Stocks Move Higher On Stimulus Expectations

U.S. Congress Certifies Biden Win

S&P 500 futures are gaining ground in premarket trading as traders managed to shrug off concerns about yesterday’s unrest in Washington. The U.S. Congress promptly certified Joe Biden’s victory in presidential election.

U.S. President Donald Trump stated that “there will be an orderly transition on January 20th”, and markets focused on the consequences of Democrats’ victories in Senate elections.

Traders expect that Democrats will soon introduce another stimulus package which should provide additional support to the economy and the stock market. The yields on U.S. government bonds continued to rally as investors sold their holdings in anticipation of another avalanche of freshly-printed dollars.

Surprisingly, the U.S. dollar gained some upside momentum against a broad basket of currencies, putting pressure on safe-haven precious metals like gold and silver. It remains to be seen whether the U.S. dollar will continue to rebound as stimulus expectations will likely serve as a bearish catalyst for the American currency.

U.S. – China Tensions Continue To Increase

According to recent reports, U.S. may add China’s tech giants Alibaba and Tencent to a blacklist, banning American investments in these companies. On Tuesday, the U.S. ordered a ban on transactions with eight Chinese apps.

In addition, Secretary of State Mike Pompeo stated that the U.S. may introduce new sanctions related to the recent arrests in Hong Kong.

The new escalation in U.S. – China tensions did not get much attention as traders watched the turmoil in Washington, but it may have longer-term implications, especially in case the U.S. bans Chinese tech giants from U.S. markets. At this point, the markets ignore the risks of another round of trade war between the world’s biggest economies, and stocks look ready to move to new highs.

Initial Jobless Claims Remain Unchanged At 787,000

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

The Initial Jobless Claims report indicated that 787,000 Americans filed for unemployment benefits in a week compared to analyst consensus of 800,000. Meanwhile, Continuing Jobless Claims declined from 5.22 million to 5.07 million.

These reports look good in comparison with yesterday’s ADP Employment Change report which showed that private businesses fired 123,000 workers in December. However, traders will wait for the Non Farm Payrolls report which will be published on Friday to come to final conclusions about the current state of the job market.

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

Alibaba Shares Slump to Six-Month Low Despite Proposed Rise in Shares Buyback

Chinese technology giant Alibaba’s shares plunged as much as 9.2% to a six-month low on Monday as the world’s largest online and mobile e-commerce company’s increase of a proposed stock buyback program to $10 billion failed to lift sentiments amid growing concerns about a regulatory crackdown on Jack Ma’s empire.

Alibaba upsized a proposed stock buyback by $4 billion to $10 billion, effective for two years through the end of 2022. This comes at a time when Chinese regulators are launching an antitrust investigation into China’s e-commerce leader and would summon Alibaba’s affiliate to meet in coming days.

“We expect that the fine amount may not be large this time, which aims to remind the Company to avoid improper acts in the future, and to avoid monopolistic behaviour which is prohibited by relevant anti-monopoly laws. It is possible for further anti-monopoly law investigations for the Internet sector to be conducted, resulting in short-term uncertainty across the Internet sector,” noted Danny Law, equity analyst at Guotai Junan  Securities in Hong Kong.

“However, we don’t think that Chinese regulators are aiming to resist the development of internet businesses in China. On the other hand, Chinese regulators are trying to deter inappropriate acts by Internet enterprises, pushing Internet enterprises to adjust their expansion strategies.  This move will help Internet businesses in China to grow healthily and adopt socially responsible practices, benefitting the whole society eventually,” Danny Law added.

Alibaba shares closed about 8% lower at HK$210 after plunging as low as 9.2% intraday on Monday. However, the stock is just up over 1% so far this year.

Alibaba Stock Price Forecast

On the U.S.-listed stock, 22 analysts who offered stock ratings for Alibaba in the last three months forecast the average price in 12 months at $338.47 with a high forecast of $365.00 and a low forecast of $290.00. The average price target represents a 52.53% increase from the last price of $221.90. All of those 22 equity analysts rated “Buy”, according to Tipranks.

