Amazon Running in Place After Blowout Quarter

Amazon.com Inc. (AMZN) is trading lower on Wednesday despite beating Q4 2020 top and bottom line estimates by wide margins. The e-commerce juggernaut earned $14.09 per-share during the quarter, better than $7.15 per-share estimates, while revenue rose a staggering 43.6% year-over-year to $125.6 billion, beating consensus by nearly $6 billion. Jeff Bezos announced his departure as CEO during the release, replaced by current head of Amazon Web Services Andy Jassy.

Q4 Blowout Results

Operating income rose 77% year-over-year to $6.87 billion vs. $1.0 to $4.6 billion guidance. Amazon Web Services (cloud computing) posted another strong quarter, growing 28% year-over-year to $12.74 billion. CEO Bezos capped off the blowout quarterly report by issuing upside Q1 guidance, now expecting revenue of $100 to $106 billion vs. $95.5 billion prior expectations while looking for operating income of $3.0 to $6.5 billion.

Susquehanna raised the firm’s price target to a Street-high $5,200 after the news, commenting, “Business trends remain strong and should continue to do so in 2021. Paid units growth was extremely strong again at 47% year-over-year, demonstrating the accelerating shift to e-commerce. The 1Q guide was also nicely above expectations for revenue and profitability, showing no signs of slowing down after a huge holiday season.”

Wall Street and Technical Outlook

Wall Street consensus now stands at a ‘Strong Buy’ rating, based upon 41 ‘Buy’, 7 ‘Hold’, and 0 ‘Sell’ recommendations. Price targets currently range from a low of $3,048 to a Street-high $5,200 while the stock opened Wednesday’s U.S. session more than $600 below the median $4,100 target. This stark under-performance, compared to price targets, suggests that investors still view Amazon as ‘fully-valued’.

The stock broke out above 2018 resistance at 2,550 in April 2020 and rallied to an all-time high at 3,552 in September. Price action then eased into a symmetrical triangle pattern that remains in force, more than five-months later. The blowout fourth quarter report has barely moved the price needle, suggesting that Amazon remains extremely overbought after 2020’s 76% return, even though its already spent months working off technical extremes.

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

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

GameStocks – Fun While It Lasted…

I don’t want to lecture anyone or say that I told you so. During one of my newsletters last week, I even said that I tip my hat to anyone who profited from this—all the respect in the world.

Me personally, though, I would never trade like this. Monday (Feb. 1) and Tuesday’s market (Feb. 2) was nothing more than a reality check. GameStop’s stock has lost nearly half of its value, and other Reddit darlings like AMC, Blackberry (BB), Koss (KOSS), and Silver (SLV) tanked.

Stocks don’t go up forever.

Stonks especially don’t.

Who knows, maybe the party’s not over. But I think the plummet in the Reddit stocks was bound to happen. Bubbles always eventually pop.

The market seems happy that the earth is back on its axis in stockland. The indices have recovered nearly all of last week’s losses already.

I didn’t call the GameStop short-squeeze, but I had called last week’s downturn for a while. The recovery so far this week wasn’t entirely surprising either.

Be that as it may, I remain concerned about complacency in the markets and overstretched valuations, plus the potential return of inflation. But the breather last week was needed and brought the indices to less overbought levels.

Generally, investors and analysts are bullish these days. According to a recent Bank of America survey of 194 money managers, bullishness on stocks is at a three-year high, and the average share of cash in portfolios, which is usually a sign of protection from market turmoil, is at the lowest level since May 2013.

We have still not declined 10% from the record highs- the minimum needed for a correction. Although the market needed last week’s downturn, we’re once again mostly right where we were several days ago.

I know what you’re thinking. Amazon (AMZN) and Alphabet (GOOGL) are the latest companies to crush their earnings estimates, how could we possibly have a correction?

For one, there are still things to be concerned about from a public health and economic perspective.

We are also long overdue for one. We haven’t seen one since last March. Corrections are healthy for markets and more common than most realize. Only twice in the last 38 years have we had years WITHOUT a correction (1995 and 2017).

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

We’re no longer as close to those same BUY levels as we were after market close on Friday. But we’re not quite at SELL again, and I still think we’re a few pullbacks away from making more BUY calls with conviction. In other words, welcome to no man’s land.

In my last newsletter, I cautioned against making manic moves and trading with emotions. We saw our worst week since October last week and declined in two of the previous three. Much of that was due to the GameStops and AMCs freaking out Wall Streeters. But I reminded you then, and I’ll remind you again. Shares of Eastman Kodak surged by 1,481% in three days last July, and the broader market seems to have done just fine since then.

Do not let the noise deter you from your goals. My goal for these updates is to educate you, give you ideas, and help you manage money like I did when I was pressing the buy and sell buttons for $600+ million in assets. I left that career to pursue one where I could help people who needed help, instead of the ultra-high net worth.

With that said, to sum it up:

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

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

We’re all in this together!

Is It Safe to Buy Tech Again?

Figure 1- Nasdaq Composite Index $COMP

Earnings season for tech stocks hit record numbers last week, and is set to continue this week with Amazon and Alphabet clobbering estimates. Usually, when investors get what they expect, it’s more of a reason to sell rather than buy.

But the Nasdaq so far this week has already recovered almost all of last week’s losses, and then some.

I’m not ready to call this a BUY though, or recommend buying into momentum. There are still concerns. Tech valuations, especially the tech IPO market, terrify me. SPACs don’t help either. The Nasdaq last week declined to a more “normal” level, and in the span of two days, hit an RSI approaching 63 again.

Last week’s decline was needed, but there are still echoes of the dot-com bubble 20-years ago. I remain bullish on earnings and tech sectors such as cloud computing, e-commerce, and fintech for 2021, but please monitor the RSI.

The RSI is how I have called the Nasdaq since December. While an overbought or oversold RSI does not automatically mean a trend reversal, it has with the Nasdaq.

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

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

Before the Nasdaq exceeded an RSI over 73 prior to January 25th, I switched my call back to SELL, and the QQQ promptly declined 4.13% for the week.

The Nasdaq is trading in a precise pattern.

I still like tech and am bullish for 2021. But for now, I’m going to stay conservative and say HOLD.

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

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

Thank you.

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

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

* * * * *

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

 

Stocks Move Higher On Strong Reports From Amazon And Alphabet

Tech Giants Report Strong Quarterly Results

S&P 500 futures are gaining ground in premarket trading as traders cheer solid results from Amazon and Alphabet.

Both companies have easily exceeded analyst estimates on both earnings and revenue as tech giants benefited from trends that were accelerated by the pandemic.

Amazon’s Jeff Bezos decided to step down as CEO. He will be replaced by Andy Jassy who is the head of the company’s cloud division. Interestingly, this news had no impact on the company’s shares.

Both stocks are currently gaining ground in premarket trading. Amazon shares are up by 1.5% while Alphabet shares are gaining more than 7%. The solid performance of tech giants will surely boost Nasdaq and provide support to S&P 500 at the beginning of the trading session.

ADP Employment Change Report Provides Additional Support To Stocks

The U.S. has just released ADP Employment Change report for January which indicated that private businesses hired 174,000 workers. Analysts expected that private businesses would add 49,000 jobs so the report was much better than expected.

The report indicated that the situation in the job market has stabilized which is bullish for stocks. However, some traders would prefer to wait for confirmation of the positive trend from Initial Jobless Claims report which will be published on Thursday and Non Farm Payrolls report which is scheduled to be released on Friday.

Today, traders will also have a chance to take a look at the final reading of the Services PMI report for January. Analysts expect that Services PMI increased from 54.8 to 57.5.

Oil Moves Higher As Crude Inventories Decline

WTI oil managed to settle above the $55 level and continued its upside move after API Crude Oil Stock Change report indicated that crude inventories declined by 4.26 million barrels. Crude inventories continue to decline which is a sign of recovering demand.

Yesterday, many oil-related stocks were under pressure as investor mood was spoiled by BP earnings report, but the continuation of oil price rally will likely provide sufficient support to this segment during today’s trading session.

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

Amazon Trades Flat After Blowout Quarterly Earnings as Investors Digest Bezos Departure

Shares in Amazon.com, Inc. (AMZN) were little changed during Tuesday’s extended-hours trading session, despite the Seattle-based e-commerce giant reporting better-than-expected quarterly results. During the earnings call, the company’s founder and CEO Jeff Bezos surprised investors by announcing that he will step down later this year.

The tech titan posted record sales of $125.56 billion in the 2020 holiday quarter, significantly above the $119.7 billion Wall Street had expected. Importantly, it marked the first time the company has generated over $100 billion in revenue in a three-month period. Meanwhile, earnings came in at $14.09 per share, almost double analysts’ forecast of $7.23 a share. The figure also grew 118% from a year earlier.

Management credited the outstanding quarter to record-breaking holiday season e-commerce demand that saw the company deliver over one billion products. It also said a pandemic-delayed Prime Day helped fuel quarterly sales. Looking ahead, the company projects Q1 revenue of between $100 billion and $106 billion, with operating income of between $3 billion and $5.5 billion.

Through Tuesday close, Amazon stock has a $1.7 trillion market cap and trades 68% higher over the past twelve months. Since the start of the year, the shares have gained nearly 4%.

Bezos Departs

In a move few investors saw coming, Bezos announced that Web Services CEO Andy Jassy would replace him in the top job this fall, adding that he will become executive chairman. Bezos, the world’s second-richest person, said he plans to focus on “new products and early initiatives” in his new role, as well as devoting more time to his philanthropic funds and other business interests.

Wall Street View

Last month, JPMorgan analyst Doug Anmuth bumped the firm’s price target on Amazon stock to $4,155 from $4,100 while maintaining an ‘Overweight’ recommendation. Anmuth sees the company’s “strong” e-commerce and public cloud trends continuing in the quarters ahead.

Sentiment remains just as upbeat elsewhere. The stock receives 41 ‘Buy’ ratings, 4 ‘Overweight’ ratings, and 3 ‘Hold’ ratings. Currently, no brokerage firm recommends selling the shares. As of Feb. 3, 2021, Amazon stock trades 12% below the median 12-month Wall Street consensus price target of $3,800.

