S&P 500 Moves Closer To The 4000 Level

Tech Stocks Gain Ground As Treasury Yields Decline

S&P 500 futures are gaining ground in premarket trading as traders are optimistic on Biden’s infrastructure plan.

Interestingly, Treasury yields are moving lower despite the announcement of a roughly $2 trillion plan, which is bullish for tech stocks. Apple, Facebook, Microsoft and other leading tech shares are gaining ground in premarket trading.

Meanwhile, the U.S. dollar pulls back against a broad basket of currencies which is bullish for precious metals which have a chance to continue their rebound. Gold managed to settle above the $1700 level and is moving towards the resistance at the 20 EMA at $1730, providing additional support to shares of gold miners.

WTI Oil Tries To Settle Below The $60 Level As Traders Wait For Results Of OPEC+ Meeting

Today, OPEC+ members meet virtually to discuss the current situation in the oil market. Europe is facing a third wave of the virus, and European countries have already extended virus-related restrictions until late April. The situation in Brazil and India is also moving in the wrong direction, so oil demand recovery remains fragile.

According to recent reports, OPEC+ will choose between keeping current production cuts in place and gradually increasing production. Obviously, the market would like to see the extension of current production cuts.

At the same time, it remains to be seen whether the potential gradual increase of production levels will put additional pressure on the oil market.

Initial Jobless Claims Increase To 719,000

The U.S. has just provided Initial Jobless Claims and Continuing Jobless Claims reports.

The Initial Jobless Claims report indicated that 719,000 Americans filed for unemployment benefits in a week compared to analyst consensus of 680,000. The previous report was revised from 684,000 to 658,000. Continuing Jobless Claims declined from 3.84 million (revised from 3.87 million) to 3.79 million, mostly in line with the analyst consensus.

The U.S. will soon release the final reading of Manufacturing PMI report which is projected to show that Manufacturing PMI grew from 58.6 to 59. Unless the report is much worse than the analyst estimate, it should not have a major impact on today’s trading.

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

Apple to Build Battery-Based Solar Energy Storage Project in California

By Stephen Nellis

Apple said the project will store 240 megawatt-hours of energy, or enough to power more than 7,000 homes for one day. It is located next to the California Flats solar installation in southeastern Monterey County, about 100 miles southeast of Apple’s Cupertino, California headquarters.

The site sends 130-megawatts of electricity directly to Apple’s California facilities during daylight hours but does not provide power during dark hours. Lisa Jackson, Apple’s vice president of environment, policy and social initiatives, told Reuters in an interview the company intends to develop what it believes will be one of the largest battery-based storage systems in the United States.

“The challenge with clean energy – solar and wind – is that it’s by definition intermittent,” Jackson told Reuters. “If we can do it, and we can show that it works for us, it takes away the concerns about intermittency and it helps the grid in terms of stabilization. It’s something that can be imitated or built upon by other companies.”

Jackson said that Apple plans to share its findings from building the project with other companies, but said it was too early to say precisely how it would do so. Apple has other projects where it has shared environmental technology developments, including an aluminum smelting joint venture in Canada and an Apple recycling technology lab in Texas.

Apple on Wednesday also said that 110 of its suppliers are now moving to using clean energy for the work they do for Apple, with about 8 gigawatts of clean energy production planned as a result, or what Apple said was the equivalent of removing 3.4 million cars from the road. The figure is an increase from last year when Apple said 70 of its suppliers had made the transition to clean energy for Apple work when it set a goal to eliminate carbon emissions from its supply chain by 2030.

(Reporting by Stephen Nellis in San Francisco; Editing by Christopher Cushing)

Apple to Host Developers Event Online Again as COVID-19 Cases Surge

The iPhone maker’s Worldwide Developers Conference, usually held in San Jose, California with more than 5,000 people attending, was moved completely online for the first time in June last year due to the coronavirus outbreak.

Apple said the event will be streamed for free again on its developer app or website.

The United States surpassed 30 million total cases of COVID-19 on Sunday, and the seven-day average of new cases was slightly less than 60,000 per day, according to officials of the U.S. Centers for Disease Control and Prevention.

(Reporting by Eva Mathews in Bengaluru; Editing by Ramakrishnan M.)

Stocks Gain Ground Ahead Of The Weekend

Stocks Move Higher In Premarket Trading

S&P 500 futures are gaining some ground in premarket trading as bank stocks gained upside momentum after Federal Reserve Board stated that it would eliminate temporary restrictions on banks’ dividends and buybacks after June 30, 2021.

Meanwhile, Treasury yields continue to rebound after the recent pullback and are moving closer to recent highs. Big tech shares remain sensitive to developments in the U.S. government bond markets, and stocks like Tesla and Apple are under some pressure in premarket trading.

U.S. dollar remains strong against a broad basket of currencies, and the U.S. Dollar Index is trying to get to the test of the 93 level. If Treasury yields continue to rise, the U.S. dollar may gain more upside momentum, which will be bearish for commodities and may be also bearish for the stock market.

Suez Canal Remains Blocked

WTI oil is currently trying to get back above the $60 level as Suez Canal remains blocked by the huge container ship Ever Given. At this point, it is not clear whether the canal will be unblocked before the end of the month, and some experts say that the whole operation may take several weeks.

This is bullish for oil as Suez Canal is an important route for oil traders. This catalyst is strong enough to offset worries about the third wave of the virus in Europe, which have put pressure on oil in the second half of this month. If WTI oil manages to settle above the $60 level and moves higher, oil-related equities will get additional support.

Personal Income Declined By 7.1% In February

The U.S. has just provided Personal Income and Personal Spending reports for February. Personal Income declined by 7.1% month-over-month compared to analyst consensus which called for a decline of 7.3%. In January, Personal Income increased by 10.1% due to stimulus payments.

Personal Spending declined by 1% compared to analyst estimates which called for a decline of 0.7%.

Today, traders will also have a chance to take a look at the final reading of Consumer Confidence report for March which is projected to indicate that Consumer Confidence increased from 76.8 in February to 83.6 in March.

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

Stocks Mixed After Yesterday’s Sell-Off

Treasury Yields Move Lower

S&P 500 futures are swinging between gains and losses in premarket trading as traders evaluate their next moves after yesterday’s sell-off.

On Thursday, Treasury yields surged to new highs and put significant pressure on tech stocks. S&P 500 finished the session down by 1.5%, while the tech-heavy Nasdaq lost 3%.

Today, the situation in the bond market calmed down, and Treasury yields pulled back from recent highs. This pullback was signifiant as the yield of 10-year Treasuries declined from 1.75% to 1.68% while the yield of 30-year Treasuries moved from 2.51% to 2.42%.

This pullback provides some support to tech stocks, and shares of yesterday’s losers like Tesla or Apple are gaining ground in premarket trading. It should be noted that it is not clear whether the pullback in Treasury yields will be sustainable as bond traders will likely remain worried about higher inflation in the near term.

Oil Tries To Rebound After Major Sell-Off

Yesterday, WTI oil moved from the $64 level to the test of the 50 EMA at $58.65 on fears about new virus-related restrictions in Europe. France was forced to impose a lockdown on Paris as more contagious variants of COVID-19 caused the third wave of the virus. The situation is also challenging in Poland, Italy and Germany.

Another wave of lockdowns may hurt the recovery of oil demand and put pressure on oil prices which were boosted by Saudi Arabia’s decision to cut its production by an additional 1 million barrels per day.

Currently, WTI oil is trying to settle back above the psychologically important $60 level. If this attempt is not successful, oil-related equities will find themselves under pressure.

U.S. Dollar Attempts To Get Above The Major Resistance Level

The U.S. Dollar Index, which measures the strength of the U.S. dollar against a broad basket of currencies, is currently trying to settle above the resistance at the 92 level. This resistance level has already been tested many times in recent trading sessions and served as a major obstacle on the way up for the American currency.

If the U.S. dollar manages to settle above the 92 level, it may gain significant upside momentum. In this scenario, precious metals like gold and silver will likely move lower. Stronger dollar will be also bearish for other dollar-denominated commodities. In addition, stronger dollar may put some pressure on stocks although traders will likely stay more focused on the dynamics of Treasury yields.

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

Apple Stock Price Testing Deep Fibonacci Support Levels

The Apple stock price (AAPL) has reached an interesting decision zone. Although Warren Buffet recently sold a part of his AAPL stocks, he still owns a substantial amount of stock.

The recent $28 decline represents a 20% discount compared to the recent high at $145 in January 2021. Are there signs for a bullish recovery or trend? Let’s review.

Price Charts and Technical Analysis

AAPL 19.03.2021 chart

The main question is whether price has completed a bearish ABC (purple) pattern at the -100% Fib target or is price developing a larger bearish 5 wave pattern (red). Our main analysis favors the ABC down and now a 5 wave up (pink).

