FANG Index Nearing Critical Support – Could Breakout At Any Moment

RESEARCH HIGHLIGHTS:

  • The washout-low price move in FANG stocks may present a needed rotation in price before another upside move sets up.
  • Tweezer Bottoms pattern and RSI pennant formation suggest very clear support levels.
  • Watch how Volume and the VIX pick up over the next few days, and how price reacts to this bounce at 945.

Our Custom FANG Index (consisting of Facebook, Microsoft, Twitter, Amazon, Google, and Nvidia) shows the FANG Index, and technology sector, are trading just above critical support near 945.  The congestion area on this chart between July and August just below this 945 level highlights the key resistance/support level that we are currently watching as price support.

TWEEZER BOTTOMS MAY SUGGEST MORE UPSIDE POTENTIAL

This Custom FANG Index Weekly chart clearly slows the Tweezer Bottoms pattern that formed in the markets after the close on Tuesday, September 8, 2020.  This pattern suggests a very clear support level is found near the recent lows – near 945.  If this support level holds, then the FANG Index price should begin to bounce and move higher.  If this support level is broken, prices may continue to push lower while attempting to find historical support levels.

The Fibonacci Price Amplitude Arcs suggest a broader price frequency inflection point is also setting up near the recent peak.  This Fibonacci Price Amplitude Arc suggests a major inflection point is taking place in the Custom FANG index right now.  We believe the 945 level resulting from the Tweezer Bottoms pattern is a critical price level to support a future price rally in this sector.

Lastly, we want to point out the Pennant/Flag formation in the RSI indicator over the past 8+ months (highlighted in RED).  The combination of these technical patterns, as well as the new Tweezer Bottoms pattern, suggests the current breakdown to the 945 level may present a “washout-low” type rotation after the RSI Pennant Apex.  Overall, this downside move in the FANG index represents a moderately strong APEX rotation.  If this is a “washout” rotation, then we may be setting up for another big upside price move soon.

Right now, we are cautiously watching the 945 level and expecting the Custom FANG Index to recover from these Tweezer Bottoms lows.  We believe there is a very solid chance that the washout-low price move may present a needed rotation in price before another upside move sets up.

Watch for the markets and technology sector to attempt a recovery as long as the 945 level on this Custom FANG Index chart holds. Isn’t it time you learned how I can help you better understand technical analysis as well as find and execute better trades?  If you look back at past research, you will see that my incredible team and our proprietary technical analysis tools have accurately shown you what to expect from the markets in the future.  Do you want to now learn how to profit from these expected moves?  If so, sign up for my Active ETF Swing Trade Signals today!

If you have a buy-and-hold or retirement account and are looking for long-term technical bull/bear signals for when to buy and sell equities, bonds, precious metals, or sit in cash then be sure to subscribe to my Passive Long-Term ETF Investing Signals to stay ahead of the market and protect your wealth!

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

Chris Vermeulen
Chief Market Strategist
Technical Traders Ltd.

 

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.

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.

Amazon.com Posts Record Q2 Profit Amid COVID-19 Pandemic; Buy with Target Price of $3500

Amazon.com, the world’s largest online retailer, reported that its profit hit an all-time high in the second quarter as online sales surged amid the COVID-19 pandemic, sending its shares up 5% to $3,204.60 in after-hours trade on Thursday.

The multinational technology company based in Seattle said its net sales rose 40% to $88.9 billion in the second quarter, compared with $63.4 billion a year earlier. The company’s online store sales surged nearly 48% to $45.89 billion its second quarter ended June 30, 2020.

Net income surged to $5.2 billion in the second quarter, or $10.30 per diluted share, from $2.6 billion, or $5.22 per diluted share, in second-quarter 2019. Operating income increased to $5.8 billion in the quarter-end on June 30, from $3.1 billion in the same period last year.

“We are reiterating our BUY rating for Amazon.com, while increasing our price target to$3,800 from $2,625. Our new price target is based on our updated discounted cash flow model, including our long-term adj. EBITDA margin forecast 22.0% (unchanged) versus 15.4% in 2019,” said Tom Forte, senior research analyst at D.A. Davidson.

“COVID-19 has been like injecting Amazon with a growth hormone and is driving sales expansion in ways that even the rollout of one-day Prime shipping was not able to. The company indicated it expects $2 billion of incremental spending to combat COVID-19 in 3Q 2020, down from more than $4 billion in 2Q 2020. As we expected and consistent with the CIO survey led by our colleague, Andrew Nowinski, its cloud computing sales growth decelerated in the quarter to 29.0% from 32.8%,” he added.

Amazon’s shares rose over 70% so far in 2020, registering its biggest quarterly rise of more than 40% in the June quarter.

On the third quarter 2020 guidance, Amazon.com forecast its net sales between $87.0 billion and $93.0 billion, or to grow between 24% and 33% compared with third-quarter 2019 and operating income is anticipated between $2.0 billion and $5.0 billion.

“First, U.S. retail inflecting as Amazon.com drives surging e-commerce, Second, this is global too as bottom-up work leads us to raise int’l retail, Third, expect ad revs upside, Fourth, Amazon.com adding record high-margin dollar growth, creating a path to $95 billion of ’22 EBITDA even with investment. Top pick; Bull case to $4,200,” said Brian Nowak, equity analyst at Morgan Stanley.

Executive comment

“As expected, we spent over $4 billion on incremental COVID-19-related costs in the quarter to help keep employees safe and deliver products to customers in this time of high demand—purchasing personal protective equipment, increasing cleaning of our facilities, following new safety process paths, adding new backup family care benefits, and paying a special thank you bonus of over $500 million to front-line employees and delivery partners,” Jeff Bezos, Amazon founder and CEO said in a press release.

“We’ve created over 175,000 new jobs since March and are in the process of bringing 125,000 of these employees into regular, full-time positions. And third-party sales again grew faster this quarter than Amazon’s first-party sales. Lastly, even in this unpredictable time, we injected significant money into the economy this quarter, investing over $9 billion in capital projects, including fulfilment, transportation, and AWS,” he added.

Amazon.com stock forecast

Thirty-eight analysts forecast the average price in 12 months at $3,242.66 with a high forecast of $3,800.00 and a low forecast of $2,162.00. The average price target represents a 6.25% increase from the last price of $3,051.88. From those 38, 36 analysts rated ‘Buy’, two analysts rated ‘Hold’ and none rated ‘Sell’, according to Tipranks.