Technical Outlook and Trading Tactics

Amazon shares staged a pre-earning breakout above a multi-month symmetrical triangle on heavy volume Tuesday as traders bet on a bullish quarterly report. Providing the price holds above the triangle pattern’s top trendline, look for further upside continuation in today’s session.

Those who take a trade should consider using the measured move technique to set a profit target. To do this, measure the initial high to low of the pattern in dollars, and add that amount to the breakout point. For example, add $747 (pattern’s distance) to $3,320 (breakout point) for a profit target of $4,067.

For a look at today’s earnings schedule, check out our earnings calendar.

Amazon, Alphabet Top Earning Estimates; Jeff Bezos Steps Down as Amazon CEO

U.S. stock index futures rose after the cash market close on Tuesday on the back of strong earnings from Amazon and Alphabet.

Amazon reported earnings nearly double Wall Street estimates; however, the stock move was tempered by news that Jeff Bezos would step down as CEO.

Shares of Alphabet gained 6% in afterhours trading after the technology giant reported 23% revenue growth and topped estimates for earnings.

Amazon’s Cloud Division Reports 28% Revenue Growth

Amazon’s cloud-computing business reported 28% revenue growth in the fourth quarter, falling short of analysts’ expectations.

Amazon Web Services remains the market leader for cloud computing and storage that companies, governments and schools use to run websites and applications. While Microsoft and Google grew faster in the fourth quarter, they’re still well behind Amazon in serving businesses that are rapidly offloading their data.

Revenue at AWS climbed to $12.7 billion from $9.95 billion a year earlier, below the $12.83 billion consensus estimate among analysts polled by FactSet. AWS revenue represented 10% of Amazon’s total sales.

AWS continued to drive much of Amazon’s profit. Operating income increased 37% from a year earlier to $3.56 billion, but trailing the $3.75 billion FactSet consensus estimate. That means 52% of the company’s operating income can be attributed to AWS, compared with about two-thirds in the same period a year ago.

In other news, Amazon said Andy Jassy, who runs the cloud division, will succeed Jeff Bezos as CEO of Amazon in the third quarter of this year.

Alphabet Revenue up 23% as Core Advertising Business Shows Strong Growth

Shares of Alphabet, the parent of company of Google, rose nearly 8% in extended trading on Tuesday after the company reported fourth-quarter earnings that surpassed analysts’ expectations and showed a strong return to growth in its core advertising business.

Alphabet’s revenue grew 23% on an annualized basis in the quarter, according to a statement. That’s stronger growth than last year’s Q4, which came in at 17%, and shows Google’s advertising business is recovering well after a big showdown in Q2 of last year.

Alphabet also broke out operating income from its cloud business for the first time:  the company lost $5.61 billion during the full year, and $1.24 billion during Q4, showing that the business is still in investment mode. By way of contrast, Amazon’s cloud business earned an operating profit of $13.53 billion last year and $3.56 billion last quarter.

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

U.S. Market Wrap and Forecast for Wednesday

SP-500 Volatility Index (VIX) imploded on Tuesday, dropping more than 14% as Reddit favorites reverted toward historic means. The return to sanity improved risk appetites, lifting major index benchmarks toward January highs.  Broad-based buying interest characterized the constructive session, with big tech, blue chips, and small caps all gaining more than 1%. Bond yields hit two-week highs, putting pressure on gold and silver while Bitcoin gained ground.

Tuesday Wrap-Up

Amazon.com Inc. (AMZN) and Alphabet Inc. (GOOG) got bought aggressively ahead of their post-market earnings reports. Dow component Visa Inc. (V) bounced strongly at 50-week EMA support a few days after meeting Q4 top and bottom line estimates. Gamestop Inc. (GME) got halted several times after downside and upside stretched past circuit breakers. That stock hit the lowest low since Jan. 25 during the heavy session.

Silver plunged after reversing at August 2020 resistance, closing back at late January levels. The clueless financial media overplayed the ‘new bubble’ theme earlier this week, which doesn’t jive with very routine price action in the last 12 months. Older traders observed a moment of silence after Harley – Davidson Inc. (HOG) reported a $0.44 loss per-share on a staggering 32.4% year-over-year revenue decline. That stock fell 16% during the regular session.

Looking Ahead to Wednesday

Alphabet and Amazon Q4 earnings will move Wednesday’s market, with both mega-caps expected to report record quarterly profits. Lofty expectations place a high bar into mid-week, especially with elevated U.S. unemployment and the pandemic wearing on everyone’s nerves.  Other FAANG stocks look rangebound for now, suggesting ‘buy-the-news’ reactions’ will run into selling pressure at range resistance levels.

The January ADP employment report will also impact Wednesday’s session. This monthly data release was reformulated a few years ago after posting a long string of stinkers and has been remarkably reliable since that time. In any case, no one expects improvement in U.S. employment numbers at the moment, with the local pandemic coming off ridiculously high numbers, compared to the rest of the world. However, the reaction might offer a clue to Friday’s more important Non-Farm Payrolls release.

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

Stocks Move Higher Ahead Of Big Tech Earnings

Stocks Are Ready To Continue Yesterday’s Upside Move

S&P 500 futures are gaining ground in premarket trading as traders bet on tech stocks ahead of earnings reports from Amazon and Alphabet. Both companies will provide their quarterly reports today after the market close. If the reports are encouraging, the market will get another boost.

Meanwhile, U.S. President Joe Biden stated that he was not ready to settle for a package that did not meet the needs of the current situation during the talks with Republican senators who pushed for a limited coronavirus aid bill.

If Democrats manage to pass a full $1.9 trillion coronavirus aid package bill, stocks will get additional support. In this scenario, some speculative stocks may experience additional volatility as some of the stimulus money will likely move to the stock market.

Oil Tries To Settle Above The $55 Level

WTI oil gained strong upside momentum and managed to get above the recent highs at $53.90. Currently, oil is trying to settle above the psychologically important $55 level.

The number of new coronavirus cases in the world continues to trend down which is bullish for oil. In addition, Saudi Arabia will cut its oil production by 1 million barrels per day (bpd) in February and March in order to provide support to the market.

While Saudi Arabia’s decision was made public a month ago, it has just began to impact the physical market. Not surprisingly, oil-related stocks will have a strong start of today’s trading session.

Short Squeeze Plays Are Under Strong Pressure

Shares of GameStop are down by more than 40% in premarket trading after losing about 30% of value in yesterday’s trading session. Other short squeeze plays like AMC Entertainment Holdings or Koss Corp. are also under major pressure in premarket action.

Retail traders failed to push silver above the $30 level, and silver is currently trying to settle below $27.50. Shares of silver miners like First Majestic Silver or Pan American Silver are also moving lower.

The trading in short squeeze plays will be very active today, and traders should be prepared for very fast moves.

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

Three Big Tech Stocks Report Earnings This Week

Tech mega-caps highlight the last big reporting week of the fourth quarter earnings season, with Amazon.com Inc. (AMZN), Alphabet, Inc. (GOOG), and Alibaba Group Holding Ltd. (BABA) stepping to the plate. It’s a dangerous time for shareholders of these equity superstars, with market sentiment deteriorating at a rapid pace, following mind-boggling short squeezes on some of the U.S. market’s most downtrodden public companies.

FAANG members Apple Inc. (AAPL), Facebook Inc. (FB), and Netflix Inc. (NFLX) have all turned lower despite beating fourth quarter top and bottom line estimates, substantially increasing risk for GOOG and AMZN shareholders. Big investors getting margin calls could be driving this downturn, with losses incurred on high short interest small caps forcing involuntary liquidation. Main Street investors are also hitting the exits, worried that last week’s bizarre events will mark a major top.

Amazon

Amazon is expected to report a Q4 2020 profit of $7.00 per-share on $119.6 billion in revenue. The stock posted an all-time high at 3,552 in September and eased into a symmetrical triangle, with support near 2,870. It’s traded within this classic pattern for more than four months now, wobbling back and forth across the 50-day moving average. Unfortunately, monthly relative strength readings are still forecasting lower prices, raising odds for an eventual breakdown.

Alphabet

Analysts are looking for Alphabet to post a Q4 2020 profit of $15.99 per-share on $52.9 billion in revenue. The stock broke out above the September high at 1,733 in November and tested new support into January, when it broke out once again and posted an all-time high at 1,934. It’s now pulled back to support near 1,800, raising odds that a strong quarterly report will generate a fresh trend advance to new highs.

Alibaba

Finally, look for Alibaba to report a fiscal Q3 2021 profit of $20.94 per-share on $214.4 billion in revenue. The stock failed a rally above the 2018 high at 211 in February 2020 and recouped those losses into a July breakout that hit an all-time high at 319.32 in October. Many shareholders have jumped ship since that time, dropping accumulation to 18-month lows. It’s now hovering at the 200-day moving average and could roll over after this week’s confessional.

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

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

Earnings to Watch Next Week: Pfizer, Alibaba, Amazon, Alphabet and Qualcomm in Focus

Earnings Calendar For The Week Of February 1

Monday (February 1)

IN THE SPOTLIGHT: VERTEX PHARMACEUTICALS, NXP SEMICONDUCTORS, ON SEMICONDUCTOR

VERTEX PHARMACEUTICALS: The biopharmaceutical company is expected to report a profit of $2.55 in the fourth quarter, which represents year-over-year growth of 50% from the same quarter a year ago when the company reported $1.70 cents per share.

However, Wall Street forecasts the company’s revenue to grow about 12% to $1.58 billion.

“Q4 estimates for Vertex‘s CF franchise appear achievable based on recent trends. With industry-leading growth and its fundamentals largely intact despite COVID-19, we expect the current dislocation between Vertex Pharmaceuticals’ (VRTX) trading price and the value of its CF franchise to be only temporary. We would use the recent stock weakness to build a position,” said equity analysts at Cowen and Company, who also gave a price target of $300.

NXP SEMICONDUCTORS: Eindhoven, Netherlands-based semiconductor manufacturer will post earnings of $2.11 per share in the December quarter on revenue of $2.46 billion, up from $1.98 per share on revenue of $2.30 billion same quarter last year. For the December quarter, the forecasts revenue in the range of $2.375-$2.525 billion which, at the midpoint, represents growth of 8% sequentially and 6% year-over-year.

