Asian Shares Mixed in Early Trade; Miners Lift Aussie Stocks

The major Asian stock indexes are trading mixed early in the session on Wednesday as investors awaited the Federal Reserve’s view on the economy at the end of its policy meeting, although upbeat Chinese and U.S. economic data is giving the indexes a tailwind.

Global equities markets rallied on Tuesday, first on data that showed China’s industrial output and retail sales picked up, and later on an increase in U.S. factory production.

At 01:34 GMT, Japan’s Nikkei 225 Index is trading 23425.55, down 29.34 or -0.13%. Hong Kong’s Hang Seng Index is at 24732.76, unchanged and South Korea’s KOSPI Index is trading 2439.21, down 4.37 or -0.18%.

In China, the Shanghai Index is trading 3294.96, down 0.72 or -0.02% and in Australia, the S&P/ASX 200 Index is at 5939.60, up 44.80 or +0.76%.

Nikkei Struggles after Japan Exports Tumble

Japan’s exports slumped 14.8% in August from a year earlier, down for the 21st straight month, Ministry of Finance data showed on Wednesday, underlining the coronavirus pandemic’s heavy hit to global demand. That compared with a 16.1% decline expected by economists in a Reuters poll and followed a 19.2% fall in July.

Imports dropped 20.8% in the year to August, compared with the median estimate of an 18.0% decline.

The trade balance came to a surplus of 248.3 billion Japanese Yen ($2.36 billion), against the median estimate of a 37.5 billion Japanese Yen deficit.

Australia Shares Rise on Miners, Tech Boost

Australian shares gained on Wednesday as miners rallied for a third straight session and tech stocks tracked their Wall Street peers higher, with investors hoping that the U.S. Federal Reserve will stick to its supportive policy stance.

The tech index added as much as 2.5% to be the top percentage gainer after its U.S. counterpart ended more than 1% higher overnight, while export-reliant miners were the biggest boost to the benchmark index.

Miners began their jump this week after upbeat Chinese data on Tuesday, with global giants BHP Group and Rio Tinto gaining 1.6% and 2%, respectively.

Apple Supplier Shares Mixed

Apple supplier stocks in the region were mixed in the Wednesday morning trade. Apple Inc retraced earlier gains after its product event, which included the roll-out of a new virtual fitness service and a bundle of its subscriptions into Apple One. The stock, which often dips after a run-up prior to the event, closed up 0.2%. This was well off its intra-day high.

In Japan, shares of Apple supplier Murata Manufacturing rose 0.26% while Sharp gained 0.3%. South Korea’s LG Display, on the other hand, slipped 0.62%.

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

US Stocks Mostly Higher, but Apple Gives Back Gains after Event

The major U.S. stock indexes finished higher on Tuesday on the hope the Federal Reserve would stick with its accommodative policy as the central bank’s two-day meeting got underway. The rally was impressive and a nice start to the week, but gains were limited as Apple Inc’s shares lost early gains following its rollout of a new virtual fitness service and a bundle of all its subscriptions, Apple One.

In the cash market on Tuesday, the benchmark S&P 500 Index settled at 3401.20, up 17.66 or +0.52%. The blue chip Dow Jones Industrial Average finished at 27995.60, up 2.27 or +0.01% and the technology-based NASDAQ Composite closed at 11190.32, up 133.67 or +1.21%.

Fed Begins Two Day Meeting

In its first policy meeting since Fed Chair Jerome Powell announced a more accommodative stance on inflation.  Investors are also wondering if the U.S. central bank will add to its already considerable stimulus measures after talks in Congress stalled for another round of virus relief aid.

The central bank could switch its Treasury purchases toward long-dated debt to keep long-term yields low, some strategist said.

US Economic Data Better Than Expected

The Federal Reserve reported on Tuesday that U.S. industrial production rose 0.4 percent in August – its fourth consecutive monthly increase, but gains have plateaued since June. The Empire State Manufacturing Index, a monthly survey of manufacturers in New York State conducted by New York’s Federal Reserve Bank, confirmed that business activity expanded at a solid clip in September.

Separately, U.S. import prices increased more than expected for the same month, supporting the view that inflation pressures were building up.

Apple Falls After New Product Event; Face Criticisms

Shares of Apple gave up earlier gains and were down more than 1% after the company wrapped up an event to showcase new products. The tech giant debuted a new Apple Watch and a bundle for its services, such as Apple Music. The stock was up about 2% before the event began.

Streaming music firm Spotify Technology SA on Tuesday criticized rival Apple Inc, saying that a new subscription bundle offer from the iPhone maker abuses its dominant market position by favoring its own Apple Music service.

“We call on competition authorities to act urgently to restrict Apple’s anti-competitive behavior, which if left unchecked, will cause irreparable harm to the developer community and threaten our collective freedoms to listen, learn, create, and connect,” the music streaming company said.

Sellers Pressure Banks

Citigroup Inc dropped 4.3% following a report that federal regulators were preparing to reprimand the U.S. lender for failing to improve its risk-management systems.

JP Morgan Chase & Co slipped 2.4% as it lowered its full-year net interest income forecast.

The Internals

Advancing issues outnumbered declining one on the NYSE by a 1.92-to-1 ratio; on NASDAQ, a 1.72-to-1 ratio favored advancers, Reuters reported.

The S&P 500 posted 21 new 52-week highs and no new lows; the NASDAQ Composite recorded 63 new highs and 15 new lows.

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

Tesla Stock Crash Targets $75.00

In my article, Will Tesla Stock Price Crash, I laid out the likelihood for a 50%+ decline. Tesla shares peaked just after the stock split, and the initial breakdown is underway. I don’t foresee a bottom until prices drop below $75.00 in 2021.

TSLA DAILY CHART: Tesla peaked just after the stock split, as I suspected. The initial crash is underway, and prices could test the 200-day MA (currently $182.94) before the next multi-week bounce. Longer-term, we expect prices to remain under pressure into 2021 and 2022 before prices carve out a bottom below $75.00.

A close up of a map Description automatically generated

I am very bullish on Tesla longer-term and believe it could become the next Apple. Currently, I do not own the stock.

AG Thorson is a registered CMT and expert in technical analysis. He believes we are in the final stages of a global debt super-cycle. For more information, please visit here.

 

Has Apple Topped Out?

Dow component Apple Inc. (AAPL) slumped near a 4-week low as trading resumed in the United States on Tuesday, continuing a decline that started just two sessions after the tech giant posted a 4-for-1 split on Aug. 31. The stock hit an all-time high at 137.98 and turned sharply lower on Wednesday, relinquishing nearly 30 points into Friday’s intraday low at 110.89. It’s still testing that level, which has narrowly aligned with the 50-day moving average.

Goldman Sachs Issues Sell Rating

The stock has risen nearly 65% since the last trading day of 2019 and more than 125% since the March low, setting off extremely overbought technical readings that now favor an intermediate correction lasting for weeks and potentially reaching much lower price levels. For now, market watchers are waiting for Apple to confirm the initial production of 5G iPhones after delays caused by pandemic-driven supply disruptions.

Goldman Sachs analyst Rod Hall took aim on Tuesday, justifying a ‘Sell’ rating and $85 target, noting “Apple’s miss/beat track record is mixed, with the company failing to meet consensus expectations in 2016, 2018, and 2019. This compares to Microsoft beating revenue expectations for the last three years running and Amazon beating for three of the last five. To be more positive, we simply would like to see a consistent string of beat-and-raise quarters from Apple that matches the growth narrative.”