Just after the earnings result, Keybanc upped its target price to $3,500 from $3,285; Canaccord Genuity raised its target price to $3800 from $3300 and BMO raised target price to $3500 from $2850. Morgan Stanley target price is $3,450 with a high of $4,200 under a bull scenario and $2,200 under the worst-case scenario.

Earlier this month, Suntrust Robinson raised the target price to $3,400 from $2,700, Deutsche Bank raised the target price to $3333 from $2750 and Wedbush raised the target price to $3,050 from $2,750.

We think it is good to buy at the current level and target at least $3,500 in the short-term and $4,000 in a best-case scenario as 100-day Moving Average signals a strong buying opportunity.

Analyst comment

“We went to a Buy from Neutral Rating in June at about 2600 and about 30% upside at the time. The stock has quickly hit our target with strong results. The max PE we use is 65X for conviction. Even though Amazon and other stocks have traded much higher than that, that’s our max. So keeping PE constant and factoring in the EPS upside (even though there’s a ton of upside coming) we’re moving to Neutral now that valuation wise our risk/reward is more even rather than upside,” said Chaim Siegel from Elazar Advisors.

“Retail trends accelerated. AWS revenues slowed but two-quarters of margin acceleration helps our EPS model. We have a big EPS upside if you scroll through our model. Still, at fair value, we’re moving to Neutral Rating.”

What To Expect After Amazon.Com Earnings

Amazon.Com Inc. (AMZN) reports Q2 2020 earnings after Thursday’s closing bell in the United States, with Wall Street analysts looking for the e-commerce behemoth to report $1.62 earnings-per-share (EPS) on a staggering $81.3 billion in revenue. The stock fell 7.6% after missing Q1 profit estimates and lowering Q2 operating income guidance in April, but bottomed out quickly and rallied 30% into Wednesday’s close at 3,033.

Amazon.Com CEO Grilled By Congress

CEO Jeff Bezos and other big tech executives appeared before Congress on Wednesday and got grilled about allegedly monopolistic practices. Bezos denied the charges, insisting the company was competing against a host of large players. He also noted that Amazon accounts for less than 1% of the $25 trillion global retail market and less than 4% of retail in the United States. Finally, he claimed the company has done a good deed by inviting 3rd party retailers to participate, advising “we could have kept this valuable real estate to ourselves”.

BMO Markets analyst Daniel Salmon raised his Amazon.Com price target from $2850 to $3500 ahead of the release, noting “we believe AMZN’s long-term opportunity is stronger than ever and we continue to see outperformance over the next 12 months. But per CEO Bezos, you may want to take a seat, because [they] are not thinking small and we are cautious into the print, owing to recent stock outperformance and the potential for significant new investment spending.”

Wall Street And Technical Outlook

Wall Street rates the stock as a ‘Strong Buy’, based upon an astounding 36 ‘Buy’ and just 2 ‘Hold’ recommendations. No analysts are recommending that shareholders sell their positions and move to the sidelines at this time. Price targets currently range from a low of $2,162 to a street-high $3,800 while the stock is trading close to $200 below the median $3,200 target. This positioning favors higher prices after a strong report and bullish guidance.

Technically speaking, Amazon.Com is showing signs of fatigue after an historic uptrend underpinned by COVID-19 tailwinds. The stock has gained more than 50% since breaking out above 2018 resistance at 2,000 in March, setting off extremely overbought relative strength readings that now favor a consolidation of gains, rather than quick assault on 3,500. This pullback may have already begun, with steady profit-taking since the July 13 high at 3,344.

 

 

Middle-Week Screening: Gold Glitters and Shines!

Overview and trends

US stocks rose on Monday as investors looked to major earnings on deck this week and awaited the release of the GOP’s coronavirus stimulus plan. Senate Majority Leader Mitch McConnell finally said that Republicans were ready to present their long-awaited $1 trillion COVID-19 package details, as Democrats remained wary. S&P 500 ended up 0.74%, while Dow Jones Industrial Average was higher 0.44%, and Nasdaq Composite shot up 1.86%.

US stock indices ended down from 0.65% to 1.27% yesterday as investors mulled Senate Republicans’ coronavirus stimulus package and a slew of very surprising earnings reports.

The U.S. republicans continued debating on its fiscal relief plan most of the day. The projected $1 trillion packages will include another round of $1,200 payment checks and additional funds for small-business loans.

A large portion of reporting yesterday companies sadly missed their earnings figures, with most disappointments coming from 3M, McDonald’s and even biotech Pfizer. Oil tumbled through the session, with West Texas Intermediate crude dropping as much as 1.5%, to $41.10 per barrel.

Gold was the leading instrument in the 1st half of trading week. Gold prices took a stratospheric leap last week, jumping from the previous week’s support test at $1800 an ounce to the $1900 level that hasn’t been traded since 2011.

Next day Gold jumped to a record high of $1944 per ounce, driven by an uptick in new U.S. coronavirus cases that have added to economic uncertainty. Shares of Moderna surged after the company said it received an additional $472 million in funding for its COVID-19 vaccine.

Trading ideas

According to a new court filing, multiple California state offices are actively investigating Amazon (AMZN) over worker safety concerns as the coronavirus continues to rage throughout the U.S. An eighth Amazon employee has died of COVID-19, and the virus has spread quickly through clusters of employees at factory floors and warehouses nationwide where social distancing isn’t enforced. Amazon’s own shipping centers have reported outbreaks, including one in the Pocono Mountains and another in Oregon.

The earnings date for Amazon is July 31, an overwhelming majority of high-profile analysts think the numbers will be as stellar as never before. Amazon’s average EPS estimate is $3.6 versus $5.01 it actually earned last quarter. It’s easy to guess that Amazon will beat that number indeed. However, even the bigger question will be how the tech giant is going to address these mounting allegations about poor safety of its employees. It looks like this time around it’s no longer just curiosity.

Global payments processor Visa reports earnings today, on July 29, and it will be more than just one more set of quarterly financial numbers. Investors will get a direct insight into how consumer spending is being affected by the pandemic and an uncertain economy. This quarter revenue for the payments processing giant are expected to drop by roughly 17% to $4.81 billion versus $5.84 billion a year ago. This anticipated drop has a lot to do with lower transaction volume as many stores were closed throughout the quarter. With that said, there is optimism for a potential beat driven by increased digital payment volume as more and more people shopped online.

