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.

Twitter Rallies to a 6-Year High

Twitter Inc. (TWTR) rallied to a 6-year high in the first hour of Wednesday’s U.S. session, following a key JPMorgan upgrade. The stock has been on a roll so far in 2020, now posting an impressive 72% year-to-date return. Even so, the social media giant is still trading 20 points below December 2013’s all-time high at 74.73, highlighting years of sub-par performance compared to rival Facebook Inc. (FB) and other industry players.

Trading at Discount to Rivals

The stock is trading at a substantial discount to Snap Inc. (SNAP) and Pinterest Inc. (PINS), with both issues zooming to all-time highs this year. However, a new advertising platform, ongoing activist pressure, and a management buyback plan are improving mixed sentiment, raising odds the company will earn up to 30 times 2022 EBITDA (earnings before interest, taxes, depreciation, and amortization) and 9.5 times projected 2022 revenue.

JPMorgan analyst Doug Anmuth upgraded the stock to ‘Overweight’ on Wednesday, raising the price target to $65 while noting, “we are bullish on online advertising in 2021 and expect industry growth to reaccelerate. We believe Twitter will show the biggest rebound given its sharper pandemic-driven ad decline, along with revenue prioritization throughout the company, early benefits from rebuilt ad tech through the new Ad Server and rollout of Map 2.0, and increases in both advertiser count and ad load”.

Wall Street has been playing ‘catch-up’ throughout the year, with Twitter outperforming their modest expectations. Consensus stands at a mixed ‘Hold” rating based upon 7 ‘Buy’ and 19 ‘Hold’ recommendations. One analyst now recommends that shareholders close positions and move to the sidelines. Price targets currently range from a low of just $36 to a Street-high $65 while the stock opened Wednesday’s session $8 above the median $47 target.

Wall Street and Technical Outlook

A 7-week rally has now mounted resistance at the .618 Fibonacci retracement of the 2013 to 2016 downtrend at 51, opening the door to continued upside that should reach the .786 retracement at 62. That price level is narrow-aligned with multiple whipsaws that followed the 2014 reversal, marking the last major barrier before Twitter reaches and tests the all-time high in the 70s. While all systems are ‘go’, a trip into that peak could easily take another 6 to 12 months.

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.

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.

Tech Stocks Drag Market Lower

Tech Stocks Are Under Pressure On Antitrust Concerns

Yesterday, S&P 500 found itself under pressure after Federal Trade Commission and 46 states announced lawsuits against Facebook, alleging that the company used its monopoly power to crush competition.

Worries about increased regulation of Big Tech companies have increased in recent months so the news caused a sell-off in the tech space.

It looks like this sell-off is set to continue today as shares of Facebook, Microsoft, Alphabet, Apple are losing ground in premarket trading. A potential sell-off in tech stocks may present a serious problem for S&P 500 due to their weight in the index.

European Central Bank Boosts Its Pandemic Emergency Purchase Programme

European Central Bank has recently announced its Interest Rate Decision and left the rate unchanged, in line with analyst consensus.

ECB decided to increase its pandemic emergency puchse programme (PEPP) by 500 billion euro to a total of 1.85 billion euro. While this increase was mostly expected by traders and analysts, it may provide some support to global markets.

Meanwhile, EU and UK negotiators have time until the end of the week to craft a Brexit deal. While previous deadlines have been ignored, it looks like this deadline is a serious one. A no-deal Brexit will likely put pressure on global markets.

It looks like markets are getting more nervous about the outcome of negotiations, and GBP/USD is under significant pressure today.

Initial Jobless Claims Jump To 853,000

U.S. has just released Initial Jobless Claims and Continuing Jobless Claims reports.

The Initial Jobless Claims report indicated that 853,000 Americans filed for unemployment benefits in a week compared to analyst consensus of 725,000. Meanwhile, Continuing Jobless Claims increased to 5.76 million while analysts expected that they would decline to 5.36 million.