  1. Apple made a bearish bounce at the 50% Fibonacci resistance.
  2. Price is now testing the Fibonacci support levels. A wave 2 (pink) could bounce at any of these FIbs.
  3. Only a break below the bottom at $116.27 invalidates (red circle) the wave 123 (pink).
  4. A bullish breakout above the resistance zone (red box) confirms the upside (blue arrows) towards the Fibonacci targets – if not higher.

On the 15 minute chart, price action could be building a bearish ABC (grey) pattern. But the upside does not look as strong.

  1. With a choppy and corrective wave 1, the wave patterns are unfortunately not as clear as we like.
  2. The bearish price action, however, is also corrective and does like an ABC down.
  3. The main decision will occur when price tests the Fibs. A bullish bounce (blue arrows) could confirm a reversal.
  4. Another confirmation could arrive if price action is able to break above the resistance zone for a bullish push (green arrows).
  5. A deeper push invalidates the immediate uptrend at least (red circle).

Apple 19.03.2021 chart

Good trading,

Chris Svorcik

The analysis has been done with the indicators and template from the SWAT method (simple wave analysis and trading). For more daily technical and wave analysis and updates, sign-up to our newsletter

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

Stocks Retreat Ahead Of Fed Interest Rate Decision

It’s Fed Day

S&P 500 futures are losing ground in premarket trading while traders wait for the Fed Interest Rate Decision and the subsequent commentary.

The Fed has previously signaled that it was not going to change the interest rate anytime soon, so the market will remain focused on the commentary. Traders will pay special attention to Fed’s economic projections which will show whether Fed’s view of the economic rebound has changed.

The huge $1.9 trillion stimulus package may push inflation to higher levels, but the Fed was not concerned about higher inflation in its previous comments. Most likely, Fed Chair Jerome Powell will remain focused on the state of the job market which has not recovered from the blow dealt by the pandemic.

At the same time, Powell must find words to calm bond traders as Treasury yields have increased materially since the beginning of the year.

Treasury Yields Move To New Highs

Bond traders remain nervous ahead of the Fed Interest Rate Decision and sell U.S. government bonds, pushing their yields higher.

Currently, the yield of 10-year Treasuries is trying to settle above 1.66%, while the yield of 30-year Treasuries is testing the 2.41% level. It should be noted that Treasury yields have already recovered to pre-pandemic levels as traders expect higher inflation after the new round of economic stimulus.

Higher yields may put more pressure on tech stocks. Big tech stocks like Tesla, Apple, Facebook are down by more than 1% in premarket trading. If Jerome Powell fails to calm bond markets and yields continue to move higher, tech stocks will find themselves under more pressure.

Housing Starts Declined By 10.3% In February

The U.S. has just released Building Permits and Housing Starts reports. Building Permits decreased by 10.8% month-over-month in February compared to analyst forecast which called for a decline of 7.2%.

Housing Starts declined by 10.3% month-over-month while analysts expected that they would grow by 2.3%.

Housing market reports were weaker than expected, but it remains to be seen whether they will put additional pressure on the stock market as traders remain focused on the Fed.

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

Apple Gets Boost in French Privacy Fight, but Still Faces Probe

By Mathieu Rosemain and Foo Yun Chee

Apple’s new ‘App Tracking Transparency’ feature allows users to block advertisers from tracking them across different applications.

The U.S. tech giant says it defends data privacy rights, but it faces criticism from Facebook, app developers and startups whose business models rely on advertising tracking.

French groups IAB France, MMAF, SRI and UDECAM complained to the French watchdog last year, saying the feature would not affect Apple’s ability to send targeted ads to users of its own iOS software without seeking their prior consent.

The head of the watchdog, Isabelle de Silva, said she had worked closely with France’s CNIL data privacy regulator in deciding to reject the request to suspend the feature.

She said CNIL estimated the pop-up box put in place by Apple could benefit users in an ever-more complex online advertising environment, and was presented in clear and unbiased way, as requested by the European Union’s GDPR data protection rules.

These rules weighed heavily on the watchdog’s decision, de Silva said, as the authority went against the recommendations of its own investigators, who favoured suspending Apple’s privacy features.

The lead investigator had even mentioned the risk of “privacy washing, de Silva said, or the possibility that Apple’s defence of privacy is more in appearance than substance.

“There may be privacy washing, we’re not naive,” she said. “However, the GDPR is binding on us and as a member of a European legal system, I believe that everyone must take it into account.”

Still, the watchdog said it would continue investigating whether Apple favours its own services and products, with a decision expected by early next year at the latest.

Apple was not immediately available to comment on de Silva’s remarks, but said in a statement it welcomed the watchdog’s decision that the ‘App Tracking Transparency’ feature was in the best interests of French customers.

The complainants said they were disappointed by that decision, but welcomed the probe into Apple’s conduct.

They have alleged Apple’s behaviour constitutes an abuse of its dominant position, because developers have to agree to Apple’s terms to see their apps appear on the company’s App Store and become available to iPhone users.

Two-thirds of the time French people spent online in 2020 was on smartphones, according to researchers Mediametrie.

Facebook’s CEO Mark Zuckerberg accused Apple earlier this year of having “every incentive to use their dominant platform position to interfere with how our apps and other apps work.”

(Reporting by Mathieu Rosemain. Additional reporting by Foo Yun Chee in Brussels. Editing by John Stonestreet and Mark Potter)

US Stock Markets Daily Recap: That’s Why You Buy the Dips

Days like Tuesday (Mar. 9) are why you buy the dips. It was nothing short of a reverse rotation from what we’ve seen as of late. Bond yields moved lower; tech stocks popped.

That’s why I called BUY on the Nasdaq.

Inflation fears and the acceleration of bond yields are still a concern. But it looks as if things are stabilizing, at least for one day. The lesson here, though, is to be bold, a little contrarian, and block out the noise.

Unless you’ve been living under a rock, you know that recent sessions have been characterized by accelerating bond yields driving a rotation out of high growth tech stocks into value and cyclical stocks that would benefit the most from an economic recovery. The Nasdaq touched correction territory twice in the last week and gave up its gains for the year.

But imagine if you bought the dip as I recommended.

The Nasdaq on Tuesday (Mar. 9) popped 3.7% for its best day since November. Cathie Wood’s Ark Innovation ETF (ARKK) surged more than 10% for its best day ever after tanking by over 30%. Semiconductors also rallied 6%.

Other tech/growth names had themselves a day too: Tesla (TSLA) +20%, Nvidia (NVDA) +8%, Adobe (ADBE) +4.3%, Amazon +3.8%, Apple (AAPL) +4.1%, and Facebook (FB) +4.1%.

In keeping with the theme of buying the dip, do you also know what happened a year ago yesterday to the date? The Dow tanked 7.8%!

There’s no way to time the market correctly. If you bought the Dow mirroring SPDR DJIA ETF (DIA) last March 9, you’d have still seen two weeks of pain until the bottom. However, you’d have also seen a gain of almost 36% if you bought that dip and held on until now.

Look, I get there are concerns and fears right now. The speed at which bond yields have risen is concerning, and the fact that another $1.9 trillion is about to be pumped into a reopening economy makes inflation a foregone conclusion. But let’s have a little perspective here.

Bond yields are still at a historically low level, and the Fed Funds Rate remains 0%.

So is the downturn overblown and already finished?

Time will tell. I think that we could still see some volatile movements over the next few weeks as bond yields stabilize and the market figures itself out. While I maintain that I do not foresee a crash like what we saw last March and feel that the wheels remain in motion for an excellent 2021, Mr. Market has to figure itself out.

A correction of some sort is still very possible. I mean, the Nasdaq’s already hit correction territory twice in the last week and is still about 3-4% away from returning to one. But don’t fret. Corrections are healthy and normal market behavior. Only twice in the last 38 years have we had years WITHOUT a correction (1995 and 2017).

Most importantly, a correction right now would be an excellent buying opportunity. Just look at the Nasdaq Tuesday (Mar. 9).

It can be a very tricky time for investors right now. But never, ever, trade with emotion. Buy low, sell high, and be a little bit contrarian. There could be some more short-term pain, yes. But if you sat out last March when others bought, you are probably very disappointed in yourself. Be cautious, but be a little bold too.

You can never time the market.

My goal for these updates is to educate you, give you ideas, and help you manage money like I did when I was pressing the buy and sell buttons for $600+ million in assets. I left that career to pursue one to help people who needed help instead of the ultra-high net worth.

With that said, to sum it up:

There is optimism but signs of concern. The market has to figure itself out. A further downturn is possible, but I don’t think that a decline above ~20%, leading to a bear market, will happen any time soon.

Hopefully, you find my insights enlightening. I welcome your thoughts and questions and wish you the best of luck.

 Nasdaq- That’s Why I Called BUY

Figure 1- Nasdaq Composite Index $COMP

For the second time in a week, the Nasdaq hit correction territory and rocketed out of it. It saw its best day since November and proved once again that with the Nasdaq, you always follow the RSI. There could be more uncertainty over the next few weeks as both the bond market and equity market figure themselves out. However, the Nasdaq declines were very buyable, as I predicted.