Wall Street And Technical Outlook

Wall Street consensus has grown more cautious in recent months, with a ‘Moderate Buy’ rating based upon 25 ‘Buy’ and 8 ‘Hold’ recommendations. Three analysts now recommend that shareholders sell their positions and move to the sidelines. Price targets currently range from a low of $66.60 to a street-high $150 while the stock is trading right on top of the $116 median target. This neutral placement favors neither bulls nor bears.

A multiweek pullback that reaches May breakout support near 80 could ease overbought readings and test the 200-day moving average for the first time since Apple remounted that level in April. While it looks like a perfect position for sidelined capital to get on-board, tight stops may be needed because a failed breakout could expose the March into September rally as the climactic wave in an Elliott 5-wave rally pattern off the December 2018 low.

Telsa Stock Price Crash Update

A week ago, I penned an article titled, Will Tesla Stock Price Crash? I felt prices were in a bubble that could pop any day, probably around the time of the coveted stock-split.

I have often compared Tesla to the chart of Apple during the late 1990s. Studying the final parabolic advance in APPL reveals a potential price target for TSLA, if price crash as I suspect.

AAPL CHART (1984 – 2004)

The late 1990s parabolic run in Apple to new all-time highs unfolded in a power 3-wave (ABC) 10x advance. Prices peaked at C and then crashed below the terminal parabolic starting point of B. I expect something similar in Tesla.

TSLA (2012 – NOW)

Expecting a repeat of Apple’s post-bubble crash – Tesla could collapse below $75.00 before starting the next major advance. In my opinion, that could present the buying opportunity of a lifetime…if you want to own Tesla.

A close up of a map

Description automatically generated

Here is what happened to Apple’s chart once prices bottomed in “D.”

A close up of a map

Description automatically generated

AG Thorson is a registered CMT and expert in technical analysis. He believes we are in the final stages of a global debt super-cycle. For more information, please visit here.

E-mini NASDAQ-100 Index (NQ) Futures Technical Analysis – Needs to Stay Above 11562.00 to Sustain Rally

September E-mini NASDAQ-100 Index futures are set to open at an all-time on Monday on bets that technology focused companies will emerge stronger from the pandemic and the economy will return to growth on continued monetary and fiscal support.

Helping to boost prices on Monday is the news that the FDA approved for emergency use antibody-rich blood plasma on COVID-19 patients. Further aiding the rally was a report that the Trump administration is considering fast-tracking an experimental COVID-19 vaccine being developed by AstraZeneca Plc and Oxford University for use in the United States before election.

At 13:07 GMT, September E-mini NASDAQ-100 Index futures are trading 11688.75, up 126.75 or +1.10%. Earlier in the session, the futures contract reached a new record high at 11695.75.

NASDAQ Stocks in the News

Apple – Today is the “record date” for Apple’s recently announced 4-for-1 stock split, applying to shareholders of record as of the close of business today. The shares are set to begin trading on a split-adjusted basis on August 31.

Moderna – Moderna said enrollment levels for its late-stage 30,000 patient COVID-19 vaccine trial have passed the 40% mark. The drugmaker began the study last month and expects to complete enrollment in September.

Microsoft – Microsoft said in a court filing that Apple’s actions against Fortnite creator Epic Games will hurt the entire videogame industry. Apple removed Epic’s games from its app store for violating its payment rules.

Daily Swing Chart Technical Analysis

The main trend is up according to the daily swing chart. The uptrend was reaffirmed earlier today when buyers took out last week’s high at 11573.50. The main trend will change to down on a move through 10845.50.

The minor trend is also up. The minor trend will change to down if 11221.50 fails as support. This will also shift momentum to the downside.

Daily Swing Chart Technical Forecast

The rally continues to be driven by headlines about a coronavirus treatment or vaccine. Look for higher-highs and higher-lows to signal the uptrend remains intact.

A higher-high, lower-close will signal that the selling is greater than the buying at current price levels. This chart pattern won’t change the trend to down, but it could signal the start of a short-term correction.

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

E-mini S&P 500 Index (ES) Futures Technical Analysis – Needs to Close Over 3392.50 to Sustain Momentum

September E-mini S&P 500 Index futures are trading sharply higher ahead of the opening on Monday as the country’s top drug regulator’s approval for emergency use of antibody-rich blood plasma on COVID-19 patients lifted treatment hopes and spurred bets of a quicker economic recovery.

At 13:40 GMT, September E-mini S&P 500 Index futures are at 3420.00, up 27.50 or +0.81%. Its new record high is 3424.00.

The U.S. Food and Drug Administration’s move to use plasma from recovered patients was hailed by President Donald Trump and came a day after he accused it of impeding the rollout of treatments for political reasons.

Among stocks, Apple Inc gained another 1.8% premarket and was on track to open above $500 per share for the first time. The iPhone maker became the first public U.S. company to cross $2 trillion in market value last week.

Daily Swing Chart Technical Analysis

The main trend is up according to the daily swing chart. The uptrend was reaffirmed earlier today when buyers took out last week’s high at 3396.25.

The main trend will change to down on a trade through 3195.00. This is highly unlikely but due to the prolonged move up in terms of price and time, the index is vulnerable to a closing price reversal top. This chart pattern won’t change the trend to down, but it could signal a short-term correction.

The minor trend is also up. A trade through 3344.75 will change the minor trend to down. This will shift momentum to the downside.

Daily Swing Chart Technical Forecast

In this momentum and headline driven market, the only thing at this time that bullish trend traders need to worry about is a close below Friday’s finish at 3392.50. This will be the first sign of weakness today, but it will not signal a change in trend.

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

Blame it on The Nasdaq

US data announced this week showed a significant recovery in building permits and housing, building permits (MoM) for July surged to 18.8% compared to the previous 3.5%, Housing Starts data revealed 22.6% which is 5.1% higher than the previous month, existing-home sales data were as well positive reported beyond expectations.

Despite the negative Jobless claims and Philadelphia Fed Manufacturing PMI reported on August 20, Manufacturing PMI and Services PMI demonstrated a significant improvement, which led major US Indices to surge whereas S&P500 and Nasdaq100 reached the all-time high.

US stocks continue hitting records, Tesla surged by 24.19% breaking the significant $2000 per share value, and is now worth more than $382 billion surpassing Walmart by nearly $10B. Nasdaq’s top company by market cap – Apple gained 8.23% hitting the $2127B in capitalization. Tesla and Apple remain the top popular shares last week based on Robinhood data.

S&P500 closed above the all-time high, some might think that there is a possible double top pattern, economic recovery of the US indicates that the index may continue the run towards $3500.

Nasdaq owes its gains not only to Tesla and Apple, but there are also other tech companies that surged last week and during the pandemic, such as NVIDIA, AMD, Qualcomm, Microchip Tech, Texas Instruments.

An hourly chart demonstrates that the correction is most likely will happen as the price touched the dynamic resistance and the fifth wave of an ending diagonal is about to complete at 11600. Ending diagonal is a trend reversal pattern, which usually demonstrates exhaustion of bulls, note the evening star doji, though the closing is above the previous close, it still shows uncertainty and exhaustion.

NDX chart by TradingView

How is it related to cryptocurrencies and Bitcoin?

Bitcoin and Ethereum price actions are considered as cryptocurrency market movers. Since Bitcoin is nowadays considered as the digital Gold and Ethereum as a digital Silver, their price action now is correlated to US data which effect Gold. Gold was ever since used as a safe-haven to hedge funds during the uncertain times and inflation, so is Bitcoin now.

An hourly chart of Bitcoin indicates that the price could decline further to towards $11200 – $11160 to complete the Head and Shoulders pattern, another pattern to watch is an ending diagonal which is yet to be completed as well. Bitcoin remains below the major resistance level of $11700 an in order to show another bull run it must break the dynamic resistance (ending diagonals upper edge) and close above the 11700, however testing 11200 might bring another stimulus for bulls.