In addition, U.S. provided inflation data for November. Inflation Rate grew by 1.2% year-over-year compared to analyst consensus of 1.1%. Core Inflation Rate was in line with analyst projections at 1.6%.

The big increase in Initial Jobless Claims is a negative surprise for the market which may put additional pressure on stocks.

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

Facebook Triangle Pattern at 38.2% Fib Signals Uptrend

Facebook (FB) is showing a perfect uptrend alignment. We can see this via the moving averages (MAs): price is above the 21 ema zone, which is above the long-term MAs.

Price Charts and Technical Analysis

Facebook daily chart 03.12.20

Facebook showed a strong bullish momentum. This is probably a wave 3 (pink). The retracement has respected the 38.2% Fibonacci retracement level.

The sideways price action has either completed a wave 4 at the previous bottom (pink) or could complete it in the near future (wave 4’).

The trend lines and the 21 ema zone are critical for the next price swing:

  • A bearish breakout could indicate a larger wave 4.
  • A bullish breakout could indicate the continuation of the wave 5.

The bullish targets are located at $325 and $350. A break below the 38.2% and 50% Fib make the wave 4 less likely.

On the 4 hour chart, we see two patterns offered. This will depend on the breakout direction below or above support and resistance.

  • Bullish break: price is building a 123 wave (green).
  • Bearish break: price is building a larger wave C (purple) or even an ABCDE triangle.

Facebook 4 hour chart 03.12.20

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

Good trading,

Chris Svorcik

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

 

 

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.

U.S. Stocks Set To Open Lower As Tech Stocks Slide After Earnings Reports

Big Tech Stocks Are Losing Ground In Premarket Trading

S&P 500 futures are losing ground in premarket trading as leading tech stocks are under pressure after the release of third-quarter earnings reports.

Shares of Apple, Microsoft, Facebook and Amazon are losing ground in premarket trading, while shares of Alphabet are gaining more than 6% due to healthy growth of Google’s ad sales.

Elevated expectations are the biggest problem for tech stocks right now. For example, Apple shares are up by 57% year-to-date while Amazon stock gained almost 74% since the beginning of the year.

In this situation, it is not enough to simply beat analyst estimates on both earnings and revenue – the market wants to see a path for robust growth in the future. That said, it remains to be see whether the current premarket sell-off will  turn into a serious multi-day pressure on tech stocks as many traders are waiting for a pullback to initiate their positions in market leaders.

Oil Fails To Rebound As Coronavirus Continues To Surge

Oil remains under pressure after yesterday’s sell-off as traders evaluate risks of additional lockdowns. Yesterday, U.S. recorded more than 91,000 new cases of the disease, so coronavirus will likely get back to the headlines right after the U.S. presidential election.

Meanwhile, Exxon Mobil reported its third-quarter results, missing analyst estimates on revenue and beating them on earnings. Chevron also beat earnings estimates but failed to live up to revenue expectations.

This trading session is set to be chalelnging for oil majors as their revenues were hit hard by the pandemic while oil is trading near the $36 level amid virus fears.

Personal Spending Increased By 1.4% In September

U.S. has just provided Personal Income and Personal Spending reports. Personal Income increased by 0.9% month-over-month in September compared to analyst estimates which called for growth of 0.4%. Personal Spending grew by 1.4% compared to analyst consensus of 1%.

Both reports were better than expected and can provide some support to stocks during today’s trading session. The strength of Personal Spending is especially welcome as it shows that consumers remained confident in September.

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

Mixed Bag of Quarterly Reports from Tech-Heavyweights Could Pressure US Stock Indexes on Friday

U.S. stock indexes posted a volatile reaction to a mixed bag of quarterly reports from top-tier technology companies after the closing bell on Thursday. Yesterday’s late reports came amid turbulence on Wall Street, with soaring coronavirus cases and uncertainty about a fiscal relief bill in Washington dimming the outlook for an economic recovery and knocking over 3% off the S&P 500 so far this week.