Morgan Stanley gave a base target price of $345 with a high of $405 under a bull scenario and $208 under the worst-case scenario. The firm currently has an “Overweight” rating on the e-commerce company’s stock.

Several other analysts have also recently commented on the stock. Alibaba Group had its price target cut by Raymond James to $330 from $335. They currently have a strong-buy rating on the specialty retailer’s stock. Argus upped their target price to $330 from $260 and gave the stock a buy rating. Mizuho increased their target price to $325 from $300 and gave the company a buy rating. Nomura restated a buy rating and set a $309 target price. At last, Goldman Sachs Group increased their target price to $350 from $315.

Analyst Comments

“COVID-19 has accelerated e-commerce penetration, especially in FMCG (fast-moving consumer goods), the next core category for e-commerce. Alibaba is set to benefit from this secular trend, given its leading position, and we expect it to maintain >50% market share over time, thanks to its strong ecosystem,” said Gary Yu, equity analyst at Morgan Stanley.

“In addition, merchants’ marketing budgets will continue to shift online given the increasing reliance on e-commerce and better conversion. Alibaba’s ad resources remain under-monetized. F2022e non-GAAP P/E is 24x, which we think is attractive given expanded addressable market for its e-commerce and cloud businesses. Profitability improvement in cloud serves as a key share price catalyst.”

Alibaba Plunges After Regulators Suspend Ant Group IPO

Shares in Chinese tech giant Alibaba Group Holding Limited (BABA) shares plummeted 8.13% Tuesday after regulators suspended the Ant Group Co. Ltd initial public offering (IPO) over concerns the fintech unicorn failes to meet requirements for listing on the Shanghai Stock Exchange. Alibaba has a 33% stake in the IPO, which was set to list Thursday and raise more than $35 billion through concurrent listings on the Shanghai and Hong Kong stock exchanges, making it the largest IPO in history.

Shanghai officials said they had halted the listing amid concerns that the company was able to meet conditions relating to changes in the regulatory environment. “Your company has reported significant issues such as the changes in financial technology regulatory environment. These issues may result in your company not meeting the conditions for listing or meeting the information disclosure requirements,” the stock exchange said, per Investor’s Business Daily.

As of Nov. 4, 2020, Alibaba stock has a market capitalization of $763.81 billion and trades 34.64% higher on the year. Over the past three months, the shares have gained nearly 11%. Despite the stock’s recent price appreciation, the company still trades just 18.7% above its five-year projected earnings multiple of 27.53.

Meeting with Regulators

The shock decision comes just a day after the People’s Bank of China and exchange regulators interviewed Ant Group co-founder Jack Ma about the IPO. According to Reuters, officials raised their concern about Ant’s lending business that originates loans underwritten primarily by financial-industry partners. Chinese regulators are reportedly growing fearful that financial institutions may encounter rising defaults in the wake of the coronavirus pandemic.

Wall Street View

Raymond James analyst Aaron Kessler has maintained his ‘Strong Buy’ rating on the stock. He argues yesterday’s sell-off appears to be an overreaction given Ant Group’s $300 billion valuation.

Elsewhere on the Street, analysts remain overwhelmingly bullish. The shares receive 50 ‘Buy’ ratings, 4 ‘Overweight’ ratings, and 1 ‘Hold’ rating. Currently, no broker recommends selling the stock. Price targets range between $377.82 and $278.04, with the median 12-month consensus pegged at $336.50. This represents an 18% premium to Tuesday’s close of $285.57.

Technical Outlook and Trading Tactics

After bottoming out at $170, Alibaba shares have remained in a steady uptrend. However, yesterday’s decline below both a key seven-month trendline and the 50-day simple moving average (SMA) may trigger further short-term weakness in subsequent trading sessions.

Still, those intending to buy should look for entries near $266, where price encounters support from a crucial horizontal line. In terms of trade management, consider placing a profit target in the vicinity of last month’s high at $319.32. Protect capital with a stop-loss order positioned under the September low at $264.56.