Indeed, dealing with paper money has now become not only unsafe but also unsanitary. So VISA’s performance will be more or less accurately reflecting the real global consumer spending, and households’ entire propensity to consume, and how efficient the world’s largest central banks’ and governments’ efforts to offset the COVID-19 impact. So fasten your seatbelts!

The Australian dollar has rallied rather significantly on Monday, showing signs of life yet again as the U.S. dollar continues to get hammered against most currencies. Aussie pierced below 1.40 mark, and now this level became its support, rather than resistance level. A couple of times over the past several trading sessions it tried to approach it, but the big return looked invariably spectacular.

So, this level now can be seen as a cemented support for the Australian currency. Its further growth towards 1.35 is highly dependent on the continuation of the gold rally. Australia is the second-largest gold producer in the world with 325 tons per year, right after China. By the way, 2019 was a record year for Australian gold production.

So, the momentum the Australian currency has been gaining lately is not just a coincidence, and if greenback keeps getting softer, and metals keep getting stronger, it would be hard to find a better choice than to take a chance on the Aussie.

One of the less-talked-about but more potent beneficiaries of this year’s gold rally Kinross Gold (KGC) is scheduled to announce Q2 earnings results today, on July 29th, after market close.

The consensus EPS estimate is 13 cents and the consensus revenue estimate is around $1 billion (assuming a 20% growth Year-over-Year). Over the last 2 years, Kinross Gold has beaten EPS estimates 63% of the time and has beaten revenue estimates 50% of the time.

Kinross is gaining from higher production at its two main deposit fields, which already had shown strong momentum in this year’s first quarter. Strong production is likely to have continued in the second quarter. Further, gold prices have been soaring this year making it the most attractive safe-haven asset. Gold prices have gained around 13% in the second quarter — the highest quarterly percentage increase in more than four years.

by Vladimir Rojankovski, Grand Capital Chief Analyst

US Stock Market: Investors Dumping Overpriced Tech Stocks, Rotating into Undervalued Cyclical Stocks

The major U.S. stock indexes plunged on Thursday as investors continued to shed high-flying tech shares due to mixed earnings reports and growing signs of a worsening coronavirus pandemic, which could drive the economy into a deep recession. The price action also suggests that investors continued to dump overpriced tech stocks, while rotating into undervalued cyclical stocks.

In the cash market on Thursday, the benchmark S&P 500 Index settled at 3235.66, down 40.36 or -1.34%. The blue chip Dow Jones Industrial Average finished at 26652.33, down 353.51 or -1.41% and the technology-based NASDAQ Composite closed at 10461.42, down 244.71 or -2.58%.

Stock Index Recap

The bellwether S&P 500 snapped a four-day winning streak with its biggest daily percentage drop in nearly four weeks. All three major U.S. stock averages lost ground. The S&P 500 Index, the Dow and the NASDAQ Composite were mostly dragged down by shared components Apple and Microsoft Corp. Heavyweight Amazon.com was also a major drag on the tech-driven NASDAQ.

The Russell 2000 and the S&P Smallcap 600, both small cap indexes, outperformed the broader market.

Earnings Update

Second-quarter reporting season is in full-stride, with 113 S&P 500 constituents having reported. Refinitiv data shows that 77% of those have beaten expectations that were extraordinarily low. Analysts now see aggregate second-quarter S&P earnings plummeting by 40.8%, year-on-year, per Refinitiv, Reuters reported.

Microsoft Corp shares fell after reporting its cloud computing business Azure reported its first-ever quarterly growth under 50%.

Tesla Inc reported a profit for the fourth straight quarter, setting the company up for inclusion in the S&P 500. But the stock slid as analysts questioned whether the electric automaker’s stock price matched its performance.

Twitter Inc advanced after reporting its highest-ever annual growth of daily users.

American Airlines Group Inc jumped after announcing it would rethink the number of flights to add in August and September. Also, it reported an adjusted loss per share of $7.82.

Southwest Airlines said Thursday it lost $915 million in the second quarter compared with $741 million in net income a year earlier and warned that travel demand will likely remain depressed until there’s a vaccine or treatment for the coronavirus.

Economic Data and Fiscal Stimulus Bill Update

The number of Americans who filed for unemployment benefits rose more than expected last week as the coronavirus pandemic inflicted more damage to the U.S. economy.

The Labor Department said Thursday initial jobless claims came in at 1.416 million for the week-ending July 18. Economists polled by Dow Jones expected 1.3 million.

It was the 18th straight week in which initial claims totaled more than 1 million, and it snapped a 15-week streak of declining initial claims.

The number excludes recipients of Pandemic Unemployment Assistance, set to expire on July 31.

Meanwhile, Congress kept working to pass new stimulus before that deadline continued, with Senate Republicans announcing they could present their version of the bill to Democrats as early as this week.

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

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

Broad-Based S&P 500 Moves Higher for Year, but Rally Hasn’t Been ‘Broad-Based’

The major U.S. stock indexes finished mixed on Tuesday, with the technology-based NASDAQ Composite succumbing to a late-session sell-off. If you’re keeping score, the benchmark S&P 500 Index is now positive for the year, however, the internals suggest some problems with its individual sectors.

After spending months digging out of the whole created by the shortest bear market in history in March, the index is up 0.8% on the year and at its highest level since February 21, which puts it just slightly below its all-time high.

In the cash market on Tuesday, the S&P 500 Index settled at 3257.30, up 5.46 or +0.18%.

Where Has Investor Money Been Going?

For every stock that has advanced on the S&P 500 this year, 1.7 have declined, according to Michael O’Rourke, chief market strategist at JonesTrading in Greenwich, Connecticut. That is partially because investors have gravitated to a small group of tech-related stocks they believe have the best chance of delivering steady profits in a climate fraught with uncertainty over the coronavirus pandemic and its economic fallout.

The five most valuable S&P 500 companies – Apple Inc, Microsoft Corp, Amazon.com Inc, Alphabet Inc and Facebook Inc – account for some 23% of the index’s market capitalization, the highest level on record, according to Goldman Sachs, Reuters reported.

“It’s hard to imagine the index going up if you lose that leadership,” said Robert Phipps, director at Per Stirling in Austin, Texas. “Most of the market is really not participating here.”