After the cash market close on Thursday, Alphabet (Google) rallied, Apple sank, Twitter tumbled and Facebook dropped. Share swings in these companies following their earnings reports after the bell sent exchange-traded funds tracking the S&P 500 and NASDAQ Composite down about 1% each, suggesting downside pressure on Wall Street on Friday.

Alphabet Sales Growth Revived as Advertisers Flock Back to Google

Google parent Alphabet Inc on Thursday powered back to sales growth, beating analysts’ estimates for the third quarter as businesses initially hobbled by the coronavirus pandemic resumed advertising with the internet’s biggest supplier of ads.

Alphabet shares, up 13% on the year, rose 8.5% after hours to $1,689.89.

Apple’s Late iPhone Launch Temporarily Wiped $100 Billion Off Its Stock Value

The late launch of new 5G phones caused Apple Inc’s customers to put off buying new devices, leading the company on Thursday to report the steepest quarterly drop in iPhone sales in two years.

Apple fell over 5% at one point in after-hours trade, wiping $100 billion from its stock market value.

Since 2013, Apple has delivered new iPhones each September like clockwork. But pandemic-induced delays pushed the announcement back a month, with some devices still yet to ship.

Even as booming sales of Macs and AirPods boosted overall revenue and profit above what analysts had expected, iPhone sales dropped 20.7% to $26.4 billion.

Twitter Warns US Election Could Affect Ad Sales, Shares Drop 16%

Twitter Inc on Thursday added fewer users than Wall Street had expected and said a rise in expenses would accelerate in the fourth quarter, sending its shares tumbling 16%.

The San Francisco-based social media company said it expected expenses to increase by close to 20% in the fourth quarter compared with a year ago due to an increase in investments.

The company also cautioned that it was hard to predict how advertisers would react as the U.S. presidential election nears on November 3.

Shares of Twitter fell to $44.00 in after-market trading.

Facebook Anticipates Tougher 2021 Even as Pandemic Boosts Ad Revenue

Facebook Inc on Thursday warned of a tougher 2021 despite beating analysts’ estimates for quarterly revenue as businesses adjusting to the global coronavirus pandemic continued to rely on the company’s digital ad tools.

The world’s biggest social media company said in its outlook that it faced “a significant amount of uncertainty,” citing pending privacy changes by Apple and a possible reversal in the pandemic-prompted shift to online commerce.

“Considering that online commerce in our largest ad vertical, a change in this trend could serve as a headwind to our 2021 ad revenue growth,” it said.

Shares of the company were lower in extended trading.

Amazon Sees Pandemic Boosting Holiday Sales and Investment in Delivery

Amazon.com Inc on Thursday forecast a jump in holiday sales – and costs related to COVID-19 – as consumers continued to shop more online during the pandemic.

A company executive added that heightened spending on delivery infrastructure would likely continue over years, and shares fell 2% in after-hours trading.

For the fourth quarter, Amazon said it expects net sales of $112 billion to $121 billion. That would mark the company’s first over $100 billion and follows a third-quarter revenue beat that analysts such as eMarketer’s Andrew Lipsman did not expect.

“While it was clear that the pandemic-driven shift to e-commerce would keep Amazon’s topline elevated, it surprised by easily surpassing an already high bar,” Lipsman said.

Revealing Summary

Without Facebook, Apple, Amazon, Netflix and Alphabet – the so-called FAANG stocks – the S&P 500 would be down about 4% in 2020, compared with the index’s 2% year-to-date rise, according to a research note from Bespoke Investment Group on Thursday.

“Due to both the huge weight of these stocks and their outperformance, the market has become more reliant on them than ever before for its gains,” according to Bespoke.

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

Facebook Sitting At Ground Zero In U.S. Election

Facebook Inc. (FB) reports Q3 2020 earnings after Thursday’s U.S. closing bell, with analysts expecting a profit of $1.91 per-share on $19.8 billion in revenue. If met, earnings-per-share (EPS) would mark a 10% profit decline compared to the same period in 2019. The stock rallied more than 8% after beating Q2 top and bottom line in July, despite warning that Q3 daily and monthly average users (DAUs and MAUs) would be flat or lower. The stock posted an all-time high in August and has lost ground since that time.