Alibaba Posts Strong Q2 Revenue as COVID-19 Crisis Boosts Online Business; Target Price $290

Alibaba Group Holding Ltd, the largest online and mobile eCommerce company in the world, said its revenue surged 35% year-over-year in the second quarter, largely due to growth in core commerce and cloud computing businesses, which has been accelerated by the COVID-19 pandemic.

The Chinese multinational technology company said its Q2 revenue rose to 153.75 billion yuan, an increase of 34% year-over-year. Alibaba’s net income attributable to ordinary shareholders more than doubled to 47.59 billion yuan from 21.25 billion yuan.

Alibaba said its annual active consumers on China retail marketplaces reached 742 million, an increase of 16 million from the 12 months ended March 31, 2020. Mobile MAUs on China retail marketplaces reached 874 million in June 2020, an increase of 28 million over March 2020.

Net income attributable to ordinary shareholders was 47,591 million yuan, and net income was 46,437 million yuan. Non-GAAP net income was 39,474 million yuan, an increase of 28% year-over-year.

Alibaba’s shares traded about 2% lower at $158.28 on Thursday. However, the stock is up over 20% so far this year.

Executive comments

“We delivered a very strong start to our new fiscal year, with revenue growing 34% year-over-year and adjusted EBITDA growing 30% year-over-year,” said Maggie Wu, Chief Financial Officer of Alibaba Group.

“Our domestic core commerce business has fully recovered to pre-COVID-19 levels across the board, while cloud computing revenue grew 59% year-over-year. Our strong profit growth and cash flow enable us to continue to strengthen our core business and invest for long term growth.”

Alibaba stock forecast

Twenty-one analysts forecast the average price in 12 months at $278.05 with a high forecast of $316.00 and a low forecast of $216.00. The average price target represents a 6.70% increase from the last price of $260.59. From those 21 analysts, 20 rated “Buy”, one rated “Hold” and none rated “Sell”, according to Tipranks.

Morgan Stanley target price is $290 with a high of $344 under a bull scenario and $169 under the worst-case scenario. Alibaba Group had its price target increased by Truist to $242 from $240. They currently have a buy rating on the speciality retailer’s stock.

Other equity analysts also recently updated their stock outlook. Nomura restated a buy rating and issued a $309.00 target price on shares of Alibaba Group. Oppenheimer restated a buy rating and issued a $260.00 price objective.

Analyst view

“COVID-19 has accelerated e-commerce penetration, especially in FMCG (fast-moving consumer goods), the next core category for e-commerce. Alibaba is set to benefit from this secular trend, given its leading position, and we expect it to maintain >50% market share over time, thanks to its strong ecosystem,” said Gary Yu, equity analyst at Morgan Stanley.

“In addition, merchants’ marketing budgets will continue to shift online given increasing reliance on e-commerce and better conversion. Alibaba’s ad resources remain under-monetized. Our new target implies 25x F22e P/E, in line with the average since 2017. Despite its recent rally, BABA’s NTM forward P/E discount to Tencent is deeper than the historical average of 20% since 2017,” he added.

Upside and Downside risks

Upside: 1) Better core e-commerce monetization drives earnings growth upside. 2) Faster enterprise digitalization re-accelerates cloud revenue growth – highlighted by Morgan Stanley.

Downside: 1) Intensified competition in less-developed regions would slow down GMV growth and pose downside to margins. 2) Lingering macro headwinds may pressure discretionary spending in China and affect our GMV and earnings forecasts.

U.S. Stocks Set To Open Higher As Traders Bet On Continuation Of The Upside Trend

U.S. – China Trade Deal Review Got Postponed

The review of the Phase 1 trade deal between the world’s biggest economies got postponed as the U.S. had reportedly decided to provide China with more time to increase purchases of U.S. goods.

Not surprisingly, the coronavirus pandemic put some pressure on the implementation of the first phase of the U.S. – China trade deal which remains a rare bright spot in the current relations between the two countries.