Tech-Related Sectors Outperforming Other Sectors by Significant Margins

According to Reuters, tech-related sectors to which those aforementioned stocks belong, have outperformed other sectors by significant margins this year. The technology index, which includes Apple and Microsoft, has climbed about 18%, while consumer discretionary index, which includes Amazon, has jumped 15%. The communications services index, which includes Alphabet and Facebook, has risen nearly 6%.

Only one other sector, healthcare, has had year-to-day gains.

Flight to Large-Cap, Tech-Related Companies Reflects Caution Rather than Euphoria

While U.S. equity valuations stand at their highest level since the dot-com boom nearly 20 years ago, “the flight to large-cap, tech-related companies reflects caution rather than euphoria,” said Quincy Krosby, chief market strategist at Prudential Financial in Newark, New Jersey.

“Moreover, the top five S&P 500 companies today have the greater share of the index’s earnings and trade at a lower multiple than the top five companies in 2000 did,” Jonathan Golub, chief U.S. equity strategist at Credit Suisse, wrote in a research note on Tuesday.

According to Reuters, given their relatively strong balance sheets and steadier revenue streams, many investors believe large-cap, tech-related companies are better positioned to withstand the economic pressures resulting from the novel coronavirus pandemic.

Conclusion

The huge rally since March 23 has created the illusion that all the stocks in the S&P 500 Index are moving higher. This is the illusion of “all ships rise with the tide” that is often present during the latter stages of a bull market.

However, this current rally is completely different. This is because the economy is in the middle of the worst pandemic in a hundred years and there is uncertainty over how and when it will fully recover from the damage inflicted by the coronavirus.

Don’t be fooled that the strength of the rally is being driven by broad-based buying. Professionals are buying strong companies. They are not guessing and betting on high-flying experimental technology stocks. They are putting their money in proven profitable companies.

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

‘No Company is Entirely Immune From a COVID-19 Led Economic Slowdown’ Says Fidelity’s Simnegar

No business is completely immune from a COVID-19 led economic slowdown and the ongoing global pandemic isn’t affecting all industries and its stocks in the same way, said Sammy Simnegar, portfolio manager in the equity division at Fidelity Investments.

So far, the deadly coronavirus has infected over 14 million people in 188 countries and killed more than 600 thousand, impacting day-to-day businesses worldwide.

“We shouldn’t think of how COVID-19 is affecting the stock market in monolithic terms because the opportunities and risks are very different at the company level… we try to identify the potential ‘winners’ and ‘losers’ in a post-pandemic world,” noted Fidelity’s Simnegar.

Microsoft

Fidelity’s Simnegar thinks Microsoft is resilient. Microsoft has two main businesses – its Office software suite and its Azure cloud-services operation. Because Office and Azure help customers to be more productive and competitive, Simnegar believes spending on these products is not likely to be hurt much by an economic slowdown, Fidelity noted.

Twenty-four analysts forecast the average price of Microsoft in 12 months at $219.11 with a high forecast of $260.00 and a low forecast of $190.00. The average price target represents an 8.00% increase from the last price of $202.88. From those 24, 23 analysts rated ‘Buy’, one rated ‘Hold’ and none rated ‘Sell’, according to Tipranks.

Morgan Stanley target price is $230 with a high of $290 under a bull scenario and $150 under the worst-case scenario. We think it is good to buy at the current level and target at least $230 as 50-day Moving Average and 100-200-day MACD Oscillator signals a strong buying opportunity.

Amazon

Amazon is another name Simnegar thinks could continue to take market share during this uncertain time. The company’s logistical advantages allow it to ship essential items to Amazon Prime customers with same-day shipping, Fidelity noted.

Thirty-nine analysts forecast the average price of Amazon in 12 months at $2,991.34 with a high forecast of $3,700.00 and a low forecast of $1,987.00. The average price target represents a 0.99% increase from the last price of $2,961.97. From those 39, 36 analysts rated ‘Buy’, two rated ‘Hold’ and one rated ‘Sell’.

Morgan Stanley target price is $3,450 with a high of $4,200 under a bull scenario and $2,200 under the worst-case scenario. We think it is good to buy at the current level and target at least $3,400 as 50-day Moving Average and 100-200-day MACD Oscillator signals a strong buying opportunity.

Facebook and Google

Large media and entertainment holdings in the fund as of the end of May included Facebook and Google-parent company Alphabet. Simnegar thinks usage of these services has increased among many customers since they started sheltering at home due to COVID-19.

Thirty-four analysts forecast the average price of Facebook in 12 months at $257.04 with a high forecast of $300.00 and a low forecast of $185.00. The average price target represents a 6.20% increase from the last price of $242.03. From those 34, 29 analysts rated ‘Buy’, five rated ‘Hold’ and none rated ‘Sell’.

Morgan Stanley target price is $270 with a high of $325 under a bull scenario and $185 under the worst-case scenario. We also think it is good to buy at the current level and target at least $270 as 50-day Moving Average and 100-200-day MACD Oscillator signals a strong buying opportunity. Check this for Google stock forecast.

Others

Other top holdings included credit card companies Visa and MasterCard, as well as Home Depot. The first two continued to ride the strong secular trend toward electronic payments, while Home Depot has benefited from customers who have spent more time in their homes and, therefore, have dedicated more money toward home improvement, Fidelity noted.

E-mini NASDAQ-100 Index (NQ) Futures Technical Analysis – Strengthens Over 10791.25, Weakens Under 10708.50

September E-mini NASDAQ-100 Index futures closed higher on Friday, but the inside move suggests investor indecision and impending volatility. Gains were capped as fears over business disruptions due to another record-breaking rise in COVID-19 cases at home overtook optimism over a further stimulus package for a post-pandemic economic revival.

The NASDAQ also underperformed the S&P 500 for the sixth session in a row as investors rotated out of high-flying companies including Microsoft Corp and Apple Inc, which have powered the tech-heavy index to a record high last week.

On Friday, September E-mini NASDAQ-100 Index futures settled at 10622.50, up 110.75 or +1.04%.

In stock-related news, Netflix’s shares fell 7.2% after it forecast slower-than-expected subscriber growth during the third quarter and weighed the most on the S&P 500 and the NASDAQ Composite.

Daily September E-mini NASDAQ-100 Index

Daily Swing Chart Technical Analysis

Main Trend Technical Analysis

The main trend is up according to the daily swing chart. However, momentum has been trending lower since the formation of the closing price reversal top on July 13 and its subsequent confirmation the next session.