“Management remains upbeat about near-term demand, including 2021, especially regarding its mobile chip business as the firm’s ultra-wideband connectivity solutions are rapidly gaining adoption within newer smartphones. We raise our fair value estimate to $150 from $130, and with shares trading around $134, we view shares as slightly undervalued,” said equity analysts at Cowen and Company.

ON SEMICONDUCTOR: Phoenix, Arizona-based semiconductors supplier company will post earnings of $0.28 per share for last quarter of 2020. The revenue is expected to slump 3.0% on a year-over-year basis.

TAKE A LOOK AT OUR EARNINGS CALENDAR FOR THE FULL RELEASES FOR THE FEBRUARY 1

Ticker Company EPS Forecast
TMO Thermo Fisher Scientific $6.52
OTIS Otis Worldwide Corp $0.59
RYAAY Ryanair -$1.11
ON ON Semiconductor $0.28
AEIS Advanced Energy Industries $1.34
ITUB Itau Unibanco $0.10
CACC Credit Acceptance $7.22
WWD Woodward $0.68
NXPI NXP Semiconductors $2.11
RMBS Rambus $0.25
ARE Alexandria Real Estate Equities $0.48
KRC Kilroy Realty $0.36
CRUS Cirrus Logic $1.86
OMCL Omnicell $0.80
KMPR Kemper $1.55
PCH Potlatch $1.37
KMT Kennametal $0.09
FN Fabrinet $1.04
IBTX Independent Bank $1.33
CBT Cabot $0.87
VRTX Vertex Pharmaceuticals $2.55
BKRKY Bank Rakyat $0.17
BECN Beacon Roofing Supply $0.63
LBRDK Liberty Broadband Lbrdk $1.06
IX Orix $1.95
RBC Regal Beloit Corporation $1.57
MFG Mizuho Financial $0.08

 

Tuesday (February 2)

IN THE SPOTLIGHT: PFIZER, ALIBABA, AMAZON, ALPHABET

PFIZER: The world’s largest pharmaceutical giant is expected to report a profit of $0.52 in the fourth quarter, which represents a year-over-year decline of about 5.4% from the same quarter last year when the company reported $0.55 per share.

The pharmaceutical company, which ranked 64th on the 2020 Fortune 500 list of the largest U.S. corporations by total revenue, will report revenue of $12.85 billion, up 1.3% from the year-ago quarter. According to chief executive officer Albert Bourla, Pfizer is likely to post this year’s earnings in the range of $3 to $3.10 per share.

“We lowered our 4Qe revenue by 5% from $11.6B to $11.0B and EPS by 6% from $0.40 to $0.38 to reflect lower doses delivered in 4Q. We lowered our 4Q COVID vaccine revenues from $683M to $150M (assuming $19.50/dose). Our prior model assumed 35M doses, which we lowered to 7.7M doses based upon CDC distribution allocations,” said David Risinger, equity analyst at Morgan Stanley.

“Our 4Q projections are well below consensus, but we do not see 4Q results as a stock driver given all of the confounding factors. We are instead focused on management’s 2021 targets.”

ALIBABA: The largest online and mobile e-commerce company in the world is expected to earn $2.65 per share for the third quarter, according to equities analysts at Oppenheimer. Oppenheimer also set EPS estimates for FY2021 at $7.48 and FY2022 at $9.33.

The Chinese multinational technology company has surpassed consensus estimates with an average of about 25% in all four previous quarters.

“We expect healthy GMV growth of 16% to drive core of core revenue growth of 18% on better monetization, but slower adjusted EBITA growth of 11% due to continued investment in new initiatives. Stay Overweight on F2022e non-GAAP P/E of 19x; lower price target to $320,” said Gary Yu, equity analyst at Morgan Stanley.

“We forecast total revenue of Rmb216bn (+33.8% YoY, +39.3% QoQ), non-GAAP EBITA of Rmb61.5bn (+21.4% YoY, +49.2% QoQ) with margin at 28.5% and non-GAAP net profit of Rmb57.2bn (+17.7% YoY, +16.1% QoQ) with margin at 26.5%.”

AMAZON: The eCommerce leader for physical and digital merchandise is expected to report a profit of $7.16 in the fourth quarter, which represents a year-over-year decline of over 10% from the same quarter last year when the company reported $6.47 per share.

The Seattle, Washington-based multinational technology giant will report revenue of $120.4 billion, up over 37% from the year-ago quarter. The company expects net sales between $112- $121 billion during the quarter.

Amazon‘s high-margin businesses continue to allow Amazon to drive greater profitability while still continuing to invest (last-mile delivery, fulfilment, Prime Now, Fresh, Prime digital content, Alexa/Echo, India, AWS, etc),” noted Brian Nowak, equity analyst at Morgan Stanley.

Amazon Prime membership growth drives recurring revenue and a positive mix shift. Cloud adoption hitting an inflection point. Advertising serves as a key area for both further growth potential and profitability flow-through.”

ALPHABET: The parent of Google and the world’s largest search engine, which dominates Internet search activity globally will post earnings of $15.68 per share for last quarter of 2020. The consensus mark for revenues is pegged at $44.09 billion, implying growth of 17.3% from the year-ago reported figure, according to ZACKS Research.

TAKE A LOOK AT OUR EARNINGS CALENDAR FOR THE FULL RELEASES FOR THE FEBRUARY 2

Ticker Company EPS Forecast
HOG Harley Davidson $0.21
WAT Waters $2.87
ST Sensata Technologies $0.78
HUBB Hubbell $1.76
LITE Lumentum Holdings Inc $1.89
AMG Affiliated Managers $3.68
HAE Haemonetics $0.65
MAN ManpowerGroup $1.14
GPK Graphic Packaging $0.27
ABG Asbury Automotive $4.11
ATHM Autohome $9.54
MDC MDC $1.73
PFE Pfizer $0.52
XOM Exxon Mobil $0.01
UPS United Parcel Service $2.14
BP BP $0.08
HCA HCA $3.57
RACE Ferrari $1.24
EMR Emerson Electric $0.68
ETN Eaton $1.21
COP ConocoPhillips -$0.25
IDXX Idexx Laboratories $1.39
SYY Sysco $0.34
MCK McKesson $4.14
MPC Marathon Petroleum -$1.27
SIRI Sirius XM $0.06
MPLX MPLX $0.63
CTLT Catalent $0.55
BR Broadridge Financial Solutions $0.71
ENTG Entegris $0.66
TECH Bio Techne $1.37
BEN Franklin Resources $0.72
LII Lennox International $2.65
MMP Magellan Midstream Partners $0.85
BABA Alibaba $20.59
SANM Sanmina $0.81
MTCH Match Group $0.50
DOX Amdocs $1.14
MANH Manhattan Associates $0.32
POWI Power Integrations $0.44
MKL Markel $9.04
TENB Tenable Holdings Inc $0.05
FEYE FireEye $0.10
EPAY Bottomline Technologies $0.28
ATGE Adtalem Global Education Inc $0.67
MRCY Mercury Systems $0.51
BRKS Brooks Automation USA $0.42
GL Globe Life Inc $1.72
APAM Artisan Partners Asset Management $1.02
AMGN Amgen $3.39
CB Chubb $2.82
EA Electronic Arts EA $2.94
CMG Chipotle Mexican Grill $3.73
PKI PerkinElmer $2.95
STE Steris $1.52
AMCR Amcor PLC $0.17
FBHS Fortune Brands Home Security $1.16
ATO Atmos Energy $1.57
BCH Banco De Chile $0.31
AMZN Amazon $7.16
GOOG Alphabet $15.70
GOOGL Alphabet $15.68
SMFG Sumitomo Mitsui Financial $0.19
ASEKY Aisin Seiki Co $1.19
SNE Sony $0.80
RCL Royal Caribbean Cruises -$5.04
TDG TransDigm $2.09
IT Gartner $0.82
QGEN Qiagen $0.66
NPSKY NSK ADR $0.19
JKHY Jack Henry Associates $0.88
IPHI Inphi $0.88
SWI Solarwinds $0.25
BDC Belden $0.75
ILMN Illumina $1.10
BP BP £0.01

 

Wednesday (February 3)

IN THE SPOTLIGHT: QUALCOMM

QUALCOMM: San Diego, California-based multinational corporation that creates an intellectual property, semiconductors, software, and services related to wireless technology is expected to report a profit of $2.10 in the fiscal first quarter, which represents year-over-year growth of over 110% from the same quarter last year when the company reported $0.99 per share.

The semiconductor company will report revenue of $80.3 billion, up over 60% from the year-ago quarter.

“We see an improvement in smartphone demand in 2021 after declining 5% in 2020 due to COVID-19. We also see 5G adding greater dollar content and supporting industry-wide handset volume growth. Qualcomm’s (QCOM) leadership in cellular technologies (3G/4G/5G) puts the company in a favourable position to maintain leading market share,” wrote Joseph Moore, equity analyst at Morgan Stanley.

“The potential elimination of a major competitor in the Chinese market, HiSilicon, should benefit QCOM as Huawei currently does not pay royalties. To the extent competitors that do pay royalties are able to pick up market share, that would be beneficial for QCOM.”

