $6.24 billion, just missing $6.27 billion consensus. Total payment volume during the quarter grew 40%, or 36% on a currency neutral basis.

Pandemic Hangover

The company boasts a 55.7 price-to-earnings ratio (P/E), higher than American Express Co. (AXP) but on par with Visa Inc. (V) and MasterCard Inc. (MA). The weak outlook exposes vulnerability to a pandemic ‘hangover’ that many 2020 beneficiaries have reported in their quarterly results. Simply stated, the rapid transition into digital payments, streaming services, and at-home food delivery yielded a one-time cash influx that’s now reverting to historical performance.

The selloff comes just three business days before PayPal raises rates for many merchant accounts. Originally announced in June, the news triggered a strong rally into July but Q3 and full year profit warnings suggest the company miscalculated and now expects to lose customers. It may also have underestimated the growing number of choices in the digital payment space, heralding an era in which it will need to compete more forcefully for market share.

Wall Street and Technical Outlook

Wall Street has been wildly bullish on PayPal for months, holding like glue to a ‘Buy’ rating now based upon 35 ‘Buy’, 5 ‘Overweight’, 6 ‘Hold’, and 1 ‘Sell’ recommendation. Price targets currently range from a low of $250 to a Street-high $375 while the stock is set to open Thursday’s session more than $50 below the median $330 target. A quick uptick into the median price seems unlikely, given weak guidance, because it would require breaking out to a new high.

PayPal posted a phenomenal 219% return in 2020 and continued to book upside into the February 2021 high at 309.14. A decline into March found support in the 220s while the bounce into July mounted the first quarter peak by less than one point ahead of this morning’s selloff. The reversal reinforces resistance above 300 while setting up a test of 50-day moving average support at 285. A breakdown is possible given downside momentum, exposing an unpleasant trip to the March low.

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

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

Boeing Posts First Quarterly Profit Since 2019

Dow component Boeing Co. (BA) is trading at a two-week high in Wednesday’s pre-market after posting the first profit since the third quarter of 2019. The aerospace giant earned $0.40 per-share in Q2 2021, $1.12 higher than estimates, while $44 billion in revenue matched expectations, marking a 44.0% year-over-year increase. The total backlog at the end of the quarter stood at a respectable $363 billion while the company secured new orders for 234 737 airliners and 31 freighter aircraft.

Airline Industry Crosswinds

The 737 MAX is returning to the friendly skies at a rapid pace, with the delivery of more than 130 new aircraft and more than 190 previously grounded aircraft resuming service, translating into nearly 95,000 revenue flights and more than 218,000 flight hours. The company release said little about the potential impact of the Delta variant on the commercial airline industry but that’s likely to be discussed in the 10:30am Eastern conference call.

However, its isn’t all good news for Boeing, with China still withholding certification of the MAX and 787 production delays needed to address FAA mandated inspections and reworking. In addition, business travel is expected to recover at a much slower pace than leisure travel, with the Delta variant forcing many corporations to put off reintegration plans at the same time that international destinations rethink their customs requirements.

Wall Street and Technical Outlook

Wall Street consensus is mixed despite the return of the MAX 737, with an ‘Overweight’ rating based upon 11 ‘Buy’, 2 ‘Overweight’, 11 ‘Hold’, and 2 ‘Sell’ recommendations. Price targets currently range from a low of $200 to a Street-high $314 while the stock is set to open Wednesday’s session more than $40 below the median $272 target. This placement favors share gains in coming weeks, possibly dampened by continued pandemic headwinds.

Boeing posted an all-time high at 446 in 2019, just before the 737 MAX crashed in Ethiopia. The subsequent decline accelerated in the first quarter of 2020, dropping price to a 7-year low in double-digits, ahead of an uptick that ran into a buzzsaw of resistance above 200. Price action since December has tested the 200-day moving average repeatedly while accumulation has dropped to the lowest low since September 2020, when the stock was trading in the 160s. Given uncertain travel conditions, this sideways action could easily persist into 2022.

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. 

Quarterly Revenue Growth Lifts General Electric

General Electric Co. (GE) is trading at a 4-week high in Tuesday’s pre-market after beating Q2 2021 estimates by a few pennies and reaffirming fiscal year 2021 guidance. The struggling conglomerate posted a profit of $0.05 per-share, $0.02 better than consensus, while revenue rose a modest 3.1% year-over-year to $18.3 billion. GE raised its 2021 free cash flow outlook to the $3.5 billion to $5.0 billion range, about $1 billion higher than previous estimates.