CEO Zuckerberg Faces Hostile Senate

CEO Mark Zuckerberg will testify before a Senate committee on Wednesday, in response to a subpoena from the Republican-controlled group, who are furious with Facebook for alleged anti-conservative message filtering ahead of next week’s presidential election. The CEO had resisted all forms of censorship following Russian interference in the 2016 election, finally acceding to demands and instituting filters that conservatives believe have placed them at a disadvantage.

All political ads on Facebook will be shut down at the close of polling on Nov. 3. The social media giant also announced steps to deter voter intimidation, declaring “we will also remove calls for people to engage in poll watching when those calls use militarized language or suggest that the goal is to intimidate, exert control, or display power over election officials or voters. We thank the civil rights experts and community members who continue to help us understand trends in this area and we look forward to continuing to work with them.”

Wall Street And Technical Outlook

Wall Street has been quiet as a church mouse about Facebook’s political controversies, with a ‘Strong Buy’ rating based upon 32 ‘Buy’, 3 ‘Hold’, and just 1 ‘Sell’ recommendation. Price targets currently range from a low of $195 to a Street-high $340 while the stock is trading about $31 below the median $304 target. This relatively humble placement indicates that many investors have taken note of the conflict and are keeping their powder dry for now.

The stock posted an all-time high at 304.67 on Aug. 26 and rolled over, undercutting the 50-day moving average a few weeks later. It remounted that level in early October but hasn’t made much progress in the last three weeks, suggesting that price action has entered a holding pattern ahead of next week’s election. Bears have a modest advantage, given the perfect timing of Q3 earnings, with a strongly-positive report unlikely to attract committed buying interest.

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

Stock Pick Update: October 28 – November 3, 2020

In the last five trading days (October 21 – October 27) the broad stock market has extended its short-term downtrend from October 12 local high. The S&P 500 index set a new record high of 3,588.11 on September 2. But then the market fell below February 19 high of 3,393.52 again. In late September it set a local low of 3,209.45 before going back above 3,500 mark. On October 12 it reached 3,549.85. So far, it looks like a medium-term consolidation following 63.7% rally from March 23 corona virus low at 2,191.86.

The S&P 500 index has lost 1.43% between October 21 and October 27. In the same period of time our five long and five short stock picks have lost 0.27%. So stock picks were relatively stronger than the broad stock market again . Our long stock picks have lost 1.35% but short stock picks have resulted in a gain of 0.80%.

There are risks that couldn’t be avoided in trading. Hence the need for proper money management and a relatively diversified stock portfolio. This is especially important if trading on a time basis – without using stop-loss/ profit target levels. We are just buying or selling stocks at open on Wednesday and selling or buying them back at close on the next Tuesday.

If stocks were in a prolonged downtrend, being able to profit anyway, would be extremely valuable. Of course, it’s not the point of our Stock Pick Updates to forecast where the general stock market is likely to move, but rather to provide you with stocks that are likely to generate profits regardless of what the S&P does.

This means that our overall stock-picking performance can be summarized on the chart below. The assumptions are: starting with $100k, no leverage used. The data before Dec 24, 2019 comes from our internal tests and data after that can be verified by individual Stock Pick Updates posted on our website.

Below we include statistics and the details of our three recent updates:

  • October 27, 2020
  • Long Picks (October 21 open – October 27 close % change): PPL (+1.96%), WDC (-3.40%), WYNN (-0.25%), XOM (-2.06%), LIN (-3.02%)
    Short Picks (October 21 open – October 27 close % change): WMB (-1.12%), SHW (-0.23%), TROW (-2.61%), WEC (+1.63%), NVDA (-1.68%)Average long result: -1.35%, average short result: +0.80%
    Total profit (average): -0.27%
  • October 20, 2020

Long Picks (October 14 open – October 20 close % change): CSCO (-1.63%), NI (+2.03%), CMG (+1.38%), XOM (-1.06%), SHW (-3.41%)
Short Picks (October 14 open – October 20 close % change): WMB (+1.33%), APD (-1.83%), JPM (+0.07%), NVDA (-4.51%), WEC (+1.47%)