TAKE A LOOK AT OUR EARNINGS CALENDAR FOR THE FULL RELEASES FOR THE FEBRUARY 3

Ticker Company EPS Forecast
ABBV AbbVie $2.85
LAD Lithia Motors $5.23
APTV Aptiv PLC $1.01
HUM Humana -$2.37
BIP Brookfield Infrastructure $0.10
HWM Howmet Aerospace Inc $0.17
GWW Grainger $3.84
SC Santander Consumer USA $1.10
BIIB Biogen $4.75
CHKP Check Point Software Technologies $2.11
LFUS Littelfuse $1.58
BSX Boston Scientific $0.31
DT Dynatrace Holdings $0.13
SPOT Spotify -$0.53
APO Apollo Global Management $0.50
INGR Ingredion $1.46
SMG Scotts Miracle-Gro -$0.77
CPRI Capri Holdings Ltd $0.97
MSGS Madison Square Garden Sports -$1.67
EVR Evercore Partners $1.93
EPD Enterprise Products Partners $0.50
SLAB Silicon Laboratories $0.74
ASH Ashland $0.69
MUSA Murphy USA $2.14
ALGT Allegiant Travel -$2.27
BSMX Santander Mexico Fincl Gp Sab Decv $0.14
CENTA Central Garden Pet -$0.01
RGLD Royal Gold Usa) $0.86
ALGN Align Technology $2.14
AXTA Axalta Coating Systems $0.43
THG Hanover $2.34
AFL Aflac $1.05
KLAC KLA-Tencor $3.18
MAA Mid-America Apartment Communities $0.59
GRUB GrubHub $0.07
AVB AvalonBay Communities $0.85
CTSH Cognizant Technology Solutions $0.90
VVV Valvoline Inc $0.37
RYN Rayonier $0.05
QCOM Qualcomm $2.10
LNC Lincoln National $1.92
MET MetLife $1.52
CTVA Corteva Inc -$0.05
UHAL Amerco $0.12
QRVO Qorvo $2.66
MXL MaxLinear $0.36
ANGI Angie’s List -$0.02
HI Hillenbrand $0.73
CCMP Cabot Microelectronics $1.73
UGI UGI $1.13
KLIC Kulicke And Soffa Industries $0.71
AFG American Financial $2.13
IEX IDEX $1.31
FORM FormFactor $0.39
EBAY eBay $0.83
MITSY Mitsui & Company $7.96
LGND Ligand Pharmaceuticals $0.99
RAMP Liveramp Holdings Inc $0.06
NVO Novo Nordisk A Fs $0.60
TMHC Taylor Morrison Home $0.82
AVY Avery Dennison $2.08
SAVE Spirit Airlines -$1.40
GSK Glaxosmithkline $0.62
IRBT Irobot $0.21
COTY Coty $0.09
PAG Penske Automotive $2.11
COHR Coherent $0.78
DTE DTE Energy $1.33
ENSG Ensign $0.79
FLO Flowers Foods $0.24
SKM Sk Telecom $0.22
IBA Industrias Bachoco Sab De Cv $0.63
NEU NewMarket $5.60
BBD Banco Bradesco $0.11
PYPL PayPal $1.00
NMR Nomura $0.18
BSBR Banco Santander Brasil $0.17
SAN Banco Santander $0.06

 

Thursday (February 4)

Ticker Company EPS Forecast
GPI Group 1 Automotive $5.94
ALXN Alexion Pharmaceuticals $2.58
NYT New York Times $0.34
BCE BCE (USA) $0.59
BMY Bristol-Myers Squibb $1.41
NJR New Jersey Resources $0.46
PM Philip Morris International $1.21
CMI Cummins $2.80
TPR Tapestry Inc $0.99
ARW Arrow Electronics $2.67
CMS CMS Energy Corporation $0.55
BAX Baxter International $0.75
YUM Yum Brands $1.01
CG Carlyle $0.44
CLX Clorox $1.77
AGCO AGCO $1.12
MPW Medical Properties $0.27
ABB ABB $0.18
JHG Janus Henderson Group PLC $0.73
CI Cigna $3.66
MMS Maximus $0.91
MRK Merck & Co $1.38
WEC Wisconsin Energy $0.73
XYL Xylem $0.68
TW Towers Watson $0.33
PENN Penn National Gaming $0.26
HSY Hershey $1.43
PH Parker-Hannifin $2.60
ICE Intercontinental Exchange $1.08
BSAC Banco Santander Chile $0.34
RL Ralph Lauren $1.64
SNA Snap-On $2.94
DGX Quest Diagnostics $3.98
ODFL Old Dominion Freight Line $1.57
COR CoreSite Realty $0.45
WD Walker & Dunlop $1.47
TKR Timken $0.92
IP International Paper $0.81
AME Ametek $1.03
BLL Ball $0.78
PBH Prestige Brands $0.77
ABC AmerisourceBergen $1.94
APD Air Products & Chemicals $2.18
LEA Lear $3.43
LANC Lancaster Colony $1.48
PTON Peloton Interactive, Inc. $0.08
SU Suncor Energy USA -$0.17
SKX Skechers USA $0.32
MTD Mettler Toledo International $8.72
PCTY Paylocity $0.25
ARWR Arrowhead Research -$0.22
SNAP Snap -$0.07
FTV Fortive Corp $0.62
NWSA News Corp $0.09
DECK Deckers Outdoor $7.06
EXPO Exponent $0.28
FTNT Fortinet $0.97
ALL Allstate $3.83
MDU MDU Resources $0.54
SYNA Synaptics $2.13
TDC Teradata $0.25
FLT Fleetcor Technologies $2.82
NBIX Neurocrine Biosciences $0.59
POST Post $0.71
CSL Carlisle Companies $1.16
NOV National Oilwell Varco -$0.14
GILD Gilead Sciences $2.01
WERN Werner $0.78
ESS Essex Property $1.02
CPT Camden Property $0.35
MPWR Monolithic Power Systems $1.24
WWE World Wrestling Entertainment $0.29
LPLA LPL Financial $1.33
OFC Orate Office Properties $0.38
ZEN Zendesk $0.15
MTX Minerals Technologies $0.91
PFPT Proofpoint $0.42
MSI Motorola Solutions Msi $2.74
COLM Columbia Sportswear $1.24
ATVI Activision Blizzard $1.17
F Ford Motor -$0.08
UNM Unum $1.19
HIG Hartford Financial Services $1.33
PRU Prudential Financial $2.57
DXC DXC Technology Co $0.54
KB Kb Financial $1.50
CHT Chunghwa Telecom $0.36
MCHP Microchip Technology $1.58
NWS News $0.09
AIV Apartment $0.67
SSUMY Sumitomo ADR $0.26
DB Deutsche Bank -$0.03
OHI Omega Healthcare Investors $0.41
KWHIY Kawasaki Heavy Industries ADR -$0.18
PFSI Pennymac Financial Services $5.90
TRNO Terreno Realty $0.37
BCO Brinks $1.04
VSAT Viasat $0.02
YAMCY Yamaha DRC $0.47
RDSA Royal Dutch Shell £0.17
NRZ New Residential Investment $0.33
RICOY Ricoh Company -$0.06
WYNN Wynn Resorts -$2.29
ITOCY Itochu ADR $1.87
TOT Total $0.46
MYGN Myriad Genetics -$0.12
BDX Becton, Dickinson and Co. $3.07
ARNC Arconic Inc $0.32
TM Toyota Motor $3.65
RHHBY Roche Holding ADR $1.28
CDW CDW $1.53
ARRY Array Biopharma $0.05
HL Hecla Mining $0.02
TWOU 2U -$0.10
ALNY Alnylam Pharmaceuticals -$1.88
DD DuPont $0.85
CARR Carrier Global Corp $0.37
OMVJF OMV $0.74
TPL Texas Pacific Land $4.54
AUOTY AU Optronics $0.27

 

Friday (February 5)

Ticker Company EPS Forecast
HRC Hill-Rom $1.05
ADNT Adient PLC $0.87
TT Trane Technologies PLC $0.92
LAZ Lazard $0.97
SNY Sanofi $0.69
EL Estée Lauder $1.68
LIN Linde PLC $2.16
AON AON $2.46
ZBH ZIMMER BIOMET HDG. $2.07
ITW Illinois Tool Works $1.79
REGN Regeneron Pharmaceuticals $8.23
CAH Cardinal Health $1.44
SPB Spectrum Brands $0.75
BERY Berry Plastics $0.94
HMC Honda Motor $0.75
NFG National Fuel Gas $0.99
CHBAY Chiba Bank ADR $0.77
SOMLY Secom ADR $0.26
ASX Advanced Semiconductor Engineering $0.12
BNPQY BNP Paribas ADR $0.55
FE FirstEnergy $0.50

 

Surprise! Nasdaq Led Weekly Gains

Surging, gaining…come again?

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

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

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

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

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

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

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

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

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

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

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

Therefore, to sum it up:

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

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

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

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

Are We in a Tech Bubble or Not?

Figure 1- Nasdaq Composite Index $COMP

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

Pay very close attention.

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

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

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

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

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

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

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

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

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

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

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

Thank you.

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

* * * * *

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

 

Stocks Move Lower After Disappointing Reports From IBM And Intel

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

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

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

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

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

Oil Is Under Strong Pressure Amid Rising Coronavirus Cases In China

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

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

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

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

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

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

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

Markets Surge Despite Unprecedented Violence at U.S. Capitol

In a news-filled day, the Dow Jones hit an all-time high on Wednesday (Jan. 6), despite unprecedented unrest taking place in Washington D.C.

News Recap

  • The Dow climbed 438 points or 1.4% and briefly rose more than 600 points earlier in the day. The S&P 500 also gained 0.6% and hit an intraday record, while the Nasdaq fell 0.6%. The small-cap Russell 2000 surged by nearly 4%.
  • The day began with investors focused on the Georgia U.S. Senate special election runoff . Democrat Raphael Warnock defeated incumbent Republican Kelly Loeffler, with other Democrat Jon Ossoff announced as the winner over incumbent Republican Sen. David Perdue later in the day.
  • With a Democrat sweep in Georgia, the party now has control of the Senate. Although it is a 50-50 split (with two independents) in the Senate, both Democrats win, they have full control because Vice President-elect Kamala Harris will serve as the tiebreaker vote.
  • Many believe that because President-elect Biden, a Democrat, has a House and Senate under Democrat control, he could more easily pass higher taxes and progressive policies that may hurt the market. On the other hand, others believe that this Democrat sweep could bring into effect a larger and quicker stimulus relief bill.
  • The real news of the day was what happened at the U.S. Capitol building. After President Trump (and his family) led a “Stop the Steal” rally in Washington, D.C. to protest Congress’ certification of Joe Biden as the next president, angry MAGA supporters did the unthinkable and stormed the Capitol.
  • Wednesday (Jan. 6) was the first time since 1814 that the Capitol building was physically breached by hostile actors.
  • The invasion of the Capitol occurred after Vice President Mike Pence rejected President Trump’s calls to block Joe Biden’s election confirmation. Shortly after, the Capitol went into full lockdown.
  • Later that night, the Capitol was secured and Congress reconvened to officially certify Biden as the president. The CBOE Volatility Index (VIX) moved higher due to the unrest at the Capitol.
  • Caterpillar (CAT) surged 5.5%, while big banks such as JPMorgan Chase (JPM) and Bank of America (BAC) gained 4.7% and 6.3%, respectively. Other names and sectors that could be aided by Biden’s agenda rose as well such as the Invesco Solar ETF (TAN) which boomed 8.4%.
  • Tech lagged on the day due to fears of higher taxes and higher stimulus potential. Facebook (FB) and Amazon (AMZN) each fell more than 2%, while Netflix (NFLX) dipped 3.9%.
  • The 10-year Treasury note yield topped 1% for the first time since March.