A trade through 11058.50 will negate the closing price reversal top and signal a resumption of the uptrend. The main trend will change to down on a trade through the nearest main bottom at 9728.75.

Minor Trend Technical Analysis

The minor trend is down. This move confirmed the shift in momentum to down. A trade through the last minor bottom at 10358.75 will signal a resumption of the downtrend.

The minor trend will change to up on a move through the last minor top at 10766.50. This will shift momentum to the upside, but an even bigger shift will occur if buyers can overtake 11058.50.

Retracement Level Analysis

The minor range is 11058.50 to 10358.75. Its retracement zone at 10708.75 to 10791.25 is resistance. This zone stopped the buying at 10766.50 last week.

This chart pattern is very important because it could be indicating that a secondary lower top is forming. This is usually the first sign of fresh short-selling.

The first short-term range is 9728.75 to 11058.50. Its 50% level at 10393.50 essentially stopped the selling last Tuesday when buyers came in at 10358.75.

The second short-term range is 9368.25 to 11058.50. If the selling pressure is strong enough to take out last week’s low at 10358.75 then look for an extension of the break into its retracement zone at 10213.25 to 10014.00.

Short-Term Outlook

The closing price reversal top is a major chart pattern. So far, all it is indicating is that the selling is greater than the buying at current price levels.

Usually this chart pattern leads to a 2 to 3 day correction or at least 50% of the last rally. We’ve already seen that with the pullback into the 50% level at 10393.50.

Look for the selling to resume if 10393.50 fails as support with 10213.25 to 10014.00 the next major downside target.

Our work suggests that trader reaction to 10708.75 to 10791.25 will set the tone of the market on Monday.

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

The Quick Souring of the S&P 500 Mood

We got that extension of Friday’s rally on Monday, as I called for. Vaccine hype news. Good for bulls with tight exit orders – I managed to take a 55-points profit off the table. But big tech (think Microsoft, Amazon) suffered with talk of its bubble rising, U.S. – China tensions increased, and California sweepingly rolled back its reopening.

Spooky stuff for stocks, and they tanked. The brightening outlook I discussed after Friday’s session, didn’t last all that long. But is the selling over now, or we better brace for some more?

S&P 500 in the Short-Run

I’ll start with the daily chart perspective (charts courtesy of http://stockcharts.com ):

Stocks couldn’t overcome their early June intraday highs just below 3230, and reversed lower on slightly increasing volume. Closing at the blue line connecting the mid-June tops, I see that the similarity to the S&P 500 taking on the late April and early May highs might be disappearning – unless the bulls pull out a rabbit out of their hats soon.

How likely is that? Vaccine news have lifted cyclicals – financials (XLF ETF) liked that. Then, Gov. Newsom rolled back California’s reopening. Cold water that brought about a black daily candle in financials. It doesn’t matter that they closed higher than they opened. It’s the veracity of the reversal that should spook the bulls.

I would say that it’s the fear of lockdowns and not surging corona cases per se, that it the culprit here. And it could make for a quick souring of market sentiment. Not that the bulls would be in a majority now, but there were some signs of greed creeping in already. Not excessive, but still.

Big banks are starting to report today, and the JP Morgan and Well Fargo Q2 results are in. Banks better have beefed up loan reserve provisions, because if California is a preview of things to come, and as reliable one as back in March when it was the first state to impose lockdowns… then things aren’t going to look great for commercial real estate among many others.

How did yesterday’s selloff reflect upon the credit markets?

The Credit Markets’ Point of View

High yield corporate bonds (HYG ETF) also plunged, and ended in a similarly dicey position as the S&P 500. A ray of hope for stock bulls would be volume that didn’t stand out. But in my opinion, it’s premature to ascribe it a bullish interpretation, or to treat it as merely a consolidation just yet.

Overlaying the high yield corporate bonds to short-term Treasuries ratio (HYG:SHY) with the S&P 500 closing prices (black line) shows that stocks bulls aren’t panicking, as in really panicking. Based on recent days’ perspective, yesterday’s stock downswing appears as just a part of choppy trading ruling the markets lately.

While that’s a possible interpretation, I wouldn’t rule out some knee-jerk moves in the short run. I think the potential for more selling is definitely there, and not only because of the fundamental dynamics I described a while ago.

Enter S&P 500 market breadth.

Arguably, the advance-decline line could go still lower before its rebound happens. The bears have probably set their sights to the 200-day moving average support that’s around 3030. That would make for quite a turn in sentiment – but if you look at the daily S&P 500 chart, not that much would be happening purely technically speaking unless we break below the mentioned 200-day moving average, or the 61.8% Fibonacci retracement at around 2940.

Remember that only one bull market overcoming its 61.8% Fibonacci retracement eventually plunged below its starting point – the post WWII one. I don’t think this bull run will suffer the same fate.

For now, caution is the best course of action as the very short-term outlook is rather unclear – yet with a distinctly bearish flavor.

Summary

Summing up, yesterday’s late-day reversal has the potential to stick with us for longer due to the lockdown fear dynamics. Then, the tech ran into a brick wall yesterday. The Russell 2000 reversed on a strong volume, hinting at distribution. Credit markets show that panic hasn’t yet set in for stock bulls, which is one of the reasons why this selling wave might very well not be over yet.

I 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 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.

Monica Kingsley
Stock Trading Strategist
Sunshine Profits: Analysis. Care. Profits.

* * * * *

All essays, research and information found above represent analyses and opinions of Monica Kingsley 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, Monica Kingsley and her 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. Ms. Kingsley is not a Registered Securities Advisor. By reading Monica Kingsley’s reports you fully agree that she 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. Monica Kingsley, 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.

 

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) 

Europe Set to Rebound, US Jobs Data on Radar

Traders in this part of the world continue to monitor the situation in the US, where the majority of states continue to see the number of new Covid-19 cases increase. As of yesterday, the number of confirmed cases in the US exceeded 3 million. On Tuesday, the WHO cautioned there could be an increase in the fatality rate as there has been a rise in infections, but the death rate so far has lagged.

US-China tensions were doing the rounds yesterday. The decision by the Chinese government to introduce the national security law in regards to Hong Kong has sparked criticism from many countries around the world as it chips away at the principal of ‘one country two systems’.

Yesterday there was speculation the US government would hit back at Beijing by potentially undermining the Hong Kong Dollar (HKD) peg. It wasn’t that long ago that President Trump reiterated that the US-China trade deal was intact, so going after the HKD might be a useful tactic. The US leader might be hesitant about taking a very tough stance against the Beijing administration given that he’s not doing well in the polls and the Presidential election is in November.