Average long result: -0.54%, average short result: +0.69%
Total profit (average): +0.08%

  • October 13, 2020

Long Picks (October 7 open – October 13 close % change): CMS (+2.71%), RTX (+0.35%), EQIX (+4.46%), OKE (+8.35%), FB (+6.53%)
Short Picks (October 7 open – October 13 close % change): COP (+4.21%), TWTR (+2.02%), NVDA (+1.78%), AWK (+1.39%), FDX (+3.37%)

Average long result: +4.48%, average short result: -2.55%
Total profit (average): +0.96%

Let’s check which stocks could magnify S&P’s gains in case it rallies, and which stocks would be likely to decline the most if S&P plunges. Here are our stock picks for the Wednesday, October 28 – Tuesday, November 3 period.

We will assume the following: the stocks will be bought or sold short on the opening of today’s trading session (October 28) and sold or bought back on the closing of the next Tuesday’s trading session (November 3).

We will provide stock trading ideas based on our in-depth technical and fundamental analysis, but since the main point of this publication is to provide the top 5 long and top 5 short candidates (our opinion, not an investment advice) for this week, we will focus solely on the technicals. The latter are simply more useful in case of short-term trades.

First, we will take a look at the recent performance by sector. It may show us which sector is likely to perform best in the near future and which sector is likely to lag. Then, we will select our buy and sell stock picks.

There are eleven stock market sectors: Energy, Materials, Industrials, Consumer Discretionary, Consumer Staples, Health Care, Financials, Technology, Communications Services, Utilities and Real Estate. They are further divided into industries, but we will just stick with these main sectors of the stock market.

We will analyze them and their relative performance by looking at the Select Sector SPDR ETF’.

Based on the above, we decided to choose our stock picks for the next week. We will choose our top 3 long and top 3 short candidates using trend-following approach, and top 2 long and top 2 short candidates using contrarian approach:

Trend-following approach:

  • buys: 1 x Utilities, 1 x Communication Services, 1 x Consumer Discretionary
  • sells: 1 x Energy, 1 x Real Estate, 1 x Industrials

Contrarian approach (betting against the recent trend):

  • buys: 1 x Energy, 1 x Real Estate
  • sells: 1 x Utilities, 1 x Communication Services

Trend-following approach

Top 3 Buy Candidates

D Dominion Energy, Inc. – Utilities

  • Stock broke above short-term downward trend line – uptrend continuation play
  • The resistance level of $85 and support level of $80

FB Facebook, Inc. – Communication Services

  • Stock remains above upward trend line – possible short-term uptrend continuation
  • The resistance level of $300
  • The support level is at $260-270

WYNN Wynn Resorts Ltd – Consumer Discretionary

  • Possible advance within an over month-long consolidation
  • The resistance level is at $77.50
  • The support level is at $67.50-70.00

The Utilities, Communication Services and Consumer Discretionary sectors were relatively the strongest in the last 30 days. So that part of our ten long and short stock picks is meant to outperform in the coming days if the broad stock market acts similarly as it did before.

We hope you enjoyed reading the above free analysis, and we encourage you to read today’s Stock Pick Update – this analysis’ full version. There, we include the stock market sector analysis for the past month and remaining long and short stock picks for the next week. There’s no risk in subscribing right away, because there’s a 30-day money back guarantee for all our products, so we encourage you to subscribe today .

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

 

Thank you.

Paul Rejczak
Stock Trading Strategist
Sunshine Profits – Effective Investments through Diligence and Care

* * * * *

Disclaimer

All essays, research and information found above represent analyses and opinions of Paul Rejczak and Sunshine Profits’ associates only. As such, it may prove wrong and be a 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, Paul Rejczak 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. Rejczak is not a Registered Securities Advisor. By reading Paul Rejczak’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. Paul Rejczak, 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.