What a newsworthy day Wednesday (Jan. 6) was. What started as a day focused on Senate runoff elections with the balance of Senate power at stake, ended with President-elect Biden being officially confirmed as the next president. But in between? A mob took over the capitol building! Did you ever think you would read that sentence in your lifetime?

Love him or hate him, President Trump is an eccentric character to put it lightly. Scorned, and still convinced that he won the election, Trump and his bruised ego whipped his supporters into a frenzy during a “Stop the Steal” rally and encouraged them to march towards the Capitol and make their voices heard. Somehow the protest turned into a storming of the Capitol after Vice President Mike Pence refused to overturn the election. Pence was later ushered out of the Senate and the Capitol went into lockdown.

What’s truly shocking here is that the markets still went up! In fact, the Dow hit yet ANOTHER all-time high! Whether you like it or not, this has to give you some sort of faith in the resiliency of capitalism,

The results of the Georgia election can be credited for the market surge.

Although some sectors plummeted due to fears of higher taxes and stricter regulations, with full Democrat control of the Presidency, Senate, and House, there is clarity for one, and expectations of further spending and government stimulus.

Goldman Sachs expects another big stimulus package of around $600 billion . While this could be bad for the national debt and have long-term consequences, in the short-term, it could send the economy heating. Small-cap stocks surged as a result.

I still believe that there will be a short-term tug of war between good news and bad news. Many of these moves upwards or downwards are based on emotion and sentiment, and I believe there could be some serious volatility in the near-term. Although markets on Wednesday (Jan. 6) may have been overly excited from the “Blue Wave” thanks to Georgia, consider this: the Capitol was invaded and the pandemic is still wreaking havoc! Even though the markets gained and the 10-year treasury ticked above 1% for the first time since March, the VIX still rose which means that fear is on the rise.

There was no pullback to end 2020 as I anticipated, but I still believe that markets have overheated in the short-term, and that between now and the end of Q1 2020 a correction could happen.

Carl Icahn seemingly agrees with me, and told CNBC on Monday (Jan. 4) that “in my day I’ve seen a lot of wild rallies with a lot of mispriced stocks, but there is one thing they all have in common. Eventually they hit a wall and go into a major painful correction.”

National Securities’ chief market strategist Art Hogan also believes that we could see a 5%-8% pullback as early as this month.

I believe though that corrections are healthy and could be a good thing. Corrections happen way more often than people realize. Only twice in the last 38 years have we had years WITHOUT a correction (1995 and 2017). I believe we are overdue for one since there has not been one since the lows of March 2020. This is healthy market behavior and could be a very good buying opportunity for what I believe will be a great second half of the year.

While there will certainly be short-term bumps in the road, I love the outlook in the mid-term and long-term once vaccines become more widely available. The pandemic is awful right now, and these new infectious strains out of the U.K. and South Africa are quite concerning. But despite this, I believe the positive manufacturing data released on Tuesday (Jan. 5) is a step in the right direction, especially considering all the restrictions that most countries are living through.

The consensus is that 2021 could be a strong year for stocks. According to a CNBC survey which polled more than 100 chief investment officers and portfolio managers, two-thirds of respondents said the Dow Jones will most likely finish 2021 at 35,000, while five percent also said that the index could climb to 40,000.

Therefore, to sum it up:

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

Can Small-caps Own 2021?

Small-caps are the comeback darlings of the week. Although I believed that the Russell 2000’s record-setting run since the start of November was coming to an end, it has rallied over 5% in the last two trading days. Thanks to a Democrat sweep in Georgia and hopes of further economic stimulus, small-cap stocks have climbed back towards record highs.

I love small-cap stocks in the long-term, especially as the world reopens. A Democrat-dominated Congress could help these stocks too. But I believe that in the short-term, the index, by any measurement, has simply overheated. Before Jan. 4, the RSI for the I WM Russell 2000 ETF was at an astronomical 74.54. I called a pullback happening in the short-term due to this RSI, and it happened. Well now the RSI is back above 72, and I believe that a bigger correction in the near-term could be imminent.

Stocks simply just don’t always go up in a straight line, and that’s what the Russell 2000 has essentially been between November and December.

What this also comes down to is that small-caps are more sensitive to the news – good or bad. I believe that vaccine gains have possibly been baked in by now. There could be another near-term pop due to hopes of further stimulus, but I believe that it’s likely possible that small-caps in the near-term could trade sideways before an eventual larger pullback.

I truthfully hope small-caps decline a minimum of 10% before jumping back in for long-term buying opportunities.

SELL and take Wednesday’s (Jan. 6) profits if you can- but do not fully exit positions .

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

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

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

Thank you.

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

* * * * *

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

 

Stocks Retreat As Democrats Lead In Georgia Senate Runoff Elections

Traders Sell Tech Stocks

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

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

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

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

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

OPEC+ Reached A Compromise Deal

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

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

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

ADP Employment Change Report Disappoints

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

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

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

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

The Pandemic Year 2020: Investors Navigating the New Normal with COVID

As we head into the holiday season, investors remain focused on COVID-19 pandemic which has forcefully plunged the world into a “New Normal”. The alarming speed of the spread of the virus across the world has transformed and reshaped the world in a short amount of time but with longer-lasting impact. As everyday life has been impacted, investors have also reassessed and realigned their investment strategies to face the new world.

Stock Market

Quarter 1 – A Trio of Crises & the Great Lockdown

The markets tumbled like dominoes hit by various headwinds at once ranging from geopolitical tensions between the US and China, Hong Kong and Iran, extreme weather conditions, an oil price war, and the novel coronavirus which forced various forms of lockdowns and social distancing across the globe. Faced by an unprecedented health crisis, and an oil crisis, the world was bracing for an unexpected economic crisis.

Volatility soared in the markets to decades high from an average of 20 to a high above 80 around mid-March causing several circuit breakers and trading halts on some stock exchanges. The stock market bottomed down, and major equity indices dropped in bear market territory ending an 11-year bull-run in the stock market. Global stocks experienced the worst week since the global financial markets.

Central banks and governments rushed in to intervene and cushion the freefall in the financial markets and support their economies which brought some degree of calm in the stock market.

Quarter 2 – The Grand Reopening & Roadmap to Recovery in a Pandemic

Investors witnessed the grand reopening in the second quarter after the great lockdown in the first quarter. Massive fiscal stimulus, ultra-low levels of interest rates, central banks interventions and optimism on the reopenings helped the stock market to rebound as fiercely and aggressively as it initially fell.

The government and central banks have absorbed nearly all the shocks of the virus on the financial markets by injecting massive liquidity in the economy, keeping credit flowing and supporting their economy with huge fiscal stimulus plan among many others unconventional plans. On the reassurance that the intervention measures are not going to fizzle out anytime soon, investors have pushed global stocks higher:

  • Major US equity indices rallied and record new highs.
  • European stocks were flaring better. Even though the Eurozone was not economically strong pre-COVID-19 crisis, the better containment of the virus compared to the US and the historic unity European countries have shown during the coronavirus crisis has boosted confidence for European stocks
  • Australian shares also rebounded significantly and reclaimed the 6,000 level to mark the best quarter in over a decade.

Quarter 3 – Vaccine Optimism, Presidential Election, and Tech Rally

While the vaccine updates and the US Presidential elections campaigns were at the forefront of the markets in the third quarter, global stimulus improving economic data, a better-than-expected earnings season and the resilience of the technology sector have lifted risk sentiment. Global equities have been on a staggering rally at the beginning of the quarter allowing the major equity indices to recover the losses made in the first quarter.

However, geopolitical risks – US/China tech war and the ending of the US pact on Hong Kong extradition and reciprocal tax treatment, the US stimulus gridlock, the rising number of coronavirus cases and the uncertainty around the pace of recovery created an environment of caution.

Investors were monitoring closely the interventions by central banks and governments to push stocks higher at the risk of the global economic backdrop and the stimulus-fueled economy. The month of September again lived up to its reputation of being the typical scary month for investors which saw major corrections in the stock market as investors were navigating in a highly uncertain environment.

Once the volatility around the US elections faded, investors were focused on the prospects of another round of national lockdowns and the lack of timely US stimulus support. The tech sector was at the centre of attention as the big tech leaders outshined when the world went into virtual reality mode. The industry biggest players: Amazon, Apple, Facebook, Alphabet, and Microsoft were somewhat well-equipped to rise to the challenges. The resilience and performance of the tech sector year-to-date stood out this year – mega-caps tech companies have tackled the pandemic relatively unscathed by its impact compared to the economic malaise other industries are facing.

  • The Reshuffling of the Dow Jones Industrial Average

Another notable event was the reshuffling of the Dow – Amgen (AMGN), Salesforce.com (CRM) and Honeywell International (HON) were added to the index while Pfizer (PFE), Raytheon Technologies (RTX) and Exxon Mobil (XOM) were removed. The moves were spurred by Apple’s decision to split its stock which will reduce the Information Technology index weight.

Apple made history in August and retakes the market-cap lead from Microsoft to become the first US company to be valued at US$2 trillion.

If immediate attention generally was on the FAANG group, Sea Ltd, the leading internet platform in Southeast Asia and Taiwan drew attention as well. The company outshines Tesla and the FAANG group of companies and emerged as the world’s best performing large-cap stock.