If you bought the dip before Tuesday’s (Mar. 9) session, good on you. Be a little bit bold and fearless right now. Take Ark Funds guru Cathie Wood, for example. Many old school investors scoffed at her comments on Monday (Mar. 8) after she practically doubled down on her bullishness for her funds and the market as a whole. After crushing 2020, her Ark Innovation Fund (ARKK) tanked over 30%. Many called her the face of a bubble. Many laughed at her.

Tuesday, March 9, ARKK saw its best day in history.

I’m not saying that we’re out of the woods with tech. All I’m saying is don’t try to time the market, don’t get scared and have perspective.

The Nasdaq is once again roughly flat for the year, its RSI is closer to oversold than overbought, and we’re still below the 50-day moving average, near a 2-month low, and right around support at 13000.

It can’t hurt to start nibbling now. There could be some more short-term pain, but if you waited for that perfect moment to start buying a year ago when it looked like the world was ending, you wouldn’t have gained as much as you could have.

I think the key here is to “selectively buy.” I remain bullish on tech, especially for sub-sectors such as cloud computing, e-commerce, and fintech.

Mike Wilson , chief investment officer at Morgan Stanley, had this to say about recent tech slides- “I don’t think this is the end of the bull market or the end of tech stocks per se, but it was an adjustment that was very necessary.”

I like the levels we’re at, and despite the possibility of more “adjustments” in the short-run, it’s a good time to BUY. But just be mindful of the RSI, and don’t buy risky assets. Find emerging tech sectors or high-quality companies trading at a discount.

For an ETF that attempts to correlate with the performance of the NASDAQ directly, the Invesco QQQ ETF (QQQ) is a good option.

For more of my thoughts on the market, such as when small-caps will be buyable, more thoughts on inflation, and emerging market opportunities, sign up for my premium analysis today.

Thank you for reading today’s free analysis. I encourage you to sign up for our daily newsletter – it’s absolutely free and if you don’t like it, you can unsubscribe with just 2 clicks. If you sign up today, you’ll also get 7 days of free access to the premium daily Stock Trading Alerts as well as our other Alerts. Sign up for the free newsletter today!

Thank you.

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

Matthew Levy, CFA
Stock Trading Strategist
Sunshine Profits: Effective Investment through Diligence & Care

* * * * *

All essays, research, and information found above represent analyses and opinions of Matthew Levy, CFA and Sunshine Profits’ associates only. As such, it may prove wrong and be subject to change without notice. Opinions and analyses were based on data available to authors of respective essays at the time of writing. Although the information provided above is based on careful research and sources that are believed to be accurate, Matthew Levy, CFA, and his associates do not guarantee the accuracy or thoroughness of the data or information reported. The opinions published above are neither an offer nor a recommendation to purchase or sell any securities. Mr. Levy is not a Registered Securities Advisor. By reading Matthew Levy, CFA’s reports you fully agree that he will not be held responsible or liable for any decisions you make regarding any information provided in these reports. Investing, trading, and speculation in any financial markets may involve high risk of loss. Matthew Levy, CFA, Sunshine Profits’ employees, and affiliates as well as members of their families may have a short or long position in any securities, including those mentioned in any of the reports or essays, and may make additional purchases and/or sales of those securities without notice.

 

Correction for Nasdaq- More Indices to Follow?

Well, I was right to doubt him. The market didn’t like his change in tone Thursday (Mar. 5).

You see, when bond yields are rising as fast as they have, and Powell is maintaining that Fed policy won’t change while admitting that inflation may ” return temporarily ,” how are investors supposed to react? On the surface, this may not sound like a big deal. But there are six things to consider here:

  1. It’s a significant backtrack from saying that inflation isn’t a concern. By admitting that inflation “could” return temporarily, that’s giving credence to the fact that it’s inevitable.
  2. The Fed can’t expect to let the GDP scorch without hiking rates. If inflation “temporarily returns,” who is to say that rates won’t hike sooner than anyone imagines?
  3. Fool me once, shame on me, fool me twice…you know the rest. If Powell changed his tune now about inflation, what will he do a few weeks or months from now when it really becomes an issue?
  4. Does Jay Powell know what he’s doing, and does he have control of the bond market?
  5. A reopening economy is a blessing and a curse. It’s a blessing for value plays and cyclicals that were crushed during COVID and a curse for high-flying tech names who benefitted from “stay-at-home” and low-interest rates.
  6. The Senate will be debating President Biden’s $1.9 trillion stimulus plan. If this passes, as I assume it will, could it actually be worse for the economy than better? Could markets sell-off rather than surge? Once this passes, inflation is all but a formality.

Look, it’s not the fact that bond yields are rising that are freaking out investors. Bond yields are still at a historically low level, and the Fed Funds Rate remains 0%. But it’s the speed at which they’ve risen that are terrifying people.

According to Bloomberg , the price of gas and food already appear to be getting a head start on inflation. For January, Consumer Price Index data also found that the cost of food eaten at home rose 3.7 percent from a year ago — more than double the 1.4 percent year-over-year increase in all goods included in the CPI.

The month of January. Can you imagine what this was like for February? Can you imagine what it will be like for March?

I’m not trying to sound the alarm- but be very aware. These are just the early warning signs.

So, where do we go from here? Time will tell. While I still do not foresee a crash like we saw last March and feel that the wheels remain in motion for a healthy 2021, that correction that I’ve been calling for has already started for the Nasdaq. Other indices could potentially follow.

Finally.

Corrections are healthy and normal market behavior, and we have been long overdue for one. Only twice in the last 38 years have we had years WITHOUT a correction (1995 and 2017).

Most importantly, this correction could be an excellent buying opportunity.

It can be a very tricky time for investors right now. But never, ever, trade with emotion. Buy low, sell high, and be a little bit contrarian. There could be some more short-term pain, yes. But if you sat out last March when others bought, you are probably very disappointed in yourself. Be careful, but be a little bold right now too.

There’s always a bull market somewhere, and valuations, while still somewhat frothy, are at much more buyable levels now.

My goal for these updates is to educate you, give you ideas, and help you manage money like I did when I was pressing the buy and sell buttons for $600+ million in assets. I left that career to pursue one to help people who needed help instead of the ultra-high net worth.

With that said, to sum it up:

There is optimism but signs of concern. A further downturn by the end of the month is very possible, but I don’t think that a decline above ~20%, leading to a bear market, will happen.

Hopefully, you find my insights enlightening. I welcome your thoughts and questions and wish you the best of luck.

Nasdaq– From Overbought to Oversold in 3 Weeks?

Figure 1- Nasdaq Composite Index $COMP

The Nasdaq is finally in correction territory! I have been waiting for this. It’s been long overdue and valuations, while still frothy, are much more buyable. While more pain could be on the horizon until we get some clarity on this bond market and inflation, its drop below 13000 is certainly buyable.

The Nasdaq has also given up its gains for 2021, its RSI is nearly oversold at about 35, and we’re almost at a 2-month low.

It can’t hurt to start nibbling now. There could be some more short-term pain, but if you waited for that perfect moment to start buying a year ago when it looked like the world was ending, you wouldn’t have gained as much as you could have.

Plus, it’s safe to say that Cathie Wood, the guru of the ARK ETFs, is the best growth stock picker of our generation. Bloomberg News ’ editor-in-chief emeritus Matthew A. Winkler seems to think so too. Her ETFs, which have continuously outperformed, focus on the most innovative and disruptive tech companies out there. Not to put a lot of stock in one person. But it’s safe to say she knows a thing or two about tech stocks and when to initiate positions- and she did a lot of buying the last few weeks.

I think the key here is to “selectively buy.” I remain bullish on tech, especially for sub-sectors such as cloud computing, e-commerce, and fintech.

I also think it’s an outstanding buying opportunity for big tech companies with proven businesses and solid balance sheets. Take Apple (AAPL), for example. It’s about 30% off its all-time highs. That is what I call discount shopping.

What’s also crazy is the Nasdaq went from overbought 3 weeks ago to nearly oversold this week. The Nasdaq has been trading in a clear RSI-based pattern, and we’re at a very buyable level right now.

I like the levels we’re at, and despite the possibility of more losses in the short-run, it’s a good time to start to BUY. But just be mindful of the RSI, and don’t buy risky assets. Find emerging tech sectors or high-quality companies trading at a discount.

For an ETF that attempts to directly correlate with the performance of the NASDAQ, the Invesco QQQ ETF (QQQ) is a good option.

For more of my thoughts on the market, such as the streaky S&P, inflation, and emerging market opportunities, sign up for my premium analysis today.

Thank you for reading today’s free analysis. I encourage you to sign up for our daily newsletter – it’s absolutely free and if you don’t like it, you can unsubscribe with just 2 clicks. If you sign up today, you’ll also get 7 days of free access to the premium daily Stock Trading Alerts as well as our other Alerts. Sign up for the free newsletter today!