 

Big Week for Big Tech

On October 28, the CEOs of Facebook (Mark Zuckerberg), Google (Sundar Pichai), and Twitter (Jack Dorsey) are set to testify before a Senate hearing about how these tech giants manage hate speech, misinformation, and privacy on their respective platforms. This will be a closely-followed hearing, considering that it comes mere days before the hotly contested US presidential elections on November 3.

Then, a day after the Senate hearing, Amazon, Apple, Alphabet (Google’s parent company), Facebook, and Twitter are all scheduled to release their respective Q3 results after US markets close on October 29.

Given that these tech titans are set to feature prominently in market headlines this week, such prospects may make for volatile trading, and the price swings may be captured within the FXTM Social Media index.

FXTM Social Media Index beats major US benchmarks

This index, which comprises four, evenly-weighted constituents, namely Google, Facebook, Twitter, and Snapchat, has far outperformed the gains seen in the major US benchmark indices so far in October. Since US markets closed on September 30th, the FXTM Social Media index has risen by 8.3 percent, even after Monday’s selloff. Compare that to the Nasdaq Composite index, which managed 1.71 percent during the same period, while the S&P 500 index has a month-to-date climb of 1.13 percent.

The FXTM Social Media index’s gains of late have been amplified by Snapchat’s inclusion. Shares of the loss-making social media platform have soared by an astonishing 58 percent on a month-to-date basis, setting multiple record highs after reporting a blowout Q3 quarterly earnings last week.

At home and bored: Social media’s dream

Advertisers ramped up their spending on Snapchat, knowing that users are using the platform a lot more amid the pandemic, given the disruptions to their daily routines and physical interactions. Snapchat has already added 31 million new daily active users in the first nine months of 2020, all while managing to steer clear of the negative headlines that have engulfed other platforms such as TikTok and Facebook.

Should Alphabet, Facebook, and Twitter also announce a Snapchat-esque Q3 earnings bonanza, one that’s fueled by ad spending, that could spell even more upside for the FXTM Social Media index before the week is up, provided that the Senate’s grilling of Zuckerberg, Pichai, and Dorsey on Wednesday do not heighten concerns surrounding these companies.

A bumpy upwards climb?

From a technical perspective, the FXTM Social Media index is now trading at relatively healthier levels after yesterday’s pullback, given that its 14-day relative strength index has pulled away from the 70 mark, which typically denotes overbought conditions. Still, this index is not immune to broader sentiment, which could see more market angst as investors’ concerns over looming US political risks are laid bare.

And the fundamentals of these social media giants could be clouded by the bipartisan campaign against Big Tech. Note that Zuckerberg and Dorsey are set to attend a separate Senate hearing on November 17th, which is two weeks after the US elections polling day, while Google is contending with a massive antitrust lawsuit by the US Justice Department.

While the legislative scrutiny could weigh on the performance of social media stocks, these downside risks may not be fully manifested for years more. As long as the tailwinds in this pandemic era remain intact, there could potentially be more gains to be had once we get to the other side of the US elections.

Written on 27/10/20 02:00 GMT by Han Tan, Market Analyst at FXTM

For more information, please visit: FXTM


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

Risk Warning: CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. 82% of retail investor accounts lose money when trading CFDs with this provider. You should consider whether you understand how CFDs work and whether you can afford to take the high risk of losing your money.

A Wall of Worry Provides a Great Buying Opportunity for NFLX and SNAP

For a bull trend to perpetuate it occasionally needs to climb a wall of worry. Bearish investors are always on the lookout for a theme that will provide them with an opportunity to short a stock or sector. If prices rise, investors who shorted-shares will need to cover, perpetuating the bull-trend rally. This concept has recently played out when it comes to large-tech and communication stocks which have seen their stock prices temporarily decline as regulatory scrutiny has become the next wall of worry.