The Last Quarter – First Vaccinations

Amid the election mayhem and a probable contested election, the gridlock in Congress, another wave of hard lockdowns, and Brexit chaos, investors had a breather with promising vaccine updates. The back and forth on the US stimulus coronavirus relief package and Brexit negotiations took the markets on a wild ride in the last quarter. Throughout the last few months, Pfizer and BioNTech, Moderna and AstraZeneca issued convincing statements of the progress of the vaccine trials.

The emergency vaccine approvals and the first vaccinations across major countries like the US and the UK brought some relief following the ongoing surge in coronavirus cases in certain economies. Overall, there was enough optimism in the last few weeks for global equities to recover from October’s plunge.

Source: Bloomberg

US Share Market

Despite a contested election, the lack of timely fiscal support and the raging spread on the virus in the US, the share market was supported by the vaccine updates and first immunizations which took place earlier this month.

Source: Bloomberg

Similarly, the encouraging vaccine news was the bullish trigger for the European markets despite the further lockdowns in major European countries, tough Brexit negotiations and a slower economic recovery compared to its peers. As of writing, a new variant of the virus in the UK triggered a sell-off in the European markets. The CBOE Volatility Index jumped to the highest in a month above the 30 mark.

The new COVID mutation was mainly detected in the UK but the WHO confirmed its presence so far in Denmark, the Netherlands and Australia as well. Investors are closely monitoring statements on whether the new variant is more easily transmissible than the original strain of the disease.

The Australian Share Market – Back in Black

After the release of the Federal Budget, Australian shares started to decouple from US and European stocks as investors endorsed the government blitz which boosted confidence. During the month of November, the Australian share market has rallied significantly on the back of:

  • The easing of lockdown restrictions in the second most populated state and the second’s largest city in the country.
  • The positive vaccine updates coming from Pfizer and BioNTech, Moderna and AstraZeneca.
  • The confidence in the Australian economy as compared to other major countries. Consumer confidence reached a 10-year high.
  • Historically low-interest rates. Even though the RBA slashed interest rates to a historic low, there is a level of reassurance that the lower level of interest rates will stay for a longer period which means that the central bank is not expecting a deterioration in the Australian economy fuelling investors’ confidence.
  • The Asia-Pacific Free Trade Agreement has provided another level of confidence at a time of global trade uncertainty. It has also elevated expectations that both countries might initiate some sort of dialogue after the Chinese Communist Party has frozen all communications with Australian ministers.

In November, the ASX recorded their best month in decades and briefly erased its 2020 losses before retreating lower. As of writing, the index is currently trading at around 6,601.

Forex Market: The King Dollar?

The US dollar went on a roller coaster ride throughout the year. In a classic reaction to an unpredictable and uncertain event like the pandemic, the demand for haven assets triggered a rally in the US dollar. As panic gripped markets, dollar funding pressures drove the US dollar index to a 3-year high above the 102 level. Even though policymakers stepped in to enhance flows, the greenback remained in elevated levels.

Source: Bloomberg

A significantly bigger stimulus package compared to its peers at the beginning fuelled hopes that the US economy would probably recover faster than other major economies. The US dollar was unable to maintain the bullish momentum over the following quarters as risk sentiment improved and the US was still battling hard the spread of the virus with no signs of slowing down and stimulus packages were not flowing in as required.

Major currencies remained stronger than the US dollar in the following quarters. Major central banks like the RBA had to tap into QE for the first time this year and many even contemplate or left the door open for negative interest rates if warranted.

Source: Bloomberg

The Euro gathered strength on the historic unity, some economic recovery, the ECB stimulus program and EU budget. The renewed lockdowns and Brexit woes remain the factors that may drove further volatility in the EUR pairs. The EURUSD pair is trading at a high above the 1.22 level.

The Antipodean currencies were among the top gainers lifted by the additional funding from the central banks, governments, renewed confidence, economic data and the better containment of the virus as compared to other major economies. The AUDUSD pair is trading nearly three-year high around the 0.750 level.

Source: Bloomberg

As the Brexit deadline looms, the Pound swung between gains and losses driven by contradictory headlines and statements from both the EU and the UK. Traders grew more hopeful in the last few days when both parties appear committed to seeing a deal through despite significant differences on three critical issues: level playing fieldgovernance and fisheries. Investors were taken on a roller-coaster ride following intensifying deal negotiations and on-and-off positive and negative announcements.

Brexit hopes drove the GBPUSD pair to an intraday high of 1.3624 last week. The Pound plummeted on the news of a new variant of the virus and as of writing, the pair retreating lower to the 1.33 level.

Gold Rally

At the start of the year, the US dollar and Gold were moving in tandem due to the prevailing uncertainties – QE, low-interest rates, trade frictions, geopolitical tensions, global debt and growth uncertainties, gold hoarding by central banks have driven the gold price higher just below the $1,700 mark.

However, Gold was initially liquidated due to the wider and rapid spread of the coronavirus across the globe. The precious metal is viewed as a highly liquid asset and investors were in a need of cash due to margin calls and other liquidity requirements. COVID-19-induced liquidity issues caused the yellow metal to plunge to a low of $1,451.55.

The yellow metal rallied at the start of the third quarter to a high of $2,075 in the month of July but traded within a narrow range as investors digested some positive vaccines updates, improving economic data and easing lockdown restrictions. The XAUUSD pair plunged below a key psychological level below the $1,900 mark but held on to elevated levels.

From the health crisis point of view, the vaccine updates are fuelling the hopes of a quicker recovery and providing reassurance to investors. However, the amount of stimulus injected into the global economy over the last couple of months is evidence that the economic and financial recovery might take some time. Gold is still trading at a decade-high around the $1,880 mark.

Oil Market

An oil price war and the ongoing pandemic struck the crude oil market at a time where the industry was already faced with a simultaneous demand and supply shock. As the world grapples with the ongoing pandemic, different forms of lockdowns across the globe have severely impacted key industries of consumers of oil. Global activities have slowed down on a massive scale with empty roads, grounded aircraft, plunging car sales and disrupted supply chains abruptly sapping oil demand.

The extent of the disruptions in the energy market caused by the pandemic will probably leave a lasting impact on the oil market which may take years to overcome. Traders are analysing whether the impact of the pandemic will either accelerate the pace in using renewables or delay that process.

Crude oil prices have mostly remained stuck within a range below the $50 after the big plunge earlier this year. With a dire demand outlook from as per the October reports, there are increasing pressure from OPEC members and its allies to balance the supply side and avoid flooding the oil market with extra supply.

In a pandemic-induced environment, investors are navigating a new normal with COVID-19. Despite the painful year on the health front, the stock market had a great year driven by the prompt interventions in the financial markets by central banks and governments around the globe.

While a vaccine provided a sense of relief, we are ending the year with much uncertainty on the geopolitical, economical and health front.

By Deepta Bolaky

Disclaimer: The articles are from GO Markets analysts, based on their independent analysis or personal experiences. Views or opinions or trading styles expressed are of their own; should not be taken as either representative of or shared by GO Markets. Advice (if any), are of a ‘general’ nature and not based on your personal objectives, financial situation or needs. You should therefore consider how appropriate the advice (if any) is to your objectives, financial situation and needs, before acting on the advice. If the advice relates to acquiring a particular financial product, you should obtain and consider the Product Disclosure Statement (PDS) and Financial Services Guide (FSG) for that product before making any decisions.

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Dow, S&P Dip Again on Lockdown Fears

Stocks closed largely down on Monday (Dec. 14) as fears of stricter lockdowns outweighed vaccine optimism.

News Recap

  • The Dow Jones closed lower by 185 points, or 0.5% after earlier rising by as much as 200 points and hitting a record intraday high. The S&P 500 also declined by 0.4%, while the Nasdaq outperformed and gained 0.5%. The small-cap Russell 2000 once again rose, gaining 0.26%.
  • Although the day started with optimism as Pfizer began the rollout of its vaccine, comments from New York City Mayor Bill De Blasio put pressure on the Dow and S&P, and spooked investors about further lockdowns. De Blasio warned earlier in the day that New York could experience a “full shutdown” soon, due to infection levels not seen since May.
  • There is some cautious optimism that some sort of stimulus could be passed before the end of the year, however, congress remains deeply divided on several fronts. Namely, these partisan divides stem from liability protections for businesses, the scope of state and local aid, and weekly unemployment benefits.
  • We have reached the deadliest weeks of the COVID-19 pandemic. More than 300,000 total COVID-related deaths have now been confirmed in the U.S., with over 16 million confirmed cases.
  • After the U.S. FDA. officially cleared Pfizer (PFE) and BioNTech’s (BNTX) vaccine last Friday (Dec. 11), the roll-out officially began on Monday (Dec. 14). The first doses were administered to healthcare workers and nursing home staffers. Approximately 2.9 million doses were shipped to 636 sites across the country. Pfizer also said it would roll out a second batch of 2.9 million doses shortly after this initial batch. The FDA is also slated to publish its assessment on Moderna’s vaccine this week, before mass deployment.
  • Despite the start of the vaccine roll-out, shares of Pfizer and BioNTech both sharply fell 4.65 and 14.95%, respectively.
  • Companies dependent on an economic reopening lagged the “stay-at-home” and tech winners from early on in the pandemic. United Airlines (UAL) dropped 3.4% and Chevron (CVX) fell 3.26% compared to Netflix (NFLX) which gained over 3.8%, and Amazon (AMZN) which popped more than 1%.
  • Tesla (TSLA) also surged 4.90% as investors anticipate its inclusion into the S&P 500 after this week.

While the short-term may see some pain and/or mixed sentiment, the mid-term and long-term optimism is certainly very real. Overall, the general consensus between market strategists is to look past short-term painful realities and focus more on the longer-term – a world where COVID-19 is expected to be a thing of the past and we are back to normal.

According to Robert Dye, Comerica Bank Chief Economist : “I am pretty bullish on the second half of next year, but the trouble is we have to get there…As we all know, we’re facing a lot of near-term risks. But I think when we get into the second half of next year, we get the vaccine behind us, we’ve got a lot of consumer optimism, business optimism coming up and a huge amount of pent-up demand to spend out with very low interest rates.”