The delay of the review is a positive development for the markets since it shows that U.S. is not ready to put more pressure on China on the trade front.

Additional time will provide Beijing with a chance to boost purchases under the deal. As a result, the review of the Phase 1 deal will look more favorable and allow both parties to stay on course for the Phase 2 deal in case the political situation permits new negotiations.

S&P 500 futures are gaining some ground in premarket trading as traders believe that the trade deal between U.S. and China is not in danger for now.

More Pressure On Chinese Companies?

While the news on the trade deal front are favorable for China and the world economy, U.S. – China relations continue to trend down.

On Saturday, U.S. President Donald Trump stated that he may put pressure on more Chinese companies after he decided to ban TikTok unless it would sell its U.S. operations. China’s technology giant Alibaba is a possible target.

At this point, it looks like traders believe that U.S. will not act against other Chinese companies before the November elections so shares of Alibaba find themselves under limited pressure in premarket trading.

Berkshire Hathaway Buys Shares Of Barrick Gold

While gold and silver continue their rebound after the recent sell-off, gold and silver miners are set for a strong start of the week as Warren Buffet’s Berkshire Hathaway disclosed that it bought 20.9 million shares of Barrick Gold.

Miners’ shares have been under pressure during the recent sell-off but are set for increased trading activity after Berkshire’s move.

Berkshire’s position in a leading gold miner will increase investors’ confidence in the sector and attract new money into gold and silver miners.

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

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

Overview and trends

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

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

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

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

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

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

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

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

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

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

Trading ideas

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

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

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

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

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

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

By Vladimir Rojankovski, Grand Capital Chief Analyst

Vaccine Hopes, EU Deal Drive Asia Pacific Shares Higher; Alibaba’s Ant Group Announces Dual-Listing

The major Asia Pacific stock indexes rebounded on Tuesday following Monday’s mixed performance with some hitting five-month highs after European Union leaders agreed on a massive stimulus plan for their coronavirus-blighted economies.

The indexes opened higher following Wall Street’s lead on hopes that vaccines against the COVID-19 disease might be ready by the end of the year, following promising early data from trials of three potential vaccines.

On Tuesday, Japan’s Nikkei 225 Index settled at 22884.22, up 166.74 or +0.73%. Hong Kong’s Hang Seng Index is trading 25527.10, up 469.11 or 1.87% and South Korea’s KOSPI Index closed at 2228.83, up 30.63 or +1.39%.

China’s Shanghai Index is trading 3321.38, up 7.23 or +0.22% and Australia’s S&P/ASX 200 closed at 6156.30, up 154.70 or +2.58%.

Asian Shares Boosted by EU Recovery Fund Deal

European Union (EU) leaders reached a deal on a 750 billion Euro ($857 billion) recovery fund to help the region recover from the coronavirus crisis.

European Council President Charles Michel said he believes this deal will be seen as a “pivotal moment” for Europe. “We did it! Europe is strong. Europe is united,” he said in an early Tuesday press conference announcing the agreement. “These were, of course, difficult negotiations in very difficult times for all Europeans.”

Positive Coronavirus Vaccine News Buoys Market Sentiment

Asia Pacific markets were supported early in the session on Tuesday after investor sentiment was supported by a slew of positive news on the coronavirus vaccine front.

Pfizer and BioNTech reported early positive data on a joint coronavirus vaccine Monday and another candidate from Oxford University and AstraZeneca also showed a positive immune response in an early trial.

Alibaba’s Ant Could Be Bigger than Some Wall Street Banks

Ant Group, an affiliate of Alibaba, announced plans for its long-awaited dual listing in Shanghai and Hong Kong on Monday. E-commerce giant Alibaba Group Holding’s Hong Kong shares jumped 6.59% on the news.

Ant Group runs Alipay, one of China’s most popular mobile payment apps, but has also been expanding into products such as wealth management and loans.

Ant Group has not priced its shares yet but one analyst said the company could be valued at over $200 billion.

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

How to Trade FANG Stock with CFD’s

The FANG stocks are some of the biggest consumer and tech stocks listed on the US market. They are favorites amongst active traders because their high growth rates have led to massive returns and strong trends.