The mini-budget from Rishi Sunak, the UK’s Chancellor of the Exchequer, made big political headlines yesterday, but it didn’t have a significant impact on the markets. Mr Sunak revealed £30 billion worth of schemes that are aimed at providing assistance to the UK economy. The furlough scheme will come to an end in October and £9 billion will be allocated to job retention. There will be a temporary cut to VAT for the tourism and hospitality sector.

In addition to that, there have been incentives offered for dining out too – the combined stimulus is worth £4.5 billion. Providing help to the battered hospitality sector is a sensible move, but people in the UK might be cautious about socialising given what has happened in places like Melbourne and the US in relation to a rise in new cases. As expected, the stamp duty threshold was upped to £500,000 from £125,000. One could argue that this tactic might not be as fruitful as the government are hoping as some people are likely to be cautious about purchasing a property on account of the huge economic uncertainty.

The health crisis in the US remained in focus. Oklahoma, California and Tennessee all posted a record daily rise in the number of new cases. States like Florida and Arizona continue to see higher case numbers too. Despite the pandemic, US equity benchmarks closed higher as the tech sector continued its bullish run. Amazon, Apple and Netflix all set new record highs. Raphael Bostic, the head of the Federal Reserve of Atlanta, said that some of the fiscal support programmes might need to be extended.

Overnight, China posted its CPI data for June and the level was 2.5%, while economists were expecting 2.5%. Keep in mind the May reading was 2.4%. The PPI metric was -3%, and the consensus estimate was -3.2%, while the previous update was -3.7%. The improvement in the PPI rate might bring about higher CPI in the months ahead. Stocks in Asia are up on the session, and European markets are being called higher too.

The US dollar came under pressure yesterday. It was a quiet day in terms of economic data so the move wasn’t influenced by economic indicators. Lately the greenback has been a popular safe haven for traders, it was showing losses during the day when European indices were in the red, and when US stocks were flickering between positive and negative territory.

Gold was given a hand by the slide in the US dollar. The metal topped $1,800, and it was the first time since September 2011 that it traded above that mark. The commodity is still popular with certain traders as there are concerns that a second wave of Covid-19 could be on the cards. The metal’s positive move is being partly fuelled by the belief that central banks will maintain very loose monetary policy. Some people are afraid an inflation rise is in the pipeline, so that is influencing gold too.

At 7am (UK time) Germany will post its trade data for May, and the imports and exports are tipped to be 12% and 13.8% respectively.

The US initial jobless claims is anticipated to fall from 1.42 million to 1.37 million. The metric has fallen for the past 13 weeks in a row. The continuing claims reading is tipped to drop from 19.29 million to 18.95 million. Keep in mind that last week’s reading actually ticked up. The reports will be posted at 1.30pm (UK time).

A eurogroup video conference meeting will be held today and traders will be listening out for any potential progress being made in relation to the region’s recovery fund.

EUR/USD – since early May it has been in an uptrend, but it has been trading sideways recently. If it holds above the 1.1168 zone, it could target 1.1495. A break below the 1.1168 area might pave the way for 1.1042, the 200 day moving average, to be targeted.

GBP/USD – since late June it has been in an uptrend, and should the positive move continue, it might target 1.2687, the 200-day moving average. A move through that level should put 1.2812 on the radar. A drop below 1.2251, might bring 1.2076 into play.

EUR/GBP – Tuesday’s daily candle has the potential to be a bearish reversal, and if it moves lower it might find support at 0.8935, the 50-day moving average. A retaking of 0.9067 could see it target 0.9239.

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 34 points higher at 6,190

DAX 30 is expected to open 153 points higher at 12,647

CAC 40 is expected to open 46 points higher at 5,027

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

By David Madden (Market Analyst at CMC Markets UK)

E-mini Dow Jones Industrial Average (YM) Futures Technical Analysis – Bearish Under 25938

September E-mini Dow Jones Industrial Average futures are expected to open lower based on the pre-market trade. The selling is in response to yesterday’s potentially bearish closing price reversal top that could be signaling a shift in momentum and the start of a minimum 2 to 3 day correction.

The catalyst behind the selling pressure is the fear that the current surge in coronavirus cases could derail the economic expansion after several Fed officials issued a warning.

At 09:54 GMT, September E-mini Dow Jones Industrial Average futures are trading 25700, down 70 or -0.27%.

Investors have become increasingly concerned about a second-wave of demand destruction after large parts of the United States reported tens of thousands of new coronavirus infections. New York expanded its travel quarantine for visitors from three more states, while Florida’s greater Miami area rolled back its reopening.

Meanwhile, three Fed officials expressed concern that the surge in infections threatens to curtail consumer spending and job gains just as some stimulus programs are set to expire. One Fed policymaker, Loretta Mester, pledged more support ahead from the U.S. central bank.

Among the best Dow component performers were Microsoft Corp and Apple Inc. Walmart jumped 6.2% after a report that the retailer is close to launching its membership program, a direct competitor for Amazon.com’s Prime service.

Daily September E-mini Dow Jones Industrial Average

Daily Swing Chart Technical Analysis

The main trend is up according to the daily swing chart, but momentum is trending lower following yesterday’s closing price reversal top and subsequent confirmation.

A trade through 27466 will signal a resumption of the uptrend, while a move through 24409 changes the main trend to down.

The minor trend is also up. A trade through 25438 changes the minor trend to down. This will confirm the shift in momentum.

The short-term range is 27466 to 24409. Its retracement zone at 25938 to 26298 is resistance. This area stopped the buying on Tuesday.

The minor range is 24743 to 26280. Its 50% level or pivot at 25512 is potential support.

The main range is 22640 to 27466. Its retracement zone at 25053 to 24484 is the primary downside target.

Daily Swing Chart Technical Forecast

Based on the early price action, the direction of the September E-mini Dow Jones Industrial Average futures contract on Wednesday is likely to be determined by trader reaction to the 50% level at 25938.

Bearish Scenario

A sustained move under 25938 will indicate the presence of sellers. The next downside targets are 25512 and 25438. Since the trend is up, we could see a technical bounce on the first test of these levels.

Taking out 25438 will change the minor trend to down. This could trigger an acceleration into the main 50% support at 25053.