Thank you.

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

Matthew Levy, CFA
Stock Trading Strategist
Sunshine Profits: Effective Investment through Diligence & Care

* * * * *

All essays, research, and information found above represent analyses and opinions of Matthew Levy, CFA and Sunshine Profits’ associates only. As such, it may prove wrong and be subject to change without notice. Opinions and analyses were based on data available to authors of respective essays at the time of writing. Although the information provided above is based on careful research and sources that are believed to be accurate, Matthew Levy, CFA, and his associates do not guarantee the accuracy or thoroughness of the data or information reported. The opinions published above are neither an offer nor a recommendation to purchase or sell any securities. Mr. Levy is not a Registered Securities Advisor. By reading Matthew Levy, CFA’s reports you fully agree that he will not be held responsible or liable for any decisions you make regarding any information provided in these reports. Investing, trading, and speculation in any financial markets may involve high risk of loss. Matthew Levy, CFA, Sunshine Profits’ employees, and affiliates as well as members of their families may have a short or long position in any securities, including those mentioned in any of the reports or essays, and may make additional purchases and/or sales of those securities without notice.

 

Markets Move Higher As Tech Stocks Rebound

Tech Stocks Gain Ground Despite Rising Treasury Yields

S&P 500 futures are gaining ground in premarket trading as tech stocks look ready to continue the rebound that began during yesterday’s trading session.

Shares of Tesla are up by about 4% ahead of the market open while Apple and Microsoft shares are gaining about 0.5%. Yesterday’s trading action indicated that traders were ready to “buy the dip” in tech stocks and rushed to scoop up shares at lower levels despite worries about higher inflation.

Interestingly, U.S. Treasury yields continue to rally today. The yield of 10-year Treasuries is currently trying to settle above 1.39%, while the yield of 30-year Treasuries is testing multi-month highs at 2.26%. However, rising bond yields failed to put any material pressure on stocks ahead of the market open.

Fed Chair Powell Heads To Capitol Hill For Second Day Of Testimony

Today, Fed Chair Jerome Powell will provide his commentary to the Committee on Financial Services of the U.S. House of Representatives. Yesterday, Powell stated that the economy needed additional support and added that the Fed remained focused on reaching employment and inflation goals.

While Powell downplayed inflation risks, bond market traders are not that optimistic as Treasury yields continue to move higher. Today, Powell will likely offer a similar commentary so traders will be mostly focused on Treasury yields.

Germany’s Growth Boosts Global Markets

Germany has recently provided the final reading of GDP Growth Rate report for the fourth quarter of 2020. Germany’s GDP increased by 0.3% quarter-over-quarter compared to analyst consensus which called for growth of just 0.1%. On a year-over-year basis, GDP declined by 3.7%.

Germany’s economy managed to grow despite coronavirus-related problems thanks to strong exports. Germany’s export-oriented economy benefited from strong demand from China which continued to enjoy a healthy economic rebound.

Solid data from Germany provided additional support to global markets as it indicated that Eurozone’s biggest economy managed to adapt to the current environment and delivered growth despite problems on the coronavirus front.

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

U.S. Market Wrap and Forecast for Tuesday

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

Tesla Breaks Down

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

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

Homebuilders on Tap

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

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

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

High Expectations Ahead of Apple Report

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

Heading Into iPhone Supercycle?

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

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

Wall Street and Technical Outlook

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

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

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

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

Surprise! Nasdaq Led Weekly Gains

Surging, gaining…come again?

Wasn’t tech supposed to wither away and die thanks to be big bad Democrat boogeymen? Wasn’t the radical Biden tax agenda and regulatory framework supposed to send your favorite tech stocks plummeting? Wasn’t Biden’s tax plan supposed to take an estimated 5-10% off the earnings per share?

For now, it seems like the market is putting more of its hopes into Biden’s $1.9 trillion stimulus plan and ignoring his tax and regulation plans. As Treasury Secretary and former Fed Chair Janet Yellen claimed, Biden’s primary focus is aiding American families (i.e., stimulus, low-interest rates) and, for now, not raising taxes.

But nothing is for sure with this stimulus. Republicans will resist it, and some moderate Democrats may do so as well. With Vice President Kamala Harris as the only tiebreaker for a Democrat majority in the Senate, Biden needs all the support he can get to pass this aggressive stimulus.

I maintain my view that the market is too complacent, and that we are about to enter a correction at some point in the short-term. It still reminds me of the Q4 2018 pullback. (read my story here).

For one, valuations are absurd. Tech IPOs are a circus, the S&P 500 is at or near its most-expensive level in recent history on most measures, and the Russell 2000 has never traded this high above its 200-day moving average.

While stimulus could be useful for stocks in the short-term, it could almost certainly mean the return of inflation too by mid-year. The worst part about it? The Fed will likely let it run hot. With debt rising and consumer spending expected to increase as vaccines are rolled out to the masses, the Fed is undoubtedly more likely to let inflation rise than letting interest rates rise.

Others, however, believe that the market reflects optimism that the global economy will recover with the eventual lifting of COVID-related restrictions and more widely-available vaccines. John Studzinski , vice chairman of Pimco, believes that market valuations are strong and reflect expectations of this eventual reopening and economic recovery by the second half of the year.

All of this simply tells me that the market remains a pay-per-view fight between good news and bad news.

We may trade sideways this quarter- that would not shock me in the least. But I think we are long overdue for a correction since we haven’t seen one since last March.

Corrections are healthy for markets and more common than most realize. Only twice in the last 38 years have we had years WITHOUT a correction (1995 and 2017).

A correction could also be an excellent buying opportunity for what should be a great second half of the year.

Therefore, to sum it up:

While there is long-term optimism, there are short-term concerns. A short-term correction between now and Q1 2021 is possible. I don’t think that a decline above ~20%, leading to a bear market will happen.

In a report released last Tuesday (Jan. 19), Goldman Sachs shared the same sentiments.

My goal for these updates is to educate you, give you ideas, and help you manage money like I did when I was pressing the buy and sell buttons for $600+ million in assets. I left that career to pursue one where I could help people who needed help, instead of the ultra-high net worth. Hopefully, you find my insights enlightening, and I welcome your thoughts and questions.

We have a critical week ahead with the Fed set to have its first monetary policy meeting of the year and big earnings announcements on the horizon. Best of luck, have an excellent trading week, and have fun! We’ll check back in with you all mid-week.

Are We in a Tech Bubble or Not?

Figure 1- Nasdaq Composite Index $COMP

Some of the hottest performing tech stocks announce earnings this week such as Apple (AAPL), Amazon (AMZN), Microsoft (MSFT), Tesla (TSLA) (yes I consider Tesla more of a tech stock than a car stock), and more.

Pay very close attention.

Although I am bullish on specific tech sectors such as cloud computing, e-commerce, and fintech for 2021, I’m concerned about the mania consuming tech stocks.

Tech valuations, and especially the tech IPO market, terrify me. It reminds me a lot of the dot-com bubble 20-years ago. Remember, the dot-com bubble was a major crash in the Nasdaq after excessive speculation and IPOs sent any internet-related stock soaring. Between 1995-2000 the Nasdaq surged 400%. By October 2002, the Nasdaq declined by a whopping 78%.

I have no other words to describe it besides the Nasdaq right now as a circus. Will the bubble pop now? That remains to be seen. But the similarities between now and 2000 are striking.

I am sticking with the theme of using the RSI to judge how to call the Nasdaq. An overbought RSI does not automatically mean a trend reversal, but with the Nasdaq, this appears to have been a consistent pattern over the last few weeks.

The Nasdaq pulled back on December 9 after exceeding an RSI of 70 and briefly pulled back again after passing 70 again around Christmas time. We also exceeded a 70 RSI just before the new year, and what happened on the first trading day of 2021? A decline of 1.47%.

The last time I changed my Nasdaq call from a HOLD to a SELL on January 11 after the RSI exceeded 70, the Nasdaq declined again by 1.45%.

The Nasdaq has an RSI of around 72 again, and I’m switching the call back to SELL. The Nasdaq is trading in a precise pattern and I am basing my calls on that pattern.

I still love tech and am bullish for 2021. But I need to see the Nasdaq have a legitimate cooldown period and move closer to its 50-day moving average before considering it a BUY.

For an ETF that attempts to directly correlate with the performance of the NASDAQ, the Invesco QQQ ETF (QQQ) is a good option.

Thank you for reading today’s free analysis. I encourage you to sign up for our daily newsletter – it’s absolutely free and if you don’t like it, you can unsubscribe with just 2 clicks. If you sign up today, you’ll also get 7 days of free access to the premium daily Stock Trading Alerts as well as our other Alerts. Sign up for the free newsletter today!

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

Thank you.