Congress is Always Looking to Flex in Muscles

Congress always needs a whipping boy. Social media outlets continue to be the target of congressional frustration and more recently have been drawing the ire of several oversight committees. Most recently, Facebook and Google have been accused of engaging in anti-competitive, monopoly-style tactics. The House of Representations antitrust panel found during a 16-month investigation that these two companies relied on dubious, harmful tactics to achieve their dominance in web search and social networking. The Department of Justice announced on October 20, that it will file an antitrust lawsuit against Google.

Social media platforms, like Facebook, and Snapchat,  have repeatedly found themselves in the United States government’s crosshairs as their power has continued to grow since the 2016 elections. Social media companies have no designated oversight authority that regulates their activities.  If these companies get slapped with new rules, regulations, and fines it could trigger a broad market selloff for stocks. This fear has recently been priced into some of the more attractive large-cap tech shares which have provided an excellent buying-point within a long-term bull trend.

Buying Opportunity in Snapchat

Snap Inc, is an American company and maintains several products and services, namely Snapchat, Spectacles, and Bitmoji. The share price is in the midst of a bull trend but recently pulled-back into oversold-territory as the wall of worry gained traction. SNAP is scheduled to release quarterly earnings results after the closing bell on October 20, 2020. The social media concern is expected to report earnings per share of  $-0.05 versus $-0.04 a year ago, on revenue of $549 million. Analyst estimates of SNAP’s earnings have remained unchanged over the past 30-days, and the company is expected to begin turning a profit in 2021.

From a technical analysis perspective, SNAP share price is in a strong uptrend as seen on the combo chart of the 30-minutes and daily chart provided. I see SNAP with potential measured move using a Fibonacci extension to reach $39 per share before the year-end.

Notice the oversold zone on the SNAP chart shaded lime green. That is the first oversold pullback after a new trend takes place. The 30-minute price chart saw both an RSI below 30 and a fast stochastic below 20, which is an ideal low-risk entry point. The daily chart of SNAP also shows that the share price is fast approaching its all-time high which occurred right after its IPO. A break of this level will lead to an acceleration in price to its target Fibonacci level near $39 per share.

Netflix Has its First Oversold Pullback in a Fresh New Uptrend

I believe that Netflix’s business model of providing subscriptions to streaming entertainment is benefitting substantially from COVID-19. The company is scheduled to report financial results after the bell on October 20, 2020. The company is expected to deliver earnings per share of $2.13 versus $1.47 per share a year ago. Revenue is forecasted to rise to $6.38 billion.  The average earnings per share estimate have climbed slightly more than 1% during the last 7-days. Growth estimates are expected to expand by nearly 45%. Global subscriptions are forecast to rise sharply higher as the U.S. unemployment rate surged and more people were stuck at home during the pandemic.

The technical picture shows that NFLX recently dipped as the wall of worry drove prices down temporarily. NFLX is in a fresh new uptrend and just had its first oversold zone pullback. The 30-minute chart reflects a decline where the fast stochastic printed a reading below 20 representing an oversold situation. A breakout of the tight range capped by resistance near $560 a share will lead to a test of target resistance with an upside Fibonacci target of $742.

The Bottom Line

For stock prices to continue to rally they generally need to take a pause. During these pauses, new information can arise that allows bearish investors to short these stocks generating a wall of worry. For me, this represents an excellent opportunity to purchases shares especially during their first dip in a fresh uptrend. Both SNAP and NFLX have experienced recent dips, generated by the wall-of-worry associated with new potential congressional oversight concerning antitrust regulations.

Both NFLX and SNAP are scheduled to deliver financial results after the closing bell on October 20. Both stocks have exhibited behaviors that show that the bull-trend is intact and I expect the price to continue to target higher Fibonacci target levels as these stocks continue to climb the wall-of-worry.

Want to learn how we help traders and investors stay ahead of these bigger trends and setups?  Visit www.TheTechnicalTraders.com to learn more about the Technical Trader, my swing trade analysis and alerts, and the Technical Investor, my passive long-term signals service. Stay ahead of the market and protect your wealth by signing up today!

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

Chris Vermeulen
Chief Market Strategist
www.TheTechnicalTraders.com

NOTICE AND DISCLAIMER: Our free research