Selling Unprofitable Divisions

The company is shedding unprofitable businesses after years of declining revenue, with a $30 billion sale of the aircraft leasing business to AerCap Holdings N.V. (AER) the latest divestiture. The pandemic threw a wrench in this multiyear pruning process but GE has survived supply disruptions and is now back on track. Even so, no one in their right mind believes this fossil from another era can grow enough revenue to restore its lost reputation as a capitalist powerhouse.

General Electric will complete a one-for-eight reverse split after Friday’s closing bell, lifting the stock price above the psychological $100 level. This oddly-timed move will reduce outstanding shares to just over one billion but is likely to have little or no effect on price action. In fact, the transaction is sending the wrong signal to Wall Street because reverse splits are typically used by struggling companies that are worried about delisting or bankruptcy.

Wall Street and Technical Outlook

Wall Street consensus has modestly improved so far in 2021, lifting to an ‘Overweight’ rating based upon 12 ‘Buy’, 1 ‘Overweight’, and 8 ‘Hold’ recommendations. Price targets currently range from a low of $5 to a Street-high $21 while the stock is set to open Tuesday’s session about $1.50 below the median $15 target. Potential upside through the third quarter appears limited, given proximity to the median target and a ceiling of resistance at $14.50.

General Electric ended a four-year decline at a 28-year low in March 2020 and turned higher, mounting the February 2020 peak at 13.26 in February 2021. The breakout failed immediately, yielding months of sideways action that’s been crisscrossing the contested level repeatedly. The stock is trading at the dead center of this pattern on Tuesday, offering mixed messages to shareholders. A rally over 14.50 is needed to overcome this barrier while a decline through the July low at 11.82 could generate much greater downside.

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. 

Microsoft Overbought and Overloved

Dow component Microsoft Corp. (MSFT) reports fiscal Q4 2021 earnings after Tuesday’s closing bell, with analysts forecasting a profit of $1.92 per-share on $44.3 billion in revenue. If met, earnings-per-share (EPS) will mark a 31% profit increase compared to the same quarter last year. The stock sold off nearly 3% in April despite beating Q3 expectations by wide margins and raising Q4 guidance. Buyers returned in June, lifting the tech giant into a series of all-time highs.

Overbought Signals Abound

Microsoft should post exceptionally strong results, as usual, but the stock has gained nearly 19% in the last seven weeks, setting off technically overbought signals. In addition, Mr. Softee has been named as a target by Biden administration trust-busters, even though it has avoided the broad swath of political controversy, unlike Facebook Inc. (FB) and Amazon.com Inc. (AMZN). Even so, its huge footprint has made it nearly impossible for small companies to compete, especially in the cloud computing segment.

Citigroup analyst Tyler Radke raised the firm’s target to $378 last week, noting “We expect to see a strong finish to Microsoft’s FY21 with a combination of recovering IT budgets, an uptick in expected reseller growth, signs of reacceleration in consumption models and slightly higher PC numbers vs. 3 months ago. The general numbers set-up looks attractive with conservative guidance against easy compares. We continue to like MSFT best in mega-cap software, with multiple levers for sustained DD growth at scale and significant room to run”.

Wall Street and Technical Outlook

Wall Street consensus is pristine, now yielding a ‘Buy’ rating based upon 21 ‘Buy’, 3 ‘Overweight’, and 2 ‘Hold’ recommendations. No analysts are recommending that shareholders underweight or sell positions. Price targets currently range from a low of $256 to a Street-high $378 while the stock will open Monday’s session about $11 below the median $300 target. Upside after the report appears limited, given the proximity to the median target and strong gains since June.

Microsoft cleared 16-year resistance in 2016 and entered an historic trend advance that stalled at 190 in February 2020. It returned to that level in May after a 58-point decline, ahead of a breakout that ended at 233 in September. The stock cleared that barrier in January 2021 and eased into a rising channel that broke to the upside last week. While this marks impressive strength, it also highlights a one-sided market that’s unlikely to persist in coming weeks.

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. 