Matthew Levy, CFA
Stock Trading Strategist
Sunshine Profits: Effective Investment through Diligence & Care

* * * * *

All essays, research, and information found above represent analyses and opinions of Matthew Levy, CFA and Sunshine Profits’ associates only. As such, it may prove wrong and be subject to change without notice. Opinions and analyses were based on data available to authors of respective essays at the time of writing. Although the information provided above is based on careful research and sources that are believed to be accurate, Matthew Levy, CFA, and his associates do not guarantee the accuracy or thoroughness of the data or information reported. The opinions published above are neither an offer nor a recommendation to purchase or sell any securities. Mr. Levy is not a Registered Securities Advisor. By reading Matthew Levy, CFA’s reports you fully agree that he will not be held responsible or liable for any decisions you make regarding any information provided in these reports. Investing, trading, and speculation in any financial markets may involve high risk of loss. Matthew Levy, CFA, Sunshine Profits’ employees, and affiliates as well as members of their families may have a short or long position in any securities, including those mentioned in any of the reports or essays, and may make additional purchases and/or sales of those securities without notice.

 

Biden’s Presidency from a Market Perspective

Chief Market Analyst of XTB group discusses Biden’s presidency from a market perspective.

Watch this video to learn:

  • Key themes of Joe Biden’s presidency
  • Chances and risks for the markets
  • Present market situation on indices, fx and commodities
  • Key calendar positions for this week

Other top news this week include:

Apple to Report All-Time Record Quarterly Revenue and Earnings: Morgan Stanley

Morgan Stanley raised their stock price forecast on Apple Inc to $152 from $144 and said they are buyers of the stock ahead of the fiscal first-quarter result scheduled for Wednesday, as the consumer electronics giant is likely to report an all-time record quarterly revenue and earnings.

The iPhone manufacturer is expected to report profit growth of more than 12% of $1.41 in the fiscal first quarter of 2021 on sales of $102.61 billion, highlighted growth of over 11% from the year-ago quarter. That growth is largely driven by strong demand for its flagship iPhone handset, Mac computers, iPad tablets and wearables in the holiday season.

“Our December quarter revenue of $108.2B is 5% above consensus, while our EPS of $1.50 is 7% above consensus. We expect demand strength to continue and our FY21 revenue and EPS estimates are both 5% above consensus,” wrote Katy Huberty, equity analyst at Morgan Stanley.

“Given positioning into the quarter is muted after the rotation out of high-quality stocks over the past several months, we expect strong follow-through post-earnings and are buyers into the print. We also raise our price target to $152, from $144, as we mark our price target to market accounting for recent peer multiple expansion.”

Other equity analysts also recently updated their stock outlook. Evercore ISI raised the target price to $160 from $145. Apple had its price target boosted by Cowen to $153 from $133. The brokerage presently has an “outperform” rating on the iPhone maker’s stock.

In addition, Loop Capital lifted their price target to $155 from $131 and gave the company a “buy” rating. JP Morgan set a $150 price target and gave the company a “buy” rating.

Twenty-seven analysts who offered stock ratings for Apple in the last three months forecast the average price in 12 months at $134.71 with a high forecast of $160.00 and a low forecast of $80.00. The average price target represents a -3.14% decrease from the last price of $139.07. From those 27 equity analysts, 19 rated “Buy”, six rated “Hold” and two rated “Sell”, according to Tipranks.

Apple’s shares closed 1.61% higher at $139.07 on Friday; the stock rose over 80% in 2020. Morgan Stanley’s stock price forecast suggests a potential upside of over 9% from the stock’s current price.

Morgan Stanley also gave a target price of $200 under a bull-case scenario and $77 under the worst-case scenario. The firm currently has an “Overweight” rating on tech giant’s stock.

Apple has the world’s most valuable technology platform with over 1.5Bn active devices and is entering FY21 with its strongest portfolio of Products and Services in years, 80% of which have been refreshed in the last 12 months,” Morgan Stanley’s Huberty added.

“We see multiple tailwinds to drive a re-rating over the next 12 months including 1) accelerating adoption of 5G smartphones, 2) work, learn and play from home demand, 3) increasing penetration of high margin services, and 4) strong cash returns. Longer-term investments in augmented reality, payments health, autos and home can help sustain growth as Apple captures more of its users time and wallet share.”

Earnings to Watch Next Week: Microsoft, Apple, Tesla and Facebook in Focus

Earnings to Watch Next Week: Microsoft, Apple, Tesla and Facebook in Focus

Earnings Calendar For The Week Of January 25

Monday (January 25)

IN THE SPOTLIGHT: KIMBERLY-CLARK

Kimberly-Clark, an American multinational personal care corporation, is expected to report a profit of $1.62 in the fourth quarter of 2020, which represents a year-over-year decline of about 5.2% from the same quarter a year ago when the company reported $1.71 cents per share.

However, Wall Street forecasts the company’s revenue to grow over 3% to $4.7 from the same period year ago. For full-year 2020, revenue is expected to be at $19.1 billion.

“We maintain our Buy-rating and above-consensus EPS estimate into KMB’s 4Q report BMO on Monday. Kimberly Clark’s (KMB) shares have lagged staples as the market remains concerned about moderating POS trends in Dec/Jan and commodities; however, we see an upside to Street 4Q20 and ’21/’22 ests. w/commodity inflation reasonably reflected at current spots and view the bar as low into the print w/KMB trading at 16x P/E (30% discount to HPC peers vs. 20% hist. avg.),” noted Kevin Grundy, equity analyst at Jefferies, who rated the paper products giant “Buy” and set the price target at $152.

Florida-based insurance broker Brown & Brown will post earnings of $0.29 per share for last quarter of 2020.

TAKE A LOOK AT OUR EARNINGS CALENDAR FOR THE FULL RELEASES FOR THE JANUARY 25

Ticker Company EPS Forecast
CBU Community Bank System $0.76
BOH Bank of Hawaii $1.11
PHG Koninklijke Philips $1.04
KMB Kimberly Clark $1.62
WSFS Wsfs Financial $0.91
AUY Yamana Gold USA $0.11
CR Crane $1.10
HXL Hexcel -$0.20
BXS BancorpSouth $0.62
JJSF J&J Snack Foods $0.26
SFBS ServisFirst Bancshares $0.81
BRO Brown & Brown $0.29
GGG Graco $0.51
AGNC American Capital Agency $0.65
STLD Steel Dynamics $0.76
FUL HB Fuller $0.85
ACKAY Arcelik ADR $0.61
ASH Ashland $0.44
ELS Equity Lifestyle Properties $0.33
BKRKY Bank Rakyat $0.17

Tuesday (January 26)

IN THE SPOTLIGHT: MICROSOFT

MICROSOFT: The global technology giant is expected to report a profit of $1.64 in the fiscal second quarter, which represents year-over-year growth of about 8.6% from the same quarter last year when the company reported $1.51 per share.

The world’s largest software maker’s revenue is forecasts come at $40.23, up from the $36.91 billion reported the same quarter a year earlier.

“Q2 results likely highlight the durability of Microsoft‘s commercial businesses and conservatism in forward consensus expectations. After clearing tough Q2 product cycle comps and lingering COVID-19 impacts, strong secular positioning and an attractive multiple make Microsoft (MSFT) a top stock for the recovery,” said Keith Weiss, equity analyst at Morgan Stanley.

“At 26x CY22e GAAP EPS, MSFT trades at a premium to the S&P, warranted due to MSFT‘s premium return profile. Multiple expansion will likely come from gaining comfort in the durability of commercial business gross profit dollars.”

Johnson & Johnson, one of the world’s largest and most comprehensive manufacturers of healthcare products, will post earnings of $1.83 per share for last quarter of 2020.

TAKE A LOOK AT OUR EARNINGS CALENDAR FOR THE FULL RELEASES FOR THE JANUARY 26

Ticker Company EPS Forecast
NEE NextEra Energy $0.38
NEP Nextera Energy Partners $0.37
JNJ Johnson & Johnson $1.83
NVS Novartis $1.36
RTX Raytheon Technologies Corp $0.69
GE General Electric $0.09
AXP American Express $1.31
LMT Lockheed Martin $6.42
MMM 3M $2.15
PLD ProLogis $0.39
FCX Freeport-McMoran $0.38
PCAR PACCAR $1.21
ROK Rockwell Automation $1.89
DHI DR Horton $1.68
WAT Waters $2.87
IVZ Invesco $0.57
ALV Autoliv $1.92
PII Polaris Industries $2.90
ALK Alaska Air -$2.86
SNV Synovus Financial $0.81
PPBI Pacific Premier Bancorp $0.56
GATX GATX Corp $0.87
SFNC Simmons First National $0.42
XRX Xerox $0.63
CIT CIT $0.57
ADM Archer-Daniels Midland $1.10
RNST Renasant $0.59
MSFT Microsoft $1.64
TXN Texas Instruments $1.34
SBUX Starbucks $0.56
AMD Advanced Micro Devices $0.47
CNI Canadian National Railway USA $1.42
COF Capital One Financial $2.80
MXIM Maxim Integrated Products $0.68
VAR Varian Medical Systems $1.05
BXP Boston Properties $0.60
CHRW C.H. Robinson Worldwide $0.97
FFIV F5 Networks $2.44
WRB W.R. Berkley $0.79
EHC Encompass Health Corp $0.85
RNR Renaissancere -$1.92
SLGN Silgan $0.53
UMBF UMB Financial $1.32
NAVI Navient $0.83
WSBC WesBanco $0.61
FMBI First Midwest Bancorp $0.26
RXN Rexnord $0.38
EBAY eBay $0.84
HOG Harley Davidson $0.10

Wednesday (January 27)

IN THE SPOTLIGHT: APPLE, TESLA, FACEBOOK

APPLE: The consumer electronics giant is expected to report profit growth of more than 12% of $1.41 in the fiscal first quarter of 2021 on sales of $102.61 billion, highlighted growth of over 11% from the year-ago quarter. That growth is largely driven by a strong demand iPhone handset, Mac computers, iPad tablets and wearables in the holiday season.