CNBC host Jim Cramer originally coined the term ‘FANG Stocks’ in 2013, and it referred to Facebook, Amazon, Netflix, and Google. Most traders now include Apple and use the acronym FAANG.

Some have even included Alibaba and Nvidia, extending the acronym to FAAANNG. However, for this discussion, we will stick to the five, FAANG stocks: Facebook, Apple, Amazon, Netflix, and Google.

The easiest way to profit whenever a FAANG price goes up or down is to trade Contract for Difference (CFD) on these stocks. 

An overview of the FAANG Stocks

Facebook is worth $450 billion, making it the fourth largest company in the world by market cap. Since listing in 2012, the company has grown EPS from $0.16 to $6.80 in 2017. It’s done this by building a user base of over 2 billion monthly users and growing the profitability of its advertising business. Facebook’s stock price has risen more than 500 percent since 2012.

Amazon is the most successful web retailer in the world and the second most valuable company in the world. Since 2010, it has grown annual earnings from $2.28 a share to $6.35, which is the reason the company is now worth $863 billion. Traders and investors both love Amazon and believe in the vision of its founder Jeff Bezos. $1,000 invested in Amazon in 1997 would be worth over $1 million today.

We all know how innovative Apple, the company that brought us the iPod, the iPhone and the iPad, is. Steve Job’s vision and the company’s long history of bringing out new products has made it the most valuable and profitable company in the world. Between 2005 and 2015, Apple grew net income from $1.13 billion to $53 billion, a 5000% increase. Its earnings per share have grown from $1.68 in 2010 to $10.36 in 2017.

Netflix is one of the fastest growing companies in history. If you had invested $1,000 in Netflix in 2002 when it listed, your investment would be worth over $400,000. However, along the way, Netflix has had some large pullbacks, allowing traders to short the stock, and then buy it back at a lower price.

Anyone who uses the internet knows how prolific Google is. It’s all over the web and makes over a hundred billion USD a year from its advertising business. Although it is no maturing as a company it still managed to grow earnings per share from $10 in 2010 to $34.2 in 2017. Google’s share price has doubled since 2015, giving the company a value of $800 billion.

Using CFDs to Trade FAANG Stocks

FAANG stocks are favorites amongst traders because they have strong underlying growth, lots of liquidity and they are in the news a lot. There are opportunities to trade over every time period from minutes to months, and opportunities to go long and short.

CFDs (contracts for difference) are one of the best instruments to use to trade these types of stocks. They offer the opportunity to use leverage and to take short positions not only on currencies and commodities such as EUR/USD, GBP/USD, gold and crude oil but also on stocks. When you trade CFDs you do not actually own the underlying asset, but you have exposure to the price move, whether its up or down.

Recommended trading strategies

There are several very different trading strategies that investors can use to trade FAANG stocks. Because these stocks are in the news a lot, traders often trade around announcements and other news flow.

Stocks offer the best trading opportunities when volatility increases, and this happens when more traders are watching them. For Apple, this happens when a new product is launched and when earnings are announced. For Amazon, Prime Day and the Christmas shopping season are important. For Facebook and Netflix, any announcement about subscriber and user numbers are important.

Traders need to work out what the market is expecting and whether the company is living up to those expectations. Traders will often buy a stock as the hype increases, and then sell when the news is released – unless it’s much better than expected. If they believe the amount of hype is unrealistic, they may even go short just before the announcement, in anticipation of disappointing news.

If you trade on short-term charts, you can take long and short positions, in the direction of the medium-term trend on a 4-hour, 60-minute or 15-minute chart. Moving average cross-over strategies work well for FAANG stocks on these charts, especially when the hype rate is increasing.

Conclusion

The FAANG stocks are favorites amongst active traders because they are well-known companies that people understand, and because a lot of people follow them, there is lots of volatility and liquidity. The fact that they also have high growth rates means they also have big price moves. These factors all contribute to their popularity amongst traders.