Bears In Control Ahead of Tesla Report

Tesla Inc. (TSLA) reports Q2 2021 earnings after Monday’s closing bell, with analysts looking for a profit of $0.98 per-share on $11.4 billion in revenue. If met, earnings-per-share (EPS) will mark a 55% profit decline compared to the same quarter last year. The stock fell more than 4% despite beating Q1 top and bottom line estimates in April and shed another 24% into mid-May.  It’s recovered just half of that loss into July, stuck like glue to the 50-day moving average.

Bearish Long-Term Price Pattern

The stock is taking a multi-month breather after posting an historic 839% return in 2021, closing out last Friday’s session with an 8% year-to-date loss. More importantly, price action has been carving the outline of a bearish descending triangle since November, with the pattern’s characteristic horizontal floor near 540 and lower highs at 781 and 698. Support has now aligned with the 200-day moving average, raising the stakes heading into this week’s confessional.

Fortunately for shareholders, there are good reasons to believe that Tesla will post another strong quarter. An industry publication just reported that “some U.S. deliveries of Model 3 cars were pushed back amid high demand”. Those vehicles are now manufactured at the Freemont facility but the Austin facility is scheduled to come online in coming months, supporting much higher production. Reuters also chimed in with a bullish piece, noting Q2 registrations in California increased 85% in the second quarter.

Wall Street and Technical Outlook

Wall Street consensus has grown cautious after historic share gains, with a ‘Hold’ rating based upon 15 ‘Buy’, 1 ‘Overweight’, 15 ‘Hold’, and 2 ‘Underweight’ recommendations. More importantly, six analysts are recommending that shareholders close positions and move to the sidelines. Price targets currently range from a low of $67 to a Street-high $1,471 while the stock closed Friday’s session about $75 below the median $718 target.

Tesla broke out above 2017 resistance in the 70s in January 2020 and bounced at new support in March. It completed another breakout in June, entering a powerful trend advance that posted an all-time high at 900.40 on Jan. 25. The bearish pattern since that time has dropped accumulation to late 2020 levels while monthly and weekly Stochastics are grinding through sell cycles. This action warns investors to reduce risk if the stock drops to support near 540 after earnings.

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. 

Low Expectations Ahead of Intel Report

Dow component Intel Corp. (INTC) reports Q2 2021 earnings after Thursday’s closing bell, with analysts expecting a profit of $1.07 per-share on $17.8 billion in revenue. If met, earnings-per-share (EPS) will mark an 18% profit decline compared to the same quarter in 2020. The stock sold off more than 5% in April after beating Q1 2021 estimates and lowering Q2 guidance. The 6.2% year-over-year revenue decline noted in that release stoked longstanding fears of market share losses to more nimble rivals.

Competition Grabbing Market Share

The semiconductor shortage is expected to have an adverse impact on Q2 earnings at the same time that Intel is committing major capital to foundry construction and expansion in the United States and overseas. Those plans now include more than $20 billion in investments for two plants in Arizona. The company is also engaged in talks to buy New York-based GlobalFoundries for an estimated $30 billion, in an attempt to add even more capacity as China redirects its vast chip resources into local production.

Competition has grown exponentially in the last two years while production and innovation have faltered, yielding market share losses that have contributed to poor stock performance. Advanced Micro Devices Inc. (AMD) and NVIDIA Corp (NVDA) processing chips have grown popular with formerly loyal customers while Taiwan Semiconductor Manufacturing Co. LTD (TSM) and Samsung Electronics Co. are spending a combined $216 billion to grow manufacturing capacity. None of these developments bode well for Intel in coming years.

Wall Street and Technical Outlook

Wall Street consensus has deteriorated from modestly bearish levels so far in 2021, with a ‘Hold’ rating now based upon 12 ‘Buy’, 1 ‘Overweight’, 17 ‘Hold’, and 3 ‘Underweight’ recommendations. More importantly, 8 analysts are recommending that shareholders close positions and move to the sidelines. Price targets currently range from a low of $40 to a Street-high $85 while the stock is set to open Thursday’s session about $11 below the median $67 target.

Intel sold off from 76 in 2000 to 12 in 2009 and remains within those boundaries, more than 12 years later. The long-term recovery mounted the .786 Fibonacci selloff retracement level in January 2020 and failed the breakout during the pandemic decline. Bounces above this harmonic barrier in June 2020 and April 2021 also failed, reinforcing a nearly impenetrable barrier above 60. The stock is now trading at the dead center of the 18-month trading range, unlikely to reward longs or short sellers with a sustained trend.

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.