“Our December quarter revenue of $108.2B is 5% above consensus, while our EPS of $1.50 is 7% above consensus. We expect demand strength to continue and our FY21 revenue and EPS estimates are both 5% above consensus,” wrote Katy Huberty, equity analyst at Morgan Stanley.

“Given positioning into the quarter is muted after the rotation out of high-quality stocks over the past several months, we expect strong follow-through post-earnings and are buyers into the print. We also raise our price target to $152, from $144, as we mark our price target to market accounting for recent peer multiple expansion.”

TESLA: The California-based electric vehicle and clean energy company is expected to report a profit of $1.04 in the fourth quarter of 2020, posting a profit for the sixth straight quarter. The manufacturer of high-performance electric vehicles’ revenue is forecast to surge about 35% to $10 billion.

“A double-fly-wheel. We believe Tesla can leverage its cost leadership in EVs to aggressively expand its user base, over time generating a higher % of revenue from recurring/high-margin services revenue. Services drive the upside. We forecast Tesla’s (TSLA) network services EBITDA as a % of total TSLA EBITDA to reach 11% by 2025, 19% by 2030 and 37% by 2040. Tesla Service revenue includes automated driving, infotainment, upgrades, supercharging, maintenance, telematics, etc.,” said Adam Jonas, equity analyst at Morgan Stanley.

“Valuation supportive vs. tech. Including Network Services, Energy & Insurance to our core auto forecasts, at $810 Tesla trades at 25x EV/EBITDA in 2025 and 5x 2025 sales. Expensive vs. auto but not vs. software/tech comps.”

FACEBOOK: The world’s largest online social network is expected to report a profit of $3.16 in the fourth quarter of 2020, which represents year-over-year growth of 23.4% from the same quarter a year ago when the company reported $2.56 cents per share.

According to the Zacks Research, the social media conglomerate’s revenue will increase of 24.7% to $26.29 billion from the year-ago, largely driven by solid ad-revenue growth amid advertiser demand during the holiday period.

“Monetization Potential: We are positive on FB‘s monetization roll-out of Instagram as well as FB’s ability to continue to innovate and improve its monetization (Canvas Ads, Dynamic Ads, video). Combined with the high and growing engagement we see monetization upside going forward,” noted Brian Nowak, equity analyst at Morgan Stanley.

“Investing from Position of Strength to Drive Faster Long-Term Growth: We are modeling 29% GAAP opex (excl. one-time items) growth in 2021, implying an incremental $15bn in opex. Our base case model implies opex per employee moderates in ’21 while FB hiring remains roughly flat on an absolute basis. We believe FB will grow EPS at a 28% CAGR (2019-2022).”

TAKE A LOOK AT OUR EARNINGS CALENDAR FOR THE FULL RELEASES FOR THE JANUARY 27

Ticker Company EPS Forecast
ANTM Anthem $2.53
GIB CGI Group USA $0.97
VFC VF $0.90
TDY Teledyne Technologies $3.05
KNX Knight Transportation $0.91
PB Prosperity Bancshares $1.35
OSK Oshkosh $0.73
NYCB New York Community Bancorp $0.26
CVLT Commvault Systems $0.47
EAT Brinker International $0.35
T AT&T $0.73
ABT Abbott $1.35
BA Boeing -$1.60
ADP ADP $1.29
NSC Norfolk Southern $2.49
PGR Progressive $1.64
GD General Dynamics $3.54
BX Blackstone $0.90
TEL TE Connectivity $1.28
APH Amphenol $1.02
GLW Corning $0.48
NDAQ Nasdaq Omx $1.46
MKTX MarketAxess $1.81
HES Hess -$0.65
ROL Rollins $0.11
TXT Textron $0.90
SEIC SEI Investments $0.78
PTC PTC $0.66
TTEK Tetra Tech $0.81
CACI Caci International $3.59
LSTR Landstar System $1.72
SLM SLM $0.36
RLI RLI $0.66
SLG SL Green Realty -$0.27
AXS Axis Capital -$0.28
AVT Avnet $0.39
CNS Cohen & Steers $0.68
CNMD CONMED $0.77
MTH Meritage Homes $3.33
CATY Cathay General Bancorp $0.76
ISBC Investors Bancorp $0.27
CALX Calix $0.33
CP Canadian Pacific Railway USA $5.03
AMP Ameriprise Financial $4.52
AAPL Apple $1.41
TSLA Tesla $1.04
FB Facebook $3.16
NOW ServiceNow $1.06
SYK Stryker $2.55
LRCX Lam Research $5.69
CCI Crown Castle International $0.62
EW Edwards Lifesciences $0.53
LVS Las Vegas Sands -$0.29
TER Teradyne $1.00
HOLX Hologic $2.17
URI United Rentals $4.26
DRE Duke Realty $0.16
RJF Raymond James Financial $1.65
PKG Packaging Of America $1.48
WHR Whirlpool $6.00
MKSI MKS Instruments $2.01
AZPN Aspen Technology $1.17
CREE Cree -$0.25
LPL Lg Display $0.19
CVBF CVB Financial $0.34
XLNX Xilinx $0.69
UMC United Microelectronics $0.08

Thursday (January 28)

IN THE SPOTLIGHT: Mastercard, McDonald’s, Visa

Mastercard Inc, a leader in global payments and a technology company, will post earnings of $1.53 per share for last quarter of 2020, which represents a year-over-year decline of about 22% from the same quarter a year ago when the company reported $1.96 cents per share.

McDonald’s Corporation, one of the world’s largest American fast-food chain, will post earnings of $1.79 per share for last quarter of 2020. Visa Inc is also expected to report first-quarter earnings on the same day, with earnings of $1.28 per share for the quarter.

TAKE A LOOK AT OUR EARNINGS CALENDAR FOR THE FULL RELEASES FOR THE JANUARY 28

Ticker Company EPS Forecast
MKC McCormick $0.81
LEA Lear $3.40
FCFS FirstCash $0.82
VLO Valero Energy -$1.28
LUV Southwest Airlines -$1.66
AAL American Airlines -$4.12
NUE Nucor $1.16
MSCI Msci $1.92
JBLU JetBlue Airways -$1.67
FRME First Merchants $0.66
MA Mastercard $1.53
CMCSA Comcast $0.48
ATI Allegheny Technologies -$0.35
ABMD Abiomed $1.12
ADS Alliance Data Systems $2.44
TROW T. Rowe Price $2.64
MCD McDonalds $1.79
STM Stmicroelectronics $0.54
DHR Danaher $1.87
DOW Dow Chemical $0.64
CNX Consol Energy $0.16
SHW Sherwin-Williams $4.84
KEX Kirby $0.24
MO Altria $1.01
NTCT Netscout Systems $0.52
CFR Cullen/Frost Bankers $1.28
PNR Pentair Ordinary Share $0.63
TSCO Tractor Supply $1.47
PHM PulteGroup $1.39
EWBC East West Bancorp $1.01
RCI Rogers Communications USA $0.72
NOC Northrop Grumman $5.77
SWK Stanley Black & Decker $2.99
AIT Applied Industrial Technologies $0.74
BPOP Popular, Inc. $1.62
AOS A.O. Smith $0.58
XEL Xcel Energy $0.55
FLWS 1-800-Flowers $1.38
EXP Eagle Materials $1.74
MMC Marsh & McLennan Companies $1.13
COLB Columbia Banking System $0.60
BC Brunswick $1.02
FLEX Flextronics International $0.37
WRK WESTROCK $0.54
MTSI MACOM Technology Solutions $0.37
VLY Valley National Bancorp $0.25
PEXNY PTT Exploration & Production $0.01
DOV Dover $1.38
DLB Dolby Laboratories $0.34
FFBC First Financial Bancorp $0.45
HTH Hilltop $1.13
NATI National Instruments $0.13
RMD ResMed $1.25
GBCI Glacier Bancorp $0.74
ABCB Ameris Bancorp $1.16
CE Celanese $1.69
FIBK First Interstate BancSystem $0.80
JNPR Juniper Networks $0.53
SIGI Selective $1.20
V Visa $1.28
WDC Western Digital $0.52
EGHT 8X8 -$0.03
X United States Steel -$0.62
FHI Federated Hermes Inc $0.78
AJG Arthur J. Gallagher $0.78
SWKS Skyworks Solutions $2.08
OLN Olin -$0.11
MDLZ Mondelez International $0.66
PFG Principal Financial $1.42
EMN Eastman Chemical $1.50
ORI Old Republic International $0.43
FICO Fair Isaac $2.35
MSTR Microstrategy $1.62
RHI Robert Half International $0.68
LANC Lancaster Colony $1.57
RDN Radian $0.60
CAJ Canon $0.31
TOELY Tokyo Electron Ltd PK $0.78
HOCPY Hoya Corp $0.84
DGE Diageo £80.90
KPELY Keppel Corporation -$0.05
NVR NVR $78.78
FFIN First Financial Bankshares $0.37