Other Wall Street strategists are bullish about 2021 as well. According to a JPMorgan note to clients released on Wednesday (Dec. 9), a widely available vaccine will lift stocks to new highs in 2021:

“Equities are facing one of the best backdrops for sustained gains next year,” JPMorgan said. “We expect markets to be driven by recovery from the COVID-19 crisis at the back of highly effective vaccines and continued extraordinary monetary and fiscal support.”

JPMorgan’s S&P 500 target for 2021 is 4,400. This implies a nearly 20% gain.

On the other hand, for the rest of 2020, and maybe early on into 2021, markets will wrestle with the negative reality on the ground and optimism for an economic rebound.

Additionally, the rally since election week invokes concerns of overheating with bad fundamentals. Commerce Street Capital CEO Dory Wiley advised caution in this overheated market. He pointed to 90% of stocks on the NYSE trading above their 200-day moving average as an indication that valuations might be stretched:

“Timing the market is not always well-advised and paring back can miss out on some gains the next two months, but after such good returns in clearly a terrible fundamentals year, I think taking some profits and moving to cash, not bonds, makes some sense here,” he said.

In the short-term, there will be some optimistic and pessimistic days. Some days, like Monday (Dec. 14), will reflect what the broader “pandemic” trend has been – cyclical and recovery stocks lagging, and tech and “stay-at-home” stocks leading. On other days (and in my opinion this will be most trading days), markets will trade largely mixed, sideways, and reflect the uncertainty. However, if a stimulus deal passes before the end of the year, it could mean very good things for short-term market gains. It is possible that there could be a minor compromise reached before the end of the year, however, a more large-scale comprehensive package may not be agreed to until 2021.

In the mid-term and long-term, there is certainly a light at the end of the tunnel. Once this pandemic is finally brought under control and vaccines are mass deployed, volatility will stabilize, and optimism and relief will permeate the markets. Stocks especially dependent on a rapid recovery and reopening, such as small-caps, should thrive.

Due to this tug of war between sentiments, it is truly hard to say with conviction whether another crash or bear market will come.

Therefore, to sum it up:

While there is long-term optimism, there is short-term pessimism. A short-term correction is very possible. But it is hard to say with conviction that a big correction will happen.

On Pessimistic Days, Tech is Crucial…But There are Concerns

Tech shares led the markets on Monday (Dec. 14) and reflected a return of the “stay-at-home” trade – possibly due to Mayor De Blasio’s “shut down” comments about New York City. However, I believe these are short-term moves rather than a return of long-term trends. I do not believe there is “market nostalgia” for the way the indices traded largely from April through the end of October.

Although I believe tech exposure is important during pessimistic trading days, I have many concerns about tech valuations and their astoundingly inflated levels. Last week’s IPOs of DoorDash (DASH) and AirBnB (ABNB) reflect this and invoke traumatic memories of the dotcom bubble era. I believe that more pullbacks along the lines of last Wednesday (Dec. 9) are inevitably coming in the short-term and would make me feel far more confident about initiating tech positions at lower valuations for the long-term.

After exceeding an overbought RSI level of 70, the pullback last Wednesday (Dec. 9th) brought it back down to a healthier level. While its current RSI of 63.30 is still pretty high, it is not quite overbought and still a hold. But monitor this . If the index goes on another bull-run and exceeds 70, then you may want to consider selling some. While an overbought RSI does not automatically mean a trend reversal, it does not help the overvaluation of the market and possible correction. The NASDAQ’s pullback last Wednesday (Dec. 9), after it exceeded a 70 RSI, reflects that.

The decline in volume since the start of the month is also quite concerning for volatility purposes. Low volume, especially a declining trend, means that there are fewer shares trading. Lower volume also means less liquidity across the index, and an increase in stock price volatility.

On pessimistic days, like Monday (Dec. 14), having NASDAQ exposure is crucial because of all the “stay-at-home” stocks that trade on the index. However, positive vaccine news always induces the risk of downward pressure on tech names – both on and off the NASDAQ. But what concerns me most are sharp sell-offs due to overheating and mania. Don’t ever let anyone tell you “this time is different” if fears of the dot-com bubble are discussed. History repeats itself – especially in markets.

It is very hard to say with conviction to sell your tech shares though. A further correction would not shock me in the least. But again, there is so much unpredictability right now, and truly anything could happen. The one thing I can confidently say though, is that if the RSI exceeds 70 again, then you should consider selling. For now, however, the NASDAQ stays a HOLD .

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

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

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

Thank you.

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

* * * * *

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

 

Stocks Move Higher As Stimulus Talks Make Progress

Stimulus Hopes Push Stocks Higher

S&P 500 futures are moving higher in premarket trading as traders are optimistic on the current stimulus talks.

It looks like negotiations between Republicans and Democrats are progressing well, and there’s a chance that a new coronavirus aid package will be approved before Christmas.

Tomorrow, the U.S. Fed will announce its Interest Rate Decision. The rate is expected to stay unchanged so traders will focus on Fed’s commentary.

The Fed may decide to increase purchases of long-dated bonds in order to put pressure on their yields which will be bullish for stocks.

Big Tech May Face Fines Of Up To 10% In EU

EU is expected to unveil new rules which will limit the power of tech giants like Facebook, Apple, Amazon and Alphabet.

Big Tech companies may face fines of up to 10% of annual turnover if they fail to comply with new rules which deal with antitrust concerns, disinformation, hate speech and other important areas.

It should be noted that EU members will still have to negotiate the final set of the rules which may take months or even years. However, it is already clear that Big Tech will face increased regulation in this decade.

At this point, investors remain confident that tech companies will be able to solve their regulatory problems, but it should be noted that most Big Tech stocks are trading below highs that were reached in early September.

Oil Ignores Grim Forecasts

Yesterday, OPEC cut its oil demand forecast for 2021 from 96.26 million barrels per day (bpd) to 95.89 bpd. Today, IEA also decided to cut its oil demand forecasts.

Both OPEC and IEA noted that current virus containment measures in Europe put material pressure on oil demand.

Interestingly, oil traders were able to shrug off near-term demand concerns, and WTI oil is trying to get to the test of the recent highs near $47.70.

Energy-related stocks suffered a serious sell-off during yesterday’s trading session, and they will have a good chance to rebound today.

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

Couch Shoppers Expected to Make Cyber Monday Best Digital Shopping Day Ever

U.S. retailers opened their doors to Black Friday shoppers by offering steep discounts, but that didn’t help their sales numbers with social distancing practices and other measures put in place to mitigate infection risks likely driving down traffic. The good news is e-commerce sales reached a new record.

Black Friday Shopping in Stores Craters 52%

CNBC reported over the weekend that traffic at stores on Black Friday fell by 52.1% compared with last year, as Americans by and large eschewed heading to malls and queuing up in lines for shopping online, according to preliminary data from Sensormatic Solutions.

For the six key weeks of the holiday season this year, traffic in retail stores is expected to be down 22% to 25% year over year, an earlier forecast by Sensormatic Solutions said.

“We knew Black Friday [traffic] was going to be down, we just didn’t know how much it was going to be down,” said Brian Field, a senior director of global retail consulting at Sensormatic Solutions. “Shoppers are spreading out their shopping throughout the holiday season because of concerns about social distancing and the pandemic.”

Many malls looked bleak, and parking lots were more empty than full, across much of the country during the early hours of the morning Friday. Some reported traffic picking up later in the day, especially at outlet and open-air shopping centers, as some consumers felt more comfortable heading out. The warmer weather that blanketed much of the country also helped.

“Black Friday this year, from a traffic impact perspective, looked a lot like a typical Saturday after a Black Friday,” Field said.

Black Friday 2020 Online Shopping Surges 22% to Record $9 Billion – Adobe Analytics

Spending online on Black Friday this year surged nearly 22% to hit a new record, according to data from Adobe Analytics, as the Covid pandemic pushed more people to shop from the sofa and avoid crowded stores and malls.

Consumers spent $9 billion on the web the day after Thanksgiving, up 21.6% year over year, according to Adobe, which analyzes website transactions from 80 of the top 100 U.S. online retailers.

On Black Friday, Adobe found consumers spent $6.3 million per minute online, or $27.50 per person, on average. Spending on smartphones surged 25.3% year over year to reach $3.6 billion, representing 40% of total e-commerce spending.

This makes Black Friday 2020 the second-largest online spending day in history in the United States, behind Cyber Monday last year.

Retail Stock Investors Looking Forward to Cyber Monday

Despite the slow traffic at the malls on Friday, traditional brick and mortar stores may have been saved by robust online buying and curbside pickups. However, the most popular online sellers like Amazon and Etsy should continue to outperform on Cyber Monday.

According to Adobe Analytics, Cyber Monday (November 30) this year is slated to become the largest digital sales day ever, with spending reaching between $10.8 billion and $12.7 billion, which would represent growth of 15% to 35% from a year earlier.

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

Gold’s Momentous Rally From 2000 Compared To SPY & QQQ – Part II

In Part I of this research article I highlighted the incredible rally in Gold related to a 2020 Anchor point and how that rally in Gold compared to the QQQ and SPY.  In this second Part I am going to highlight the price appreciation in the QQQ and SPY in comparison to Gold since 2009.  It is important to understand how the equities/stocks have rallied in comparison to Gold because the ratio of valuation levels in equities/stocks compared to Gold appears to show when price disparities become outrageous and begin to revert.

Part I of our research showed the 2000 anchor point ratios, where we saw that Gold appreciated faster than the QQQ and the SPY over the span of the past 20 years.  You’ll also see that the QQQ and SPY have appreciated very quickly over the past 5+ years in an attempt to close the gap.  This represents a shift in how traders view opportunities in different asset classes.

9 TO 9.5 YEAR GOLD DEPRECIATION CYCLE ENDED IN 2018 – WHAT NEXT?

We will now shift the anchor point to January 1, 2009, to see how the markets have reacted to valuations since the downturn created by the Global Financial Crisis.  The starting point is to determine how Gold, the QQQ, and the SPY have rallied since this major event in the global markets, and at what ratio.  Ideally, we would have seen moderately uniform appreciation ratios over the past 10 years. This would mean that traders placed nearly equal enthusiasm for higher valuations in the QQQ, SPY, and Gold. As we will see below, this is not the case.