BTCUSD price on Overbit

Ethereum plummeted to $380 after reaching the year’s maximum at $446.67, loosing 9.7% this week only. Digital Silver price is following a similar ending diagonal pattern, and if the upper dynamic resistance and a static resistance of 397 is not overpassed, ETH might continue the drop towards a major support at $380, and if that support is broken, towards $370 – 369.

ETHUSD price on Overbit

Unlike Bitcoin, Gold lost only 0.20% in price for the week. A significant drop was on Wednesday August 19 ahead of US data announcements, where the precious metal lost 3.67% after gaining 2.97% on Monday and Tuesday.

Head and shoulders pattern is identified on an hourly chart of Gold and the price might continue the drop down to $1881.60 – 1880, where if the support laid on those level withheld the price might retrace towards 2014 and if above towards 2046, where the bearish pattern will be completed.

Gold price on Overbit

Since Gold and Silver prices demonstrate similarities in their price action, the same Head and Shoulders is visible on an hourly chart of XAGUSD. The price is below the dynamic support of August 12 which might signal to a further decline down to $25.30.

Silver price on Overbit

The price continues the short-term downtrend move inside a descending channel, which in other had forms another controversial to the H&S pattern of Bullish Flag.

Silver price on Overbit

If bulls are able to push the price above the dynamic support and if the dynamic resistance is overtaken at $27, the bullish run might proceed towards $28 – 28.50.

Key takeaways for the upcoming week would be announcements from Eurozone, Great Britain, China and the US.

Important announcements to watch:

Tuesday, August 25, 2020

German GDP (YoY) as per Second quarter data is expected to be -11.7%, 9.8% lower than the previous -1.9%

German GDP (QoQ) as per Second quarter data is expected to be -10.1%, 7.9% lower than the previous -2.2

US CB Consumer Confidence (August) is expected to be 93, 0.4 points higher than the previous 92.6

US New Home Sales (July) is expected to be 786K, 10K higher than the previous 776K

Wednesday, August 26, 2020

US Core Durable Orders is expected to be 2.1%, 1.5% lower than the previous 3.6%

Thursday, August 27, 2020

US GDP (QoQ) as per 2nd Quarter is expected to be -32.6%, 0.3% higher than the previous -32.9%

US Initial Jobless Claims is expected to be 1,000K, 106K lower than the previous 1,106K

US Pending Home Sales (MoM) as per July is expected to be 4.5%, 12.1% points higher than the previous 16.6%

Asides from the data to be announced, there are other important events to trace.

Republican National Convention, which will be held on Monday, in which delegates will determine the nominees for the upcoming presidential elections. Markets will be watching this event closely as during the current campaign Democrats are having an edge over republicans.

Source: Yahoo Finance

Another major event would be an annual Jackson Hole conference this Thursday, August 27, where FED Chairman Jerome Powell will speak about current economic situation, inflation targets and possibly share preliminary focus on interest rate change.

The economic state and inflation in the US once again are an important constituent of the Global economy and global markets, all these events will be decisive for the mid-term price movements for the US Indices, commodities and cryptocurrencies.

US Stocks Slide After Fed Minutes; Apple Hits $2 Trillion Market Cap

The major U.S. stock indexes finished lower on Wednesday after minutes from July’s U.S. Federal Reserve meeting failed to indicate a more dovish shift in monetary policy, possibly in September. Particularly disappointing for investors was the Fed ruling out for now more dovish monetary policy measures such as yield curve control and the adoption of an average inflation target.

In the cash market on Wednesday, the benchmark S&P 500 Index settled at 3374.85, down 14.93 or -0.50%. The blue chip Dow Jones Industrial Average finished at 27692.88, down 85.19 or -0.34% and the tech-based NASDAQ Composite closed at 11146.46, down 64.38 or -0.68%.

Fed Yield Cap Would’ve Sent Dovish Signal

Under yield-curve control, the Fed would cap yields at a specific point on the curve by buying 2- or 3-year maturities, for example, to reinforce guidance that rates are not going up anytime soon.

In minutes of the Fed’s July meeting, a majority of its monetary policy committee commented on yield caps and targets as a monetary policy tool. Of those who discussed this option, most judged that yield caps and targets would likely provide only modest benefits in the current environment.

Fed Sees Uncertain Path to Recovery

The Fed also raised concerns that the U.S. economy’s recovery from the devastating effects of the coronavirus pandemic faced a highly uncertain path.

Policymakers noted that the swift rebound in employment seen in May and June had likely slowed and that additional “substantial improvement” in the labor market would hinge on a “broad and sustained” reopening of business activity.

Apple Valued at $2 Trillion

Just two years after Apple became the first publicly listed U.S. company with a $1 trillion stock market value, the iPhone maker has now topped $2 trillion.

Apple now accounts for close to 7% of the S&P 500’s total market value. Its market capitalization is about equal to the combined values of the S&P 500’s 200 smallest companies.

Microsoft and Amazon follow Apple as the most valuable publicly traded U.S. companies, each at about $1.6 trillion. They are followed by Google-owner Alphabet, at just over $1 trillion.

Target Reports Monster Quarter

Target on Wednesday blew past every forecast on Wall Street for its fiscal second quarter as it attracted millions of new customers online, setting a record for same-store sales that drove profits up by an eye-popping 80.3% to $1.7 billion.

Shares were up nearly 13% Wednesday afternoon. It reached a 52-week high of $154.69, bringing up the company’s market cap to about $77 billion.

Lowe’s Reports Blowout Quarter

Lowe’s said customers bought supplies for DIY projects, kicked off renovations and stepped up their landscaping as they skipped dining out and scaled back summer trips during the coronavirus pandemic.

That translated to huge gains for the home improvement retailer, allowing it to blow past Wall Street forecasts with a 30% surge in revenue and 68.7% jump in profit during the fiscal second quarter.

Shares of the company were up less than 1% Wednesday afternoon. They reached a 52-week high of $162.89 earlier in the day.

The Internals

Advancing issues outnumbered declining ones on the NYSE by a 1.03-to-1 ratio; on NASDAQ, a 1.24-to-1 ratio favored advancers.

The S&P 500 posted 26 new 52-week highs and no new lows; the NASDAQ Composite recorded 70 new highs and 20 new lows.

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

Weak Technology Sector Helps S&P 500 Snap Seven-Day Winning Streak

The major U.S. stock indexes finished lower on Tuesday, reversing a mostly higher intraday trade late in the session after comments about a stalemate in talks over a fiscal stimulus deal.

The benchmark S&P 500 Index had been higher for much of the session, coming within striking distance of its closing record high from late February, before the onset of the U.S. coronavirus pandemic that triggered one of the most dramatic sell-offs in Wall Street history.

The blue chip Dow Jones Industrial Average also ended lower, and the technology-driven NASDAQ Composite retreated more than 1% and underperformed the other major indexes, as investors continued to rotate out of technology-related heavyweights and into value shares.

In the cash market, the S&P 500 Index settled at 3333.69, down 26.78 or -0.89%. The Dow Jones Industrial Average closed at 27686.91, down 104.53 or -0.42% and the tech-driven NASDAQ Composite finished at 10782.82, down 185.54 or -1.95%.

Stalemate in Coronavirus Aid Legislation Raising Concerns

U.S. Senate Republican leader Mitch McConnell told Fox News that White House negotiators had not spoken on Tuesday with Democratic leaders in the U.S. Congress on coronavirus aid legislation after talks broke down last week.

Investors have been hoping Republicans and Democrats will resolve their differences and agree on another relief program to support about 30 million unemployed Americans, as the battle with the virus outbreak was far from over with U.S. cases surpassing 5 million last week.

Wedbush trader Joel Kulina said concerns about the stalemate in stimulus negotiations added to pressure to sell recently strong performing tech stocks.

“It just feels like an acceleration of the growth unwind that started last Friday. Today marks day three of the unwind out of growth,” Kulina said. “But I’m not seeing panicking.”

Mixed News Fuels Two-Sided Volatility

A return of risk appetite fueled by encouraging economic numbers and hopes of a new coronavirus relief package and even a vaccine boosted the 500-stock index for much of the trading day on Tuesday. However, a plunge in technology shares helped snap a seven-day winning streak.

On the bullish side, the S&P 500 Index has rallied more than 52% since its March low and is 1.8% from its record high. Meanwhile, the Dow Jones Industrial Average dipped more than 100 points but at one point traded above 28,000 for the first time since February.

The loss in the Dow could have been worse if not for strength in stocks that benefit from the reopening of the economy and a COVID-19 vaccine capped the average’s losses.

The NASDAQ Composite was the underperformer, losing 1.7% as investors rotated out of technology stocks. Netflix, Microsoft, Amazon, Facebook, Alphabet and Apple all closed lower.’

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

Apple Could Top Out After Stock Split

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

Apple Declares 4-For-1 Stock Split

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

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

Wall Street And Technical Outlook

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

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

U.S. Stocks Set To Open Higher As Big Tech Reports Strong Earnings

Big Tech Beats Earnings Estimates

Amazon, Apple, Alphabet and Facebook have recently provided their second quarter reports.

Amazon revenues were up 40% year-over-year while its earnings of $10.30 per share beat analyst estimates by $8.80.

Apple’s revenue and earnings were also higher than estimates. The company stated that the release of iPhone 12 will be postponed by several weeks and also announced a four-for-one stock split.

Alphabet’s earnings were less spectacular but the company comfortably beat estimates with revenue of $38.29 billion and earnings of $10.13 per share.

Facebook’s revenue was up almost 11% year-over-year despite the challenges brought by coronavirus pandemic while the company’s earnings of $1.80 per share easily beat analyst expectations.

Not surprisingly, all these stocks are gaining ground during the premarket trading session. The Big Tech was the main driver of the market’s upside move from the bottom reached in mid-March, so S&P 500 futures are also up in premarket trading.

Coronavirus Aid Package Negotiations Have Yielded No Deal Yet

While traders cheer the great results of big tech companies, their attention may later shift to coronavirus aid package negotiations.

At this point, there are no signs of progress. The $600 weekly unemployment benefits are about to expire, and failure to maintain the program in some form may put heavy pressure on consumer activity.

While there is always a chance of a last-minute deal, worries about the stimulus package may put some pressure on stocks later in the trading session.

Personal Income Fell By 1.1% In June

The U.S. has just provided Personal Income and Personal Spending reports for June.

Personal Income declined by 1.1% month-over-month, while analysts expected a decline of 0.5%. The pace of the decline has decreased compared to May when Personal Income fell by 0.5%.

Meanwhile, Personal Spending increased by 5.6% month-over-month, mostly in line with the analyst consensus which called for an increase of 5.5%.

While Personal Income is under pressure due to the negative impact of the coronavirus pandemic, Personal Spending is supported by various government aid programs.

That’s why failure to reach a deal on the new coronavirus aid package may have a significant negative impact on the market.

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

Ireland: Covid-19 Crisis Weighs upon Growth and Fiscal Metrics, but Robust Recovery Expected

Ireland has experienced severe health and economic crisis but has responded forcefully, including prompt and stringent restrictions of economic activity from 27 March followed by a staggered re-opening of its economy. The formation of Ireland’s first grand coalition government – between Fianna Fáil and Fine Gael after the February elections – has created a more predictable political climate.

“The political breakthrough should help Ireland navigate through this severe global health crisis, including the risk of a second wave of coronavirus incidence in Europe in the 2H-20, and engineer a robust economic rebound,” says Dennis Shen, lead analyst at Scope Ratings for Ireland.

Significant economic contraction in 2020, but robust 2021 rebound

The Irish economy grew by 1.2% QoQ in Q1 2020, although the true economic barometer for 2020 is Q2, a quarter during which output is expected to have contracted significantly. Scope Ratings forecasts a real output contraction of around 7% for the full-year 2020, as the Irish economy entered recovery after April troughs, a milder forecast than European Commission expectations for a 7.9% contraction in 2020.

“The coronavirus-related demand and supply shock has curtailed output in Ireland’s domestic consumer-oriented sectors such as retail, real estate, construction, entertainment, transport and hospitality, while the financial sector, industry – including the important pharmaceuticals sector – and the information and communications technology sector have been more resilient,” says Shen.

In 2021, Scope forecasts a sturdy economic rebound of around 7.5%.

Debt ratios to rise significantly this year, but resume a downward trajectory post-crisis

The government has announced fiscal support of about EUR 18.5bn, equivalent to 5.5% of GDP, since the start of the crisis, including income support, healthcare and investment spending, grants for small and medium-sized enterprises, tax cuts and payment holidays, and credit-guarantee schemes. After the announcement of the July stimulus package, the Irish National Treasury Management Treasury estimates total bond funding activity this year will be at the upper end of a range of EUR 20bn to EUR 24bn, over 80% of which has been financed via long-term bond issuance already, with an average issuance maturity of above 11 years.

“We expect Ireland’s public debt stock to rise to around 70% of GDP this year, having declined to less than 58% of GDP in 2019,” says Shen. “The rise in debt this year does return Ireland to ratios of debt per 2016 or 2017.”

“However, we expect the debt ratio to return on a sustained downward trajectory post-crisis, reaching 66% of GDP by 2024, given the economy’s strong growth potential, supported by increases in the working-age population of an estimated 0.9% a year alongside steady improvements in productivity,” says Shen. The current government is, moreover, expected to take action to reduce budget deficits post-crisis.

“However, public debt compared with the underlying Irish economy – as measured by debt to modified GNI – is significantly more elevated. Under this alternative metric, public debt is expected to increase in 2020 to around 120% of modified GNI – justifying the government’s continued attention on ensuring fiscal consolidation after the crisis.”

Highly accommodative financing rates continue to support Ireland’s capacity to lower public debt over the medium run. Ireland can borrow at a 10-year yield of -0.12% at time of writing – equal to a spread of 39 bps over Germany.

In addition to coronavirus risk, legal and tax certainty and Brexit are risks

“The recent ruling of the EU General Court against the earlier European Commission decision to make Apple pay to Ireland EUR 14.3bn or 4.4% of GDP in back taxes and interest does impact government assets and, as such, net debt levels, pending the outcome of any Commission appeal to the European Court of Justice,” says Shen. “At the same time, the ruling may hold medium-run consequences as well including greater tax certainty for US multi-nationals with operations in Ireland.”

“Brexit remains another risk,” says Shen. “The impact of a year-end no-deal UK exit from the EU single market and customs union, even though it is not an outcome that we’d expect, would weigh upon Ireland’s economic performance.”

In late June, Ireland’s political parties agreed on a three-way grand coalition, made up of the centre-right parties, Fianna Fáil and Fine Gael, alongside the Green Party, the first such coalition since the Irish independent state’s founding in 1922. The coalition government’s priorities include the addressal of a housing shortage and homelessness, an overhaul of healthcare, and achievement of ambitious climate-change objectives.

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

Dennis Shen is a Director in Sovereign and Public Sector ratings at Scope Ratings GmbH.

Middle-Week Screening. Seesaw on the Market. Silver and Alibaba are for long; Boeing is for short

Overview and trends

Across the pond, according to Reuters, European Union leaders did not reach solidarity on a coronavirus stimulus plan on Sunday, German Chancellor Angela Merkel said as marathon negotiations ran into a third day and acrimony mounted over the demands of rich but thrifty countries.

On Monday U.S. officials including Senate Majority Leader Mitch McConnell and Treasury Secretary Steven Mnuchin met in the White House to discuss another coronavirus stimulus package. Mnuchin reiterated he wanted to put a cap on spending to about 1 trillion dollars, well below House Speaker Nancy Pelosi’s $3.5 trillion relief plan. He also said the bill will focus on “kids and jobs and vaccines.” Meantime U.S. stocks were higher Monday as Wall Street came off its third straight week of gains and investors turned were busy analyzing more earnings reports including those from Halliburton and IBM (the latter beat estimates by a wide margin and added over 3% in post-market).

Yesterday stocks closed mostly higher on Wall Street Tuesday despite a final hour hiccup that nearly wiped out the market’s gains for the day. The S&P 500 added less than prominent 0.2%, after culminating as much as plus 0.8%. Banks, telecoms and energy stocks led the gains, offsetting mounting losses in technology stocks – something every smart investor must take seriously in the wake of more big techs’ like Apple, Amazon and Microsoft earnings underway – which pulled the Nasdaq index lower.

Oil prices joined precious metals’ extravaganza and rose, reaching the highest levels since March. West Texas Intermediate crude gained more than 3%, to 41 dollar 88 cents per barrel. Brent crude, in its turn, rose almost 3%, to 44 dollars 30 cents per barrel, at the U.S. market close.

Most investors wait as a savior for more financial stimuli from big governments and central banks to prop up stocks and bonds that are slowly losing steam.

Seemingly in response to that urge, many governments have already announced large amounts of additional fiscal support to keep tackling the pandemic. But S&P Global Ratings suggests that some countries, including the U.S., have shown “a degree of fiscal fatigue”. The problem is that additional spending will worsen the governments’ balance sheets, but they are still necessary to “prevent things from getting even worse.”

S&P Global Ratings earlier this month downgraded its forecast for the global economy. The agency now expects global GDP to shrink by 3.8% this year — worse than the 2.4% contraction it previously projected. So the central banks and governments really have little choice but to move on.

The end of the coronavirus pandemic could bring a large number of new asset managers. Recently published data from a research firm called eVestment showed that the number of new investment firm launches substituting some less lucky rivals tends to spike following economic crises.

Here’s why, according to data firm: As markets contract, asset management employees may be laid off. Instead of seeking out a new job, they start their own firms. Additionally, some of these employees leave their jobs voluntarily, with the goal of taking a new investment approach presented by market turmoil.

Conclusion: in order to survive hard times, one needs to be open to new trends and must possess the skill of distinguishing between winning and losing assets.

Trading ideas

Silver futures logged the highest finish in nearly 4 years at the beginning of the week, buoyed by expectations for further central bank stimulation that destroy the value of world major currencies and as the rise in global COVID-19 cases continues to threaten the economic recovery. September silver added almost a dollar, or 4.9% since July 17, to settle at $20.21 an ounce, the highest front-month contract finish since August 2016. Silver is known to be more choppy and volatile precious metal as compared to gold. But this year its uncharacteristic trade smoothness since mid-March leaves its older sister gold’s parameters derailed.

Alibaba’s affiliate company Ant Group, operating the mobile payment service Alipay, reportedly started the process of its initial public offering on the Hong Kong Stock Exchange and Shanghai’s Nasdaq-style STAR market simultaneously. In China Alipay is much more prominent than the namesake portal (alibaba.com) of Alibaba Group. Ant was previously valued at $150 billion after its last funding round in 2018, making it the world’s most valuable start-up.

Reportedly, Ant generated about 120 billion yuan or $17.1 billion dollars in revenue and nearly 17 billion yuan or $2.4 billion dollars in net profit last year. This is very good news for Alibaba stock which rose over 50% since April. Its earnings reporting day is scheduled for August 13, so there is plenty of time to judge this event keeping the stock in the portfolio.

Boeing’s reputation remains under siege even after the much-advertised test flight of Boeing 737 MAX couple of weeks ago. The company was forced to release a catastrophically damning set of documents to congressional investigators last week that included “conversations among Boeing pilots and other employees about software issues and other problems with flight simulators” for the 737 Max, the plane involved in two fatal crashes. The messages further complicate Boeing’s tense relationship with the Federal Aviation Administration, which can’t be satisfied to read the disdain with which Boeing treated the civil aviation regulators.

After the undisclosed outcome test flight, the Boeing share edged up almost 6.5% to $176, but its quarterly earnings date of July 29 will be Boeing’s judgement day, because there is nothing to cheer up its shareholders with. The company reported net loss of $5.72 a share in the previous quarter, which is expected to further deepen this time around, so Boeing is a definite short, which will be easy to cover at a profit thereafter.

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

By Vladimir Rojankovski, Grand Capital Chief Analyst

Europe Set for Negative Start, US-China Tensions Rise, US Tech Giants Fell

Pfizer and BioNTech are working on four drugs that they are hoping will go on to be coronavirus vaccines, and the FDA put two of the four on a fast track for approval. At the back end of last week, BioNTech said they could receive approval as early as Christmas, but in light of yesterday’s news, it might even be sooner.

European equities closed higher and US stocks got off to a good start on the back of the news. The FDA update carried on nicely from Friday’s news that Remdesivir, the antiviral drug produced by Gilead Sciences, can reduce the fatality rate in coronavirus sufferers by 62%. In the past couple of trading sessions there was a feeling that big pharma stands a chance of taking on the virus.

That being said, many countries are still battling against Covid-19. There were in excess of 60,000 new cases yesterday in the US, while there were 312 deaths. The infection rate remains high, but at least the fatality rate is relatively low. The situation in Florida is getting worse as the growth in the number of new cases was 4.7%, while the seven day average was 4.4%.

Robert Kaplan, the head of the Federal Reserve Bank of Dallas, issued a mixed statement yesterday. The central banker expressed concerns in relation to the infection rate, and he said the Fed might be required to do more should assistance be needed. Mr Kaplan also said the Fed might row back on its stimulus packages should the economy improve.

The NASDAQ 100 set a fresh record high yesterday, a few hours into the trading session. The bullish run didn’t last long as the tech focused index finished down more than 2%, and the S&P 500 closed down nearly 1%. The usual suspects – Apple, Amazon, Netflix, Facebook and Google’s parent, Alphabet – all set all-time highs, but finished lower.

US earnings season will kick-off today as the latest quarterly numbers from JPMorgan, Wells Fargo and Citigroup will be posted. In April, the major banks collectively put aside more than $25 billion for provision for bad debts, the view is that the rate of loan defaults will surge on account of the pandemic.

Last month, the Fed carried out a stress test, and in one extreme scenario, the central bank cautioned that total bad debts provisions could be $700 billion. Dividends will be in focus as the Fed said that pay-outs must be capped at current rates, and there has been speculation that dividends could be cut in an effort to conserve cash.

It was a mixed day for commodities yesterday. The slide in the US dollar helped gold. Silver, copper and palladium were also helped by the move in the greenback, and the overall feel-good factor helped the industrial metals too. Oil on the other hand lost ground as there was talk that OPEC+ are looking to taper off the steep production cuts that were introduced in May. Last month WTI and Brent crude hit three month highs, but they failed to retest those levels since, because of the pausing of the reopening of economies.

Overnight, China posted its trade data for June. Imports were 2.7%, and economists were expecting -10%, keep in mind the May reading was -16.7%. Exports came in at 0.5%, and the consensus estimate was -1.5%, while the May reading was -3.3%. The rebound in imports and exports points to a turnaround in the global economy. It is possible the positive exports reading was largely because of Western government’s demand for personal protective equipment.

Rising tensions between the US and China in relation to Beijing’s territorial claims in the South China Sea has weighed on sentiment. Hong Kong is reintroducing tougher restrictions and a rise in coronavirus cases in Victoria, Australia, has impacted the mood too. Stocks in Asia are in the red, and European markets are called lower.

At 7am (UK time) the UK will release a number of economic reports. The GDP reading for May on an annual basis is tipped to be -20.4% and that would be an improvement on the -24.5% posted in April. The monthly reading is expected to be 5.5%, and keep in mind the April reading was -20.4%. UK industrial output, manufacturing output and construction output are expected to be 6%, 8% and 14.5% respectively.

At the same time, the final reading of German CPI for June will be posted and the consensus estimate is 0.8%.

The German ZEW economic sentiment report for July is tipped to be 60, and that would be a dip from the 63.4 recorded in June. It will be released at 10am (UK time).

Eurozone industrial production will be announced at 10am (UK time) and the May reading on a monthly basis is tipped to be 15%, and that would be a huge rebound from the -17.1% posted in April.

US headline CPI is expected to rebound to 0.6% from 0.1% in May. The core reading is tipped to be 1.1% and that would be a fall from the 1.2% that was posted in May.

EUR/USD – since late June it has been in an uptrend, and a break above the 1.1400 zone might put 1.1495 on the radar. A break below the 1.1168 area might pave the way for 1.1049, the 200-day moving average, to be targeted.

GBP/USD – has been in an uptrend recently, and should the positive move continue, it might target 1.2690, the 200-day moving average. A move through that level should put 1.2813 on the radar. Thursday’s candle has the potential to be a gravestone doji, and a move lower could see it target 1.2432, the 100 day moving average. A drop below 1.2251, might bring 1.2076 into play.

EUR/GBP – yesterday’s daily candle has the potential to be a bullish reversal, and if it moves higher it could see it target 0.9067 or 0.9239. A break below the 50-day moving average at 0.8949, could put the 0.8800 zone on the radar.

USD/JPY – has been drifting lower for the last month and support could come into play at 106.00. A rebound might run into resistance at 108.37, the 200-day moving average.

FTSE 100 is expected to open 78 points lower at 6,098

DAX 30 is expected to open 239 points lower at 12,560

CAC 40 is expected to open 91 points lower at 4,965

By David Madden (Market Analyst at CMC Markets UK) 

Apple Shakes Off Headwinds and Rallies to All-Time High

Dow component Apple Inc. (AAPL) blew away Q2 2020 top and bottom line estimates in April, posting $2.55 earnings-per-share (EPS) on $58.31 billion in revenue. The company raised their dividend by 6% to $0.82 per share at that time and increased the share repurchase program by a hefty $50 billion. Even so, quarterly revenues rose just 0.5%, highlighting the impact of first quarter shutdowns and quarantines around the world.

Apple Second Quarter Uncertainty

The company posted strong results in most divisions, with iPhone, iPad, and Services beating estimates. However, China revenue came up short, which makes sense because their shutdown began well before Europe or the United States. It also wasn’t a surprise that no fiscal Q3 guidance was offered, given uncertainty that’s likely to extend through 2020. That wisdom came to light last week, when Apple had to close stores in 4 states due to surging COVID-19 cases.

CEO Tim Cook was just interviewed for a “60 Minutes” segment, in which he defended himself and the company on charges they aren’t paying their fair share of taxes. “We turned the company upside-down to help the world on COVID, and donated all of that, hundreds of millions of dollars. And so, I think my own view is, you pay what you owe in taxes. And then you give back to society. And Apple is clearly doing that.”

Wall Street and Technical Outlook

Wall Street analysts are nearly universal in their bullish outlook, with 28 ‘Buy’ and just 6 ‘Hold’ recommendations. Not one analyst is recommending that investors sell the stock at this time. Price targets range from a low of $250 to a street high $410 while Apple is now trading just 20 points above the median $348 target. Given the rapid pace of upgrades so far in 2020, it’s likely those estimates will keep rising in the second half.

The stock sold off 114 points in the first quarter and turned tail, recouping the entire loss into May. It broke out to a new high in early June and has added more than 30 points since that time, carving a steady uptrend. However, accumulation readings have failed to keep up with bullish price action, signaling a bearish volume divergence that could short-circuit the rally with a minor bearish catalyst.  Even so, a pullback could mark a low risk buying opportunity, ahead of even stronger upside into 2021.

Apple Chips to Overcome Intel Silicon “Valley”

After years of rumors, it’s now official: Apple is breaking up with Intel.

The news sent Apple to a new all-time high with a year-to-date climb that has now exceeded 22 percent.

Intel’s stock still managed to track broader gains in US stock markets, although it remains some 13 percent below its year-to-date high.

Cry me a revenue stream

The breakup of the 15-year relationship however carries more symbolic value than financial pain.

In its 2019 financial year, Mac computers accounted for less than 10 percent of Apple’s total revenue. Over the prior three financial years (FY 2016-2018), fewer than 20 million MAC computers were sold per FY, which is less than half of the total number of iPads sold. iPhones remain the company’s primary hardware product, making up about 77 percent of total units sold, while accounting for more than half of total revenue according to Bloomberg data. Meanwhile, it’s estimated that the Mac line of computers accounts for less than five percent of Intel’s annual revenue.

Apple’s other relationships also tested

While this latest move appears to be chipping away at Intel’s position as the world’s largest chipmaker, Apple’s own position is also being challenged.

The Cupertino-based company is facing a backlash from third-party developers who will play a crucial role in ensuring that apps can still function well on the new Macs that are set to be powered by Apple’s own processors by year-end. Apple however appears to have extended an olive branch to the developer community on Monday by allowing them to challenge App store policies.

At the same time, US and European regulators are scrutinising Apple’s policies over its App Store, which contributed about 18 percent of Apple’s total revenue in the 2019 fiscal year, a figure which exceeded US$ 46 billion. The iPhone maker is also still contending with the ill effects of the coronavirus pandemic. Just last week, Apple announced that it will reclose 11 stores in Florida, Arizona, North Carolina, and South Carolina amid a resurgence in Covid-19 cases. While the immediate impact appears minor for the time being, a larger wave of US lockdowns could erode Apple’s sales, considering its reliance on hardware sales.

Apple shares set to shake it off

Even when facing such headwinds, markets are still holding up Apple as the world’s most valuable company, with a market cap of US$1.555 trillion. Given the grip it has over its software and hardware ecosystems, Apple’s shares are expected to ride out potential valleys to come and climb onto loftier peaks.

Written on 06/23/20 02:00 GMT by Han Tan, Market Analyst at FXTM

For more information, please visit: FXTM


Disclaimer: This written/visual material is comprised of personal opinions and ideas. The content should not be construed as containing any type of investment advice and/or a solicitation for any transactions. It does not imply an obligation to purchase investment services, nor does it guarantee or predict future performance. FXTM, its affiliates, agents, directors, officers or employees do not guarantee the accuracy, validity, timeliness or completeness of any information or data made available and assume no liability for any loss arising from any investment based on the same.

Risk Warning: CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. 80% of retail investor accounts lose money when trading CFDs with this provider. You should consider whether you understand how CFDs work and whether you can afford to take the high risk of losing your money.

Netflix Near All-Time High After COVID-19 Shutdowns

Netflix (NFLX) posted strong Q1 2020 results in April, meeting aggressive revenue guidance at $5.75 billion. The company added 15.77 million subscribers, more than double the consensus, but the streaming giant missed the $1.57 EPS estimate. Analysts may have miscalculated the impact of stay-at-home and quarantine orders, triggering the shortfall. Upside guidance for Q2 expects the the company to earn $1.81 EPS and $6.05 billion in revenues. Spokesmen haven’t discussed recent performance but Q2 2020 earnings are scheduled for July 21 release.

Wall Street Bullish Consensus

Wall Street rushed to upgrade Netflix when the pandemic hit the USA in the first quarter,  realizing that subscriber growth would escalate due to shutdowns. It’s now rated a ‘Moderate Buy’ at TipRanks, based upon estimates from 35 analysts covering the stock. 24 ‘Buy’, 7 ‘Hold’, and just 4 ‘Sell’ recommendations support the bullish consensus rating, despite the lofty 84.61 price-to-earnings ratio (P/E). Updated price targets range from $198 to $580 and the stock is now trading nearly 50 points below the mid-range target of $465.

The bullish performance has generated enthusiastic analyst commentary this June, with JP Morgan analyst Doug Anmuth maintaining an overweight rating. He reiterated a $535 price target while noting that “daily average user (DAU) growth remains elevated from pre-COVID-19 levels and has been stable for about 6 weeks at 20% year-over-year, suggesting strong engagement”. He also highlighted Southeast Asian growth after successful launches in the Philippines, Thailand, Indonesia, and Malaysia.

Mixed Netflix Outlook

The technical chart has generally tracked bullish commentary so far in 2020. Netflix broke out above 2018 resistance at $423 in April but has struggled to gain ground since that time, wobbling back and forth across the breakout price. This price action denotes high levels of uncertainty, with post-outbreak normalcy favoring bears while fears about a dreaded ‘second wave’ reinforce the bullish argument.

Netflix growth could be hampered by a highly-competitive landscape after the current crisis. New services from Walt Disney (DIS), Apple (AAPL),  and Comcast (CMCSA) could take market share and stretch subscriber budgets. The ‘steaming wars” became a hot topic in 2019 before the November Disney+ release but has receded during the pandemic. It’s certain to make headlines once again if Netflix’s July earnings fail to meet estimates.

US Open – Risk, Earnings, Oil, Gold, Bitcoin

The FTSE 100 took a hammering on Friday while many of the bourses were closed which is why it’s not coming under such heavy fire today. There’s some catch-up going on across much of the continent in the aftermath of Trump’s comments on potential Chinese tariffs. The last thing we need right now is a resumption of the trade war.

Earnings ended last week on a sour note, with Amazon and Apple adding a bit of gloom to a season that has, to that point, been given a bit of a free pass. Perhaps this is more of a timing issue than an earnings one but it appears to have contributed to the sea of red we’re now seeing. More earnings to come this week but we are past the peak.

Thankfully, the same appears to be true of the coronavirus itself. Boris Johnson emphasized this last week, even as the UK is on course to overtake Italy with the second-highest number of reported fatalities, behind the US. We should learn a lot more about the lockdown easing process over the coming weeks, although I imagine it’s going to be very flexible as we see what impact it has on the data and healthcare system.

Oil slips as risk appetite dwindle

Oil prices appear to be mirroring sentiment in the markets today, with WTI down 7% on the June contract. A little over two weeks until expiry, we’ll soon see just how at ease traders have become with storage capacity. US production is now around one million barrels a day off its peak but falling very gradually in the last month, only 100,000 barrels per week.

The same isn’t true of rig numbers, which have been plunging so I imagine this will catch up with the production figures and alleviate the storage pressures in time. Whether that will come in time for the June expiry I’m not sure. Should be a fascinating couple of weeks.

Is gold a safe haven again?

Gold has enjoyed a nice bump these last couple of trading sessions. It technically remains range-bound but the move has come alongside stock market declines. I’m not going to speculate just yet about whether its normal relationship with risk has restored, I’ve done that enough over the last couple of months only for it to revert. Whatever is giving it a boost today, only a break of $1,750 will be meaningful, although $1,740 – the most recent peak – will be interesting a could create some excitement.

Bitcoin needs hype to sustain move above $10,000

Bitcoin is holding above $8,500 after peaking around $9,500 last week. It’s often difficult to attribute the moves in bitcoin to anything in particular but the proximity to the halving event seems logical, from the perspective that it gives it exposure rather than anything more fundamental. You would think that anything significant would be priced in by now.

Whether the exposure can see it through $10,000 is one thing, whether it can sustain it is another. We’ve seen it before, the mere act of it rising fast creates the stories which generates the exposure. If that doesn’t happen, any rally may quickly fizzle out and we could find ourselves back at the early April levels.

Economic Calendar

The article was written by Craig Erlam, Senior Currency Analyst at OANDA


This article is for general information purposes only. It is not investment advice or a solution to buy or sell securities. Opinions are the authors; not necessarily that of OANDA Corporation or any of its affiliates, subsidiaries, officers or directors. Leveraged trading is high risk and not suitable for all. You could lose all of your deposited funds.

Yes, the S&P 500 Is Climbing a Wall of Worry Right Now

Stocks entered last week on a weak note, but smartly dusted themselves off after Tuesday’s slide. As the week ended close to unchanged in the S&P 500 futures, what clues does the detailed assessment of their performance and the fundamental situation offer?

Let’s start with the index itself, and check the weekly and daily perspectives (charts courtesy of http://stockcharts.com ).

S&P 500 in the Medium- and Short-Run

The week started with a bearish gap and onslaught of the bears. Since Wednesday though, stocks have erased the sizable decline and closed little changed from where they opened.

While the weekly indicators are on their buy signals, the volume isn’t really sending strong signals either way. Viewed from the weekly perspective, the rally could be either consolidating prior gains before another upleg, or stalling before turning lower.

Let’s check the daily chart to see whether the weekly lower knot is a sign of strength of the bulls or their last gasp attempt to stem the coming decline.

The daily perspective helps refine the broad picture and to choose between the two options above. After Thursday’s hesitation at the 50% Fibonacci retracement, stocks retested it, jumped higher and haven’t looked back since. It’s encouraging for the bulls to see a strong finish to Friday’s session that also took prices above the 50-day moving average.

Volume is leaning slightly in support of the bullish case, and the daily indicators are trying hard to shake off their prior bearish overtones. Still in a precarious position though, such posture can support both the upswing continuation or its consolidation.

Only a decisive downswing below the 50% Fibonacci retracement on high volume coupled with prospects of further declines, would change the bullish-to-neutral takeaway. Currently, we see none of that – instead, there’s still potential for the rally to go on.

As the S&P 500 struggled at the 50% Fibonacci retracement, we asked on Friday whether stocks have rolled over and:

(…) kept moving down when faced with grim incoming economic and coronavirus news? No, it rather appears to be shaking them off. Stocks are actually quite resilient, just as they were in early April with all the 12-month plus lockdown speculations making the rounds and no economy reopening hopes in sight.

Perhaps this means that the market now actually wants to go higher. Does that mean we have a bull market? While it’s encouraging that the market doesn’t really sell off on bad news, the present upswing (stabilization at higher levels) may still turn out to be a bullish leg up within a trading range that spans over weeks and potentially months.

The Credit Markets’ Point of View

Let’s check now the high yield corporate bonds to short-term Treasuries ratio.

The stock upswing isn’t confirmed as the ratio is lagging behind. But is the non-confirmation as dire as it might appear at this chart?

Let’s overlay the above ratio with the S&P 500 and take a look at the recent past.

In early April, the ratio had also been on a downswing, and on Apr 3 (also Friday, by the way), it hit a new low while stocks didn’t. Should the recent history repeat itself, we could be looking at credit markets again leading stocks higher.

Next, let’s take a look at the individual performance of high yield corporate bonds (HYG ETF) and short-dated Treasuries (SHY ETF).

Junk corporate bonds closed almost unchanged – they’re not leading down. It rather appears they’re taking a breather before the next move. There’s a very good chance it’ll be up.

The fact that short-term Treasuries are overall moving lower in recent days (and not rising sharply as investors seek shelter), tips the scales in favor of an upswing in riskier assets such as corporate bonds or stocks.

The ratio of investment grade corporate bonds to longer-dated Treasuries also speaks in favor of the upswing to continue. Unlike the ratio of junk corporate bonds to short-term Treasuries, it has made a higher low on Friday, and appears ready to break out higher from its bullish flag formation. Seeing it lead in the upswing, is another point in support of higher stock prices.

The ratio of stocks to Treasuries went higher, supporting the notion that risk-on is far from down and out. Should the ratio overcome the April highs, it would bode well for higher stock prices ahead.

Let’s dive into the S&P 500 sectors to assess the health of the most recent turnaround.

Key S&P 500 Sectors and Ratios in Focus

Technology is the sector that leads the index both up and down. While the lower volume warrants caution, technology is leading higher, and it can be seen also within its heavy-weight stocks such as Amazon (AMZN), Microsoft (MSFT), Alphabet (GOOG), Apple (AAPL) or even Intel (INTC). On Tuesday, Alphabet‘s earnings report is scheduled, Microsfoft is slated for Wednesday, and both Apple and Amazon on Thursday.

As technology goes, the S&P 500 goes. And the balance of risks within the sector points higher.

Healthcare is the other engine of the S&P 500 upswing. Again, the bullish price action is marked by the very low volume of Friday’s upswing and the extended daily indicators. Just as with technology, continuation of the move higher or consolidation of recent gains, are the most likely scenarios.

Financials don’t appear to be willing to decline much further these days. On low volume, they have even turned slighly higher in their tight trading range. In our opinion, they’re basing here just as high yield corporate bonds are. Odds are that their next move will be higher.

Given the turmoil in black gold, energy is a bright spot, and an example of a sector that leads the index higher as it closed the week in the black.

Materials also finished the week with a positive result. And just as with energy, the volume differential between their Friday upswing and the average daily volume in the week, wasn’t as stark as with the three heavy-weight sectors. Therefore, chances are that technology, healthcare and financials will play catch up over the coming days.

These were our Friday’s observations regarding the financials to utilities ratio:

(…) Despite yesterday’s S&P 500 decline, financials (XLF ETF) outperformed utilities (XLU ETF). This sends a subtly bullish message as it appears that the ratio isn’t really ready to move much lower.

Indeed, financials outperformed, and rejected the intraday move lower. As the financials are farthest away from what we could call an uptrend, this ratio is understandably still weak overall. Seeing it break above the declining resistance line formed by the March and April tops, will be a bullish development. If it breaks below the April lows, it would be a bearish omen. Until it break out in either direction, its implications are rather neutral, and paying attention to financials provides more clues.

The dicretionaries to staples ratio provides more colorful insights. As well, it refused to roll over to the downside, and is slowly but surely marching higher in a gentle nod to the S&P 500 upswing.

The Fundamental S&P 500 Outlook

If we have seen a V-shaped recovery somewhere, it was in the stock market. The hopes and expectations of the economy reopening fuel the run, but will the real economy rebound as the V letter implies? We’re of the opinion that just as different states and major cities reopen to varying degrees at different points in time, so will the whole economy move. Currently, a U-shaped recovery is the most probable scenario in our opinion. We don’t exclude a W-shaped recovery either, though in that case, the right bottom would likely form above the left bottom of the letter W.

However, this means that stocks are trading at stretched valuations currently, and their reaction to the upcoming key technology companies’ earnings, is of key importance. Judging by how the S&P 500 took to this week’s reports batch, the takeaway is encouraging. Sure, the unemployment data are dismal, Great Depression-like – and we see it cascading well beyond the usual corona-impacted suspects such as airlines, tourism and the like. The brick-and-mortal retail was on the ropes even before the pandemic played into the Amazon hands. Yes, big business is downsizing and many small businesses won’t reopen.

As the economic destruction is unprecedented, central banks don’t stand idle. And they won’t in the future either. Joined by fiscal policy moves, how long will it take for another stimulus package to hit the waves? It must be in the works already.

Let’s keep in mind that we’re trading the stock market, and not the real economy. We have to watch the S&P 500 price action and money flows. Once the sharp sell-off ended in late March, it’s not out of the unexpected to see a reflexive rally up to the 50% Fibonacci retracement. Even dead cats bounce.

But we’ve seen quite a few rejections of prices returning back lower. The upswing certainly hasn’t been reversed to the downside, and while the breakout above this retracement hasn’t been confirmed by three consecutive closes yet, there are encouraging signs that it would continue upwards.

Will people take profits as prices approach the nearest strong resistances such as the 61.8% Fibonacci retracement or the early March bearish gap? The best we can do is to look at the money trail not merely on a day-to-day basis – should it deteriorate (coupled with warning signs from the S&P 500 sectoral analysis), it would be the best signal available to get out of our increasingly profitable long positions.

No one has a crystal ball and can say with 100% certainty that this or that, major or minor, resistance will hold. It’s in the context and overall interpretation of all the above-discussed signals that the market sends. Plus the fundamental developments and headlines. The rally can both go higher, and still roll over to the downside in the coming weeks or months in a challenge of the 2200 lows. By the same token, the lows might be already in. The point is we have to trade the situation in the now, because there are so many moving parts to discount in the price. That’s for the present – and don’t forget about the unknown unknowns that will strike down the road either.

The current outlook is bullish but we have to stay nimble and continually ask ourselves whether our long position keeps making sense. Right now, it does.

From the Readers’ Mailbag

Q1: Do you see this bull run breaking down at 2880 or the 2930 .618 Fib? Last couple of days felt very weak especially on volume.
Q2: Do you still hold a downside target of 2200? I’m concerned with how far VIX fell today. Do you foresee it breaking above 2840 and 2880?

A: Please see the above three paragraphs for your answers.

Q: What do u think about S&P 500 pe ratio topping February’s peak?

A: Sure, as earnings go down, the valuations are getting stretched. Yet the market looks over the valley and discounts the upcoming quarterly earnings, which means that the P/E ratio can still get ridiculously high if you consider real economy developments. But we’ve seen this in the Great Recession as well. Paying too much attention to the P/E ratio is best left to long-term investors. In the current environment, one has be flexible and ready to act on the many above-described technical indicators. We’re not in a buy-and-hold environment.

Summary

Summing up, S&P 500 closed the week back above the 50% Fibonacci retracement. While Friday’s upswing happened on lower volume (making it less credible), the key sectors and their ratios (financials to utilities, and especially discretionaries to staples) favor the upswing attempt to continue. Credit markets seem to be making a local bottom, and financials may be already acting on that. The ease with which bad news (economic or corona-related) are ignored, gives the bulls the benefit of (perhaps even more than) a short-term doubt. Stocks appear to be ready to move higher and our Thursday-initiated long position remains justified. Today’s premarket upswing points to a bullish gap at the open, lending further support to the bulls.

We encourage you to sign up for our daily newsletter – it’s 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 our premium daily Stock Trading Alerts as well as our other Alerts. Sign up for the free newsletter today!

Thank you.

Monica Kingsley

Stock Trading Strategist

Sunshine Profits – Effective Investments through Diligence and Care

* * * * *

All essays, research and information found above represent analyses and opinions of Przemyslaw Radomski, 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, Przemyslaw Radomski, 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. Radomski is not a Registered Securities Advisor. By reading Przemyslaw Radomski’s, CFA 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. Przemyslaw Radomski, 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.