Friday (January 29)

Ticker Company EPS Forecast
PSXP Phillips 66 Partners $0.89
JCI Johnson Controls $0.40
AN AutoNation $2.05
HON Honeywell International $2.00
MSGS Madison Square Garden Sports -$1.63
ATLCY Atlas Copco ADR $0.39
SAP SAP $1.95
LLY Eli Lilly $2.37
CHD Church Dwight $0.52
LHX L3Harris Technologies Inc $3.09
CL Colgate-Palmolive $0.76
BAH Booz Allen Hamilton $0.93
BBVA Banco Bilbaoizcaya Argentaria $0.13
ERIC Ericsson $0.20
RDY Drreddys Laboratories $0.58
CVX Chevron $0.07
SYF Synchrony Financial $0.89
CAT Caterpillar $1.48
CHTR Charter Communications $4.82
PSX Phillips 66 -$0.81
BMI Badger Meter $0.43
GNTX Gentex $0.50
ROP Roper Industries $3.49
WY Weyerhaeuser $0.42
LYB LyondellBasell Industries $1.36
ROLL Rbc Bearings $0.82
FBP First Bancorp FBP $0.18
KKR KKR & Co LP $0.41
HMC Honda Motor $0.89
GCTAY Siemens Gamesa ADR $0.02
NNIT Nnit A/S kr1.62
SPG Simon Property Group $0.85
ASEKY Aisin Seiki Co $1.19
ALNPY ANA Holdings ADR -$0.35
KMTUY Komatsu $0.26
TTM Tata Motors $0.17
TOTDY Toto $0.46

 

Stocks Move Lower After Disappointing Reports From IBM And Intel

S&P 500 Futures Decline Amid Sell-Off In Tech Stocks

Shares of IBM and Intel are losing ground in premarket trading after the release of their quarterly earnings reports.

IBM missed analyst estimates on revenue amid weak performance of its Cloud & Congnitive Software segment. IBM stock has underperfomed its tech peers for years, and another disappointing report put significant pressure on the company’s shares which are losing more than 8% in premarket trading.

Meanwhile, Intel stated that it would continue to internally produce the majority of its products. As Intel has recently suffered from production issues, the stock found itself under pressure after this announcement and is currently losing more than 4% in premarket trading.

Big tech stocks like Facebook, Apple, Amazon are also under pressure ahead of the market open, and S&P 500 futures are down by more than 0.5%.

Oil Is Under Strong Pressure Amid Rising Coronavirus Cases In China

WTI oil is down by about 3% today as traders focus on the continued spread of the virus in China. Strong demand from China is the main driver of the global demand for oil so traders pay close attention to recent developments as the virus starts spreading across the country, forcing Chinese authorities to implement anti-virus measures in affected areas.

The recent API Crude Oil Stock Change report, which indicated that crude inventories increased by 2.6 million barrels, also hurt sentiment, although traders will still wait for confirmation from EIA Weekly Petroleum Status Report which will be published today. Not surprisingly, oil-related stocks are already under significant pressure in premarket trading.

PMI Reports Show That The Second Wave Of The Virus Continues To Put Pressure On The Services Segment

Today, the U.S will release flash PMI reports for January. Manufacturing PMI is projected to decline from 57.1 in December to 56.5 in January while Services PMI is expected to decrease from 54.8 to 53.6.

Many countries have already released their PMI reports which showed that the services segment continued to suffer from the second wave of the virus. Euro Area Services PMI declined from 46.4 to 45 while UK Services PMI decreased from 49.4 to 38.8.

If U.S. Services PMI report is worse than expected, the market will find itself under additional pressure.

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

Stocks Retreat As Democrats Lead In Georgia Senate Runoff Elections

Traders Sell Tech Stocks

S&P 500 futures are losing ground in premarket trading as Democrats look ready to win both seats in Georgia runoff elections and take control of the Senate.

Nasdaq stocks are hit hard as traders fear that Democrats will introduce strict regulations for Big Tech. Currently, Apple shares are losing about 1.5% in premarket trading, Facebook shares are down by 2.3% while Amazon stock is down by 1.5%.

Meanwhile, the U.S. dollar continues to lose ground against a broad basket of currencies as traders bet that Democrats will soon introduce another stimulus package.

The fear of additional money-printing put significant pressure on U.S. government bond prices and pushed the yield of the 10-year government bonds above the psychologically important 1.00% level.

The bond market is typically considered as “smart money” so the sell-off in U.S. government bonds indicates that institutional investors are seriously worried about the potential impact of additional stimulus.

OPEC+ Reached A Compromise Deal

OPEC+ has finally managed to reach consensus on production cuts thanks to Saudi Arabia which offered voluntary production cuts of 1 million barrels per day (bpd).

Other producers will keep production at current levels in February and March while Russia and Kazakhstan will be allowed to raise production by 75,000 bpd in February and 75,000 bpd in March.

Not surprisingly, oil is trying to settle above the $50 level while oil-related stocks look ready to continue their upside move. That said, it should be noted that once the initial euphoria is over, the market may start to question the reasons for a major 1 million bpd voluntary cut from Saudi Arabia which signals that demand for oil remains much weaker than expected.

ADP Employment Change Report Disappoints

The U.S. has just provided ADP Employment Change report for December which indicated that private businesses fired 123,000 workers while analysts expected that they would add 88,000 jobs.

This is the first negative ADP Employment Change report since April when it indicated a loss of 19.4 million jobs.

On Friday, the U.S. will provide Non Farm Payrolls report for December which is currently expected to show that economy added 100,000 jobs. However, analysts have some time to change their forecasts as the pressure from the second wave of the virus appears to be stronger than expected.

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

Stimulus Hopes Fail to Rally Markets

The S&P 500 closed down for the third consecutive day (Dec. 22), despite Congress’s long-overdue approval of an economic stimulus package.

News Recap

  • The Dow Jones declined 200.94 points, or 0.7%, to 30,015.51. The S&P 500 closed down for a third consecutive day and fell 0.2%. Reflecting a return to the “stay-at-home” tech trade, the Nasdaq gained 0.5% on the day (Dec. 22). The small-cap Russell 2000 index managed to outperform yet again, rising 1.01%.
  • Congress finally voted on and approved a $900 billion stimulus package to aid struggling Americans. Attached to this bill was also a $1.4 trillion measure to fund the government through Sept. 30. President Trump is expected to sign the bill into law within the next few days.
  • A mutant strain of COVID-19 discovered in the UK weighed on markets for a second consecutive day. While the vaccine(s) could still be effective on this strain, the strain appears to be more contagious than others. The discovery of this virus strain has caused stricter lockdown measures and travel restrictions worldwide.
  • Travel stocks were the laggards of the day due to fears of the new strain of COVID-19. American Airlines (AAL) fell 3.9% and United (UAL) dropped 2.5%. Cruise lines all fell as well. Carnival (CCL) fell nearly 6%, Royal Caribbean (RCL) dropped nearly 3%, and Norwegian (NCL) plummeted 6.9%
  • Apple (AAPL) led the Nasdaq higher as it jumped 2.9% due to investor excitement about their EV plans to challenge Tesla (TSLA) by 2024
  • Mixed economic data came in on Tuesday (Dec. 22). The final reading on Q3’s GDP growth found that the US GDP grew 33.4% on an annualized basis, compared to the estimated 33.1%. On the other hand, US consumer confidence fell for the second month in a row and missed expectations – despite vaccine optimism.
  • COVID-19 has now killed over 318,000 Americans (and counting). The CDC announced that this is now the deadliest year in American history as total deaths are expected to top 3 million for the first time. Deaths are also expected to jump 15% from the previous year. This would mark the largest single-year percentage leap since 1918, when WWI and fatalities from the Spanish Flu Pandemic caused deaths to rise an estimated 46%.