Taking a look at this first Monthly 2009 Anchor ratio chart below, we see the QQQ is the big winner with a current ratio level above 9.0.  This suggests that the QQQ has rallied over 900% since the January 1, 2009 anchor price.  The SPY has rallied to current levels near 3.9.  This suggests that the SPY has rallied over 390% since the January 1, 2009 anchor point price levels.  Gold has only rallied to levels near 2.1 on this chart.  This suggests that Gold has been ignored as an asset class and has failed to keep up with the rally in the QQQ and the SPY over the past 10+ years.

This chart also suggests that traders focused more on the appreciation and expectations related to the NASDAQ/Technology sector over the past 4+ years as a source of asset growth.  Companies like Amazon, Facebook, Netflix, Microsoft, and others became the “hot symbols”  while the SPY and Gold fell away from investors’ focus.  This has happened before in the late 1990s with the DOT COM rally.  Traders and speculators jumped in on what appears to be a never-ending rally in the technology sector only to be shocked by the eventual collapse of that sector in early 2000.  Could the same thing happen again?

THE DOT COM DAYS ALL OVER AGAIN?

If we were to take a look at a different perspective of this same data in the chart below, using the January 1, 2009 date as an anchor point, the rally in the QQQ compared to the recent rally in Gold takes on a completely different perspective.  This chart shows the appreciation of the QQQ compared to Gold since 2009 has rallied more than 4.60 (460%).  The price of Gold on January 1, 2009, was 883.00 and the current price of Gold is $1875.80.  The price of the QQQ on January 1, 2009, was 29.77 and the current price of the QQQ is 288.40.  This suggests that the QQQ rallied 460% higher than the rally in Gold over this span of time.

This raises an interesting point that the current rally in the QQQ is similar to the extreme highs we saw in early 2000 near the DOT COM peak.  Even though, on the 2000 anchor ratio chart,  the QQQ ratio seems small compared to the 2000 anchor levels, the 2009 anchor ratio chart shows a different rate of appreciation based on the January 1, 2009 anchor point.  The biggest difference is the relationship between the origination points (being near the Global Financial Crisis lows) and the bigger rally in the QQQ compared to the rally in Gold.  What this suggests is that the QQQ has rallied much more extensively than Gold over the past 11 years – which is very similar to the DOT COM rally peak.

A PRECIOUS METALS APPRECIATION PHASE HAS BEGUN

When we take into consideration the 9 to 9.5 year cycles that my research team and I believe represent appreciation/depreciation cycles, we begin to understand that Gold has under-appreciated over the span of time from 2009 to 2018 and that the new cycle of Precious Metals appreciation has just started in 2019.  If our cycle research is correct, this new phase of precious metals appreciation will last until 2028 or so – very likely driving metals prices much higher to close the ratio gap shown on this chart.

We expect the ratio level to fall to levels near 1.60 to 2.50 over the next few years (possibly lower) as the price of Gold rallies faster than the price of the QQQ.  Over time, the QQQ may continue to still appreciate in some form, but that would suggest that Gold would still continue to appreciate at a faster rate to close the gap in the ratio level.

We believe the key ratio high level, shown on the chart above with a dark blue vertical line, may be the valuations peak (at least for now).  It aligns with our cycle interpretation and suggests that the late stage rally in the QQQ from mid-2018 may be a speculative exhaustion rally.  As the QQQ and SPY stay near all-time highs and Gold fails to advance substantially higher, this ratio will not change very much from the current levels.

Take a look at the 2000 Anchor QQQ to Gold Ratio chart from Part I of this research article.  The ratio levels did not start to change until the QQQ and SPY has clearly started to decline in late 2000 to early 2001 and when Gold started to move moderately higher.  Remember, Gold did not really start to break higher and start a real uptrend until after 2003/04 – this is when we start to see the ratio decline at a faster rate.

Currently, with Gold trading near 1892 and the QQQ and SPY trading near all-time highs, our researchers believe we are very close to a peak in the equities/stock market based on these ratios.  We also believe the 2009 Anchor chart ratio would have to fall below 3.5 to initiate a new “change of trend” trigger based on our research.  The current volatility in the markets suggests we will likely see a very wide range of price rotation before any new trends are established (up or down).  But we do see similarities in the current setup compared to the 2000 setup in terms of how the QQQ and SPY have reached lofty ratio levels while Gold has stalled near a base/momentum level.

Should our interpretations turn out to be accurate, we would start to see Gold appreciate higher at a faster rate over the next 2 to 3+ years while the QQQ and SPY potentially enter a moderately sideways or downward price trend (possibly somewhat similar to the 2000 to 2006 QQQ price rotation).

The QQQ Monthly chart below highlights the incredible parabolic upside price trend that has initiated  in early 2020 and how price has extended upward at almost extreme rates on expectations and speculation.  We believe any breakdown of this trend may prompt another 2000~2004 type of sideways market correction resulting in a reversion of the ratios we’ve highlighted in the charts above.  Any downside rotation in the QQQ to levels below 252 will likely breach the middle channel level of this recent parabolic upside price trend and result in the start of the reversion event.

The US elections, new policies and pending US economic shutdown (possibly for 30 to 60+ days as suggested by Joe Biden’s team) will shock the markets if it happens.  We are not fortune-tellers and are not able to clearly see what will happen in the future, but we can tell from the ratio charts and the QQQ chart, above, that very heavy price speculation has driven the markets into an upside rally mode and we are concerned above “how and when” it ends.  It may be that the rally continues for a number of years – or it may already be nearing an end.  Our researchers believe the peak level in 2018 on our ratio chart, after the last 9 to 9.5 year cycle completed, is showing us that the upward price cycle has already likely ended and we are transitioning into a renewed Precious Metals/Gold appreciation phase.

Imagine how powerful it would be for you to be able to trade only the strongest and best-performing assets across the spectrum while being able to take advantage of technical patterns and multiple re-entry triggers.  If you want to learn how we can help you find and identify great trading opportunities, then please visit www.TheTechnicalTraders.com to learn about my proprietary trading systems using my exciting ”Best Asset Now” strategy and indicators. You can also sign up for my daily pre-market video reports that walks you through the charts of all the major asset classes every morning.

Enjoy the rest of your weekend!

Chris Vermeulen
Chief Market Strategist
www.TheTechnicalTraders.com

NOTICE AND DISCLAIMER: Our free research does not constitute a trade recommendation or solicitation for readers to take any action regarding this research.  We are not registered financial advisors and provide our research for educational and informational purposes only.

 

Stocks Retreat As Amazon Faces EU Antitrust Charges

Stocks Are Set For A Pullback After Touching All-Time Highs On Monday

S&P 500 futures are losing ground in premarket trading in continuation of the market action seen in the last hours of yesterday’s trading session.

Market is worries about the fate of the new coronavirus aid package, the speed of vaccination and the continued uncertainty around the U.S. presidential election as Donald Trump prepares for legal battles.

Notably, Nasdaq futures are down by about 1.5% in premarket trading as leading tech stocks like Apple and Facebook remain under pressure. Yesterday’s laggards like Zoom and Netflix are also set to open lower, while Peloton investors can hope for some bounce at the start of the trading session.

The tech sector was leading the rebound of S&P 500 after the pandemic-related sell-off in March, and its recent weakness is worrisome for the bulls as it may take the broader market to lower levels.

Amazon Is Under Fire From The European Commission

Shares of Amazon are down by almost 2% in premarket trading as EU regulators accused the company of distorting competition in the online retail space.

While the EU decision on the case is expected in 2021, investors fear that the growing regulator attention to tech giants will ultimately hurt their profits or lead to break-ups of the leading tech companies.

The Big Tech is already facing increased scrutiny in the U.S., and EU has just indicated that it also plans to increase pressure on the companies whose might exceeds the power of many sovereign countries.

A potential sell-off in Big Tech stocks is one of the biggest threats for the market so investors will continue to monitor this story closely.

Oil Continues To Move Higher On Vaccine Hopes

Oil has managed to stay above the psychologically important $40 level and made an attempt to settle above the $41 levels as traders hope that an effective coronavirus vaccine will be a game-changer for the oil market.

The energy sector was a big winner yesterday, and energy-related stocks are also set to open higher today.

Shares of BP are set for an especially active trading session as they are already up by more than 7% in premarket trading.

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

Pfizer Vaccine Breakthrough Boosts Markets

Pfizer And BioNTech Report Great Results From Their Large-Scale Study Of COVID-19 Vaccine

S&P 500 futures have recently received a major boost after Pfizer and BioNTech COVID-19 vaccine was found to be more than 90% effective in the first analysis of the large study.

Vaccine news provided significant support to stocks, and S&P 500 futures are gaining more than 4% in premarket trading. Not surprisingly, shares of vaccine developers are gaining a lot of ground ahead of the market open – Pfizer shares are up by 12% while BioNTech stock is up by more than 23%.

Meanwhile, WTI oil managed to return back above the $40 level as vaccine news increased hopes for a successful rebound of oil demand. At the same time, precious metals like gold and silver are under pressure as traders dump safe haven assets amid optimism about the vaccine.

Stay-At-Home Stocks Suffer On Vaccine News

While the vaccine news are positive for most stocks, shares of some companies are under major pressure in premarket trading.

Zoom and Peloton, which were one of the major winners during the pandemic, are down by almost 13%, and even Amazon is under pressure in premarket trading. As a result of the pressure on stay-at-home stocks, the tech-heavy Nasdaq is set to open higher by a modest 0.5%.

It remains to be seen whether vaccine news will trigger a real rotation from tech stocks into more cyclical stocks, but stay-at-home stocks will certainly have a very challenging trading session today.

Airline And Cruise Line Stocks Jump In Premarket Trading

Today, investors look ready to bet on beaten stocks like airlines and cruise lines. For example, American Airlines Group is up by 25% while Delta Air Lines  is gaining 18% in premarket trading.

Investors are even more optimistic about cruise lines like Carnival Corp. or Norwegian Cruise Line Holdings as an effective vaccine against COVID-19 may make the difference between bankruptcy and profitable business for these companies.

Traders should expect plenty of volatility in these stocks in the upcoming trading sessions as the market will try to find new price levels which take vaccine news into account.

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