Bullish Scenario

A sustained move over 25938 will signal the presence of buyers. If this creates enough upside momentum then look for a surge into the resistance cluster at 26280 to 26298. The latter is a potential trigger point for an acceleration into the minor top at 26658.

Europe and US Join in on China’s Rally, Home Builders Jump

Europe

A securities journal that is controlled by the Chinese government ran a front-page editorial which mapped out the prospect of a bullish run in stocks, and that triggered buying in domestic equities. The CSI 300, rallied over 5%, and it closed at its highest level since 2015. The positive mood from China influenced dealers in this part of the world, even though the health crisis is still a major worry. On Saturday, the WHO claimed there was over 212,000 new cases of Covid-19, a new daily record. The Beijing authorities can’t talk up their own market forever, so it is likely in the next few days, the pandemic will be back in centre-stage as far as traders are concerned.

The UK house builders are enjoying a positive move today as it is believed the government will change the stamp duty rules in a bid to encourage activity in the sector. Under the existing scheme, if you purchase a property in England or Northern Ireland worth more than £125,000, you incur stamp duty, unless you are a first time buyer. There is talk the threshold could be raised to £500,000, and it might last for up to six months. There is talk that Rishi Sunak, the Chancellor of the Exchequer, will reveal the plans on Wednesday, with the intention of it being a part of the Autumn budget. Redrow, Vistry and Persimmon shares are in demand today.

Sticking with the house builders topic, Barratt Developments, confirmed that annual completions tumbled by over 29% to 12,604. Average selling prices were a touch higher at £280,000. The lockdown was blamed for the drop-off, but it in starting the new financial year with ‘cautious optimism’, as the full year order book stands at 14,326, up from 11,419 last year. The company has over £300 million in cash, it has access to £700 million in a credit facility, and it is eligible to tap into the Covid Corporate Financing Facility, so it is well positioned to work its way through its busy order book.

Rolls Royce shares clawed back some of the ground it lost on Friday when it announced it was reviewing potential options to strengthen its balance sheet. The engineering giant was already in a weakened position in advance of the pandemic on account of the issues in relation to the Trent 1000 engines.

The company supplies aircraft engines so the travel bans and the bleak outlook for the aviation industry compounded the firm’s problems. At its update in April, the group confirmed its liquidity position stood at £6.7 billion – which was a result of two rounds of financing. The group is clearly comfortable in terms of liquidity, and it seems like some restructuring is in the pipeline. Keep in mind, it warned about cutting 9,000 jobs in May.

DS Smith shares are in the red today as Jefferies downgraded the stock to hold from buy, and cut the price target to 310p from 350p. Last week the company posted a 5% increase in adjusted pre-tax profit, but it cautioned it was too soon to return to paying dividends.

Antonio Horta-Osorio, the CEO of Lloyds, will step down in June 2021. Mr Horta-Osorio has been in the top job for a decade. Under his leadership he turned the group around from a bank which was reeling from the credit crisis, and part-nationalised, to a fully private firm and a dividend payer.

Boohoo shares have fallen out of fashion after it was reported that one of its suppliers paid its staff poorly and the working conditions were substandard too. The group has become very popular recently as its fast fashion strategy combined with its online only model has been a hit with younger consumers.

The much-awaited ‘Super Saturday’ didn’t seem to be that super, as the re-opening of pubs and restaurants wasn’t the big deal that some people were predicting. Restaurant Group and Mitchells & Butlers are in the red.

US

The mood on Wall Street is positive as the US economy continues to rebound. The final reading of the services PMI report for June was 47.9, and keep in mind the May reading was 37.5. The ISM non-manufacturing reading was 57.1 – its highest level since February.

It was reported that Uber has acquired Postmates, the food delivery group, for $2.65 billion. Uber Eats is a direct competitor of the company but it is believed the two businesses will remain separate. There might be a merger of back-end technology. Last month merger talks between Uber and Grubhub fell apart due to antitrust issues, but the latter teamed up with Europe’s Just Eat.

Dominion Resources shares are in the red after it was announced the company has agreed to sell off its gas storage and transition network to Berkshire Hathaway, Warren Buffett’s, investment vehicle, for $4 billion. Mr Buffet’s firm will take on $5.7 billion of the group’s debt too, so the transaction comes to nearly $10 billion. In other news, Dominion and Duke Energy scrapped their plans for the Atlantic Coast pipeline project on account of rising costs.

Amazon shares have topped $3,000 for the first time as the tech giant asserted its dominance during the lockdown. It had the edge retailers that were forced to close.

FX

The risk-on sentiment of traders as weighed on the US dollar. In the past few months, the greenback has become a popular safe-haven play, and given the surge in equities today, we are seeing dealers dump the US dollar. The currency received a nice boost towards the end of last week on the back of the better-than-expected jobs report form the US. Today, currency traders are less interested in the recovery in the US economy, as they are fixated on the overall risk-on mood.

EUR/USD and GBP/USD have been helped by the negative move in the greenback. The UK construction PMI reading for June was 55.3 – it’s highest in nearly two years. The eurozone retail sales update for May was 17.8%, and that was a big improvement from the -12.8% in April.

Commodities

Gold has been nudged up by the dip in the drop in US dollar. The commodity’s inverse relationship with the dollar is working in its favour today. The metal has a history of attracting safe haven funds, but seeing as dealers are keen to take on more risk today, it is likely that gold’s positive move is almost exclusively down to the weakness in the dollar.

The optimism that is doing the rounds in relation to stocks seems to be influencing oil traders too. Equity markets and energy products have broadly moved in tandem in the past couple of months and it seems the lack of nerves in stocks has helped sentiment in WTI and Brent crude. The stark news from the WHO over the weekend that there was a new record set of new Covid-19 cases has been shrugged off by equity and energy traders alike.

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

By David Madden (Market Analyst at CMC Markets UK)

Amazon Overbought And Overloved After Historic Rally

Amazon.Com Inc. (AMZN) emerged as the one of the first quarter’s biggest winners, increasing market share after traditional retailers and shopping malls shut down as a result of the COVID-19 pandemic. However, the e-commerce giant experienced growing pains as a result of the buying surge, limiting some products and delaying shipments. These roadblocks negatively impacted Q1 2020 profits, with $5.01 earnings-per-share (EPS) missing estimates by more than $1.00, despite a 26% jump in revenues.

The company has been pumping capital into infrastructure expansion in the second quarter, forcing CEO Jeff Bezos to warn about operating income. That hasn’t stopped investors from scooping up shares at a rapid pace, lifting the stock above $2,900. A string of Wall Street upgrades continues to stoke the upside despite overbought technical readings, but the lopsided reward-to-risk profile may now be too extreme for most investors.

Amazon Bullish View

RBC Capital analyst Mark Mahaney summed up the bullish view on Amazon in June, lifting his price target by 22% to $3300. He declared the company was a “structural winner” in the pandemic following an annual survey, noting that “results clearly support the idea they are likely the best global play off online retail”.  He notes that Prime subscriptions are adding to the upside as well, stating that “penetration surged to 67% vs. 59% in 2019. We see Amazon rapidly approaching 200 million Prime subs worldwide, up from 150 million in January.”

Wall Street And Technical Outlook

Wall Street consensus has priced Amazon for perfection, with an astounding 39 ‘Buy’ ratings and 2 ‘Hold’ ratings. Just one of the 42 polled analysts advises that investors sell the stock at this time.  Price targets currently range from a low of $1987 to a street-high $3500 while it’s currently trading about $150 above the median $2841 target. These numbers continue to tick higher with price, indicating it can trade even higher as long as the company fires on all cylinders.

Amazon is tough to buy from a technical perspective because relative strength readings have reached extremely overbought levels that have triggered multiple reversals since 2003.  In addition, the rally has stretched to three standard deviations above the 20-month moving average, also indicating the upside may be unsustainable in coming weeks. Sidelined investors are rooting for that to happen because it could set up a low-risk buying opportunity at much lower prices.

Concerned on Parts of Tech Sector, But Sees Continued Growth Tied to Two Megatrends: Fidelity

The recent recovery in stock markets has been at odds with economists maintaining a gloomier global economic outlook. The rally is largely driven by the optimism of economic recovery and a much stronger recovery in the technology sector.

The S&P 500 information technology sector has returned about 10% in 2020, including reinvested dividends. Although during the tech bubble of 1990s the sector has never booked over 14% of the S&P 500’s earnings, its profit contribution surged to more than 20% of S&P 500 net income in recent years.

It is likely that technology will play a significant role across different countries and cultures in future, generating better returns in the long run for these tech companies.

“I remain concerned about the impact of recession on parts of the tech sector, but I see continued growth driven by 2 megatrends: the shift to digital experiences and the shift to cloud computing,” wrote Nidhi Gupta, information technology sector leader and portfolio manager of Fidelity Select Technology Portfolio.

Gupta said she believes in companies that are moving traditional offline experiences online, and firms that are helping these companies to make better business decisions with their data, Fidelity added.

Socialising online and doing some of the things, like watching a movie and shopping with friends, virtually is a long-term megatrend that is expected to remain for years, regardless of global economic conditions amid the COVID-19 crisis. That’s why companies like Netflix, Facebook, Amazon.com, and Latin American e-commerce provider MercadoLibre are favoured.

“A related megatrend is that digital businesses with this treasure trove of data are increasingly looking to cloud computing to draw data-driven insights to improve their businesses. This is happening, via cloud services being offered at all levels of the information technology stack—infrastructure, platform, and software,” the American multinational financial services corporation added.

“Many companies are shedding their hardware and becoming software-led in every way,” Gupta adds. Companies that provide the cloud services to help their customers make better business decisions, which include HubSpot, Microsoft, Salesforce.com, Elastic, and MongoDB – all overweighted fund positions as of May 31.

According to Tipranks’ analyst consensus by sector, 148 technology stocks out of 595 were rated “Strong Buy”, 306 were rated “Moderate Buy”, 122 were rated “Hold”, 19 were rated “Moderate Sell” while none were rated “Strong Sell”.

Amazon.com Announces to Buy Autonomous Driving Startup Zoox

Amazon.com, an American multinational technology company based in Seattle, has announced that it will acquire an autonomous vehicle company Zoox Inc in a deal worth reported to be over a billion dollars, helping in bringing their vision of autonomous ride-hailing to reality.

One of the Big Four technology company, Amazon, has extended its investment in the automobile sector, raising more than $530 million in a funding push for Aurora Innovation last year. However, both the companies did not completely disclose the deal and financial terms; the world’s largest online retailer has acknowledged to pay more than $1 billion to Zoox, a source told The Wall Street Journal.

“Zoox is working to imagine, invent, and design a world-class autonomous ride-hailing experience,” Jeff Wilke, Amazon’s CEO said in a statement. “Like Amazon, Zoox is passionate about innovation and about its customers, and we’re excited to help the talented Zoox team to bring their vision to reality in the years ahead.”

“This acquisition solidifies Zoox’s impact on the autonomous driving industry,” Aicha Evans, CEO of Zoox said in a statement. “We have made great strides with our purpose-built approach to safe, autonomous mobility, and our exceptionally talented team working every day to realize that vision. We now have an even greater opportunity to realize a fully autonomous future.”

However, completion of this transaction is subject to customary closing conditions.

Amazon.com outlook and price target

Forty-two analysts forecast the average price in 12 months at $2,790.75 with a high of $3,400.00 and a low of $1,987.00. The average price target represents a 3.63% increase from Friday’s close of $2,692.87, according to Tipranks. From that 42, 39 analysts rated ‘Buy’, two rated ‘Hold’ and one rated ‘Sell’.

Morgan Stanley target price is $2,800 with a high of $3,300 under a bull scenario and $1,600 under the worst-case scenario. Last week, Suntrust Robinson raised the target price to $3,400 from $2,700, Deutsche Bank raised the target price to $3333 from $2750 and Wedbush raised the target price to $3,050 from $2,750.

It is good to buy at the current level as 50-day Moving Average and 100-200-day MACD Oscillator signals a strong buying opportunity.

Analyst comment

“Amazon’s high-margin businesses continue to allow Amazon to drive greater profitability while still continuing to invest. Amazon Prime membership growth drives recurring revenue and positive mix shift. Advertising serves as a key area for both further growth potential and profitability flow-through.,” wrote Brian Nowak, equity analyst at Morgan Stanley in his June 1 note.

“E-commerce is inflecting and our “shifting consumer spend” framework shows why we expect faster forward growth even if the consumer weakens. We raise estimates, now modeling 25% or 12% e-com growth in ’20/’21. We raise AMZN ests (top OW pick), remain OW WMT, and highlight e-com tailwinds to OW FB/GOOGL,” he added.