Markets have officially stumbled before Christmas and experienced a predictable tug-of-war between good news and bad news. While the general focus of both investors and analysts has appeared to be the long-term potential of 2021, there are some very concerning short-term headwinds.

Although there was some anticipation that a stimulus deal could send stocks higher in the near-term, investors may be simply taking profits before the year’s end and rebalancing for 2021. On the other hand, it is very possible that the stimulus package was “too little too late,” and is being overshadowed by a more contagious strain of COVID-19 discovered over the past weekend in the U.K.

While nobody predicted a renegade mutant virus weighing on market sentiment, short-term battles between optimism and pessimism were quite predictable.

According to a note released on Monday (Dec. 21) from Vital Knowledge’s Adam Crisafulli

“The market has been in a tug-of-war between the very grim near-term COVID backdrop and the increasingly hopeful medium/long-term outlook (driven by vaccines) – the latter set of forces are more powerful in aggregate, but on occasion, the market decides to focus on the former, and stocks suffer as a result.”

Meanwhile, the overwhelming majority of market strategists, including myself, are bullish on equities for 2021. It might just be a bit of a bumpy road getting there. I believe that a correction and some consolidation could be very likely in the short-term, on the way towards another strong rally in the second half of 2021. While it is hard to say with conviction WHEN we could see a correction, I believe that the market’s behavior as of late could be a potential preview of what’s to come between now and the end of Q1 2020. There is optimistic potential, but I believe a potential 5% pullback before the year’s end is possible, as well as a minimum 10% correction before the end of Q1 2020.

According to Jonathan Golub , Credit Suisse’s chief U.S. equity strategist, choppiness in the economy and markets in the coming months could be expected before a surge in consumer spending by mid-2021. Golub said, “I don’t think that there’s a smooth, easy straight-line story on this…I think for the next three or four months, the reopening process is going to be sloppy.”

I believe that the S&P’s three-day losing streak could be an ominous sign of what’s to come in the near-term. I do believe though that this is healthy and could be a good thing.

Before Monday’s (Dec. 21) session, I had warned that the market was flashing signs of over-optimism and euphoria. In its most recent survey, for example, the American Association of Individual Investors (AAII) found that 48.1% of investors identified as being bullish – well above the historical average of 38%.

A correction could be just what this market needs. Corrections also happen way more often than people realize. Only twice in the last 38 years have we had years WITHOUT a correction (1995 and 2017). I believe we are overdue for one because there has not been a correction since the lows of March. This is healthy market behavior and could be a very good buying opportunity for what I believe will be a great second half of the year.

The mid-term and long-term optimism are very real, despite the near-term risks. The passage of the stimulus package only solidifies the robust vaccine-induced tailwinds entering 2021, specifically for small-cap value stocks.

In the short-term, there will be some optimistic and pessimistic days. On some days, such as Tuesday (Dec. 22), the “pandemic” market trend will happen – cyclical and COVID-19 recovery stocks lagging, and tech and “stay-at-home” stocks leading. On other days, a broad sell-off based on virus fears may occur as well. Additionally, there will also be days where there will be a broad market rally due to optimism and 2021 related euphoria. And finally, there will be days (and in my opinion, this will be most trading days), that will see markets trading largely mixed, sideways, and reflecting uncertainty.

Therefore, to sum it up:

While there is long-term optimism, there are short-term concerns. A short-term correction between now and Q1 2021 is very possible. But I do not believe, with conviction, that a correction above ~20% leading to a bear market will happen.

The premium analysis this morning will showcase a “Drivers and Divers” section that will break down some sectors that are in and out of favor. As a token of my appreciation for your patronage, I decided to give you a free sample of a “driver” and “diver” sector. Please do me a favor and let me know what you think of this segment! I’m always happy to hear from you.

Driving

Small-Caps (IWM)

The Russell 2000 small-cap index once again beat the larger-cap indices and gained 1.01% on Tuesday (Dec. 22). Despite the profit-taking and negative sentiment during Tuesday’s (Dec. 22) session, small-caps didn’t get the memo.

I do love small-cap stocks in the long-term and this small-cap rally is more encouraging than the “stay-at-home” stock rallies from April/May. This is a bullish sign for long-term economic recovery and shows that investors are optimistic that a vaccine will return life to relative normalcy by mid-2021.

I do have some concerns about overheating in the short-term though. As I mentioned before, I believe that the S&P’s losing streak is only a preview of what could come in the next 1-3 months.

According to the chart above for the Russell 2000 ETF (IWM) , it becomes pretty evident that small-cap stocks have overheated in the short-term. Stocks won’t always go up, but the IWM’s trajectory since November has been essentially vertical. The ETF keeps hitting record highs while the RSI keeps overinflating way past overbought levels as the volume shows instability.

Since November, the Russell index has been on a run nothing short of astounding. Just look how the iShares Russell 2000 ETF (IWM) compares to the ETFs tracking the Dow, S&P, and Nasdaq in that time frame. Since November, the IWM has risen nearly 28% and has at least doubled the returns of the ETFs tracking the other major indices.

Although the Russell index is composed mostly of small-cap cyclical stocks dependent on the recovery of the broader economy and may be more adversely affected on “sell-the-news” kind of days, its hot streak since November has seemingly not cooled off as much as other indices and sectors.

But I believe this will eventually happen in the short-term, and I hope it does for a long-term buying opportunity.

In the short-term, small-cap stocks may have overheated and could experience the greatest volatility. SELL and take short-term profits if you can, but do not fully exit positions .

If there is a pullback, BUY for the long-term recovery.

Diving

US Dollar ($USD)

If the dollar rallies at all again soon, do not be fooled.

Ever since I called the dollar’s rally past the 91 level two Wednesdays ago (Dec. 9) a mirage, the dollar has declined by 1.25%.

I believed it to be “fool’s gold” then and I believe any subsequent rally that could come will be “fool’s gold” too.

I still am calling out the dollar’s weakness after several weeks, despite its low levels. I expect the decline to continue as well thanks to a dovish Fed.

The world’s reserve currency is still trading below 90 and has not traded this low since April 2018.

Joe Manimbo , a senior analyst at Western Union Business Solutions, seemingly agrees with me as well and said that “the latest blow to the dollar came from the Fed, which vowed not to touch policy even if the outlook for the U.S. economy brightens as it now expects.”

Since hitting a nearly 3-year high on March 20th, the dollar has plunged nearly 13% while emerging markets and other currencies continue to strengthen.

On days when COVID-19 fears outweigh any other positive sentiments, dollar exposure might be good to have since it is a safe haven. But in my view, you can do a whole lot better than the US dollar for safety.

I have too many doubts on the effect of interest rates this low for this long, government stimulus, strengthening of emerging markets, and inflation to be remotely bullish on the dollar’s prospects over the next 1-3 years. Meanwhile, the US has $27 trillion of debt, and it’s not going down anytime soon.

Additionally, according to The Sevens Report , if the dollar falls below 89.13, this could potentially raise the prospect of a further 10.5% decline to the next support level of 79.78 reached in April 2014

After briefly rising above an oversold RSI of 30 last week, the dollar’s RSI is now at an alarmingly low 27.87. The dollar is also significantly trading below both its 50-day and 200-day moving averages.

While the dollar may have more room to fall, this MAY be a good opportunity to buy the world’s reserve currency at a discount as the RSI is oversold. But I just feel you can do a whole lot better than the USD right now.

I’m not a crypto guy either myself, but Bitcoin’s run compared to the dollar’s disastrous 2020 has to really make you think sometimes….

For now, where possible, HEDGE OR SELL USD exposure.

Thank you for reading today’s free analysis. I encourage you to sign up for our daily newsletter – it’s absolutely free and if you don’t like it, you can unsubscribe with just 2 clicks. If you sign up today, you’ll also get 7 days of free access to the premium daily Stock Trading Alerts as well as our other Alerts. Sign up for the free newsletter today!

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

Thank you.

Matthew Levy, CFA
Stock Trading Strategist
Sunshine Profits: Effective Investment through Diligence & Care

* * * * *

All essays, research, and information found above represent analyses and opinions of Matthew Levy, CFA and Sunshine Profits’ associates only. As such, it may prove wrong and be subject to change without notice. Opinions and analyses were based on data available to authors of respective essays at the time of writing. Although the information provided above is based on careful research and sources that are believed to be accurate, Matthew Levy, CFA, and his associates do not guarantee the accuracy or thoroughness of the data or information reported. The opinions published above are neither an offer nor a recommendation to purchase or sell any securities. Mr. Levy is not a Registered Securities Advisor. By reading Matthew Levy, CFA’s reports you fully agree that he will not be held responsible or liable for any decisions you make regarding any information provided in these reports. Investing, trading, and speculation in any financial markets may involve high risk of loss. Matthew Levy, CFA, Sunshine Profits’ employees, and affiliates as well as members of their families may have a short or long position in any securities, including those mentioned in any of the reports or essays, and may make additional purchases and/or sales of those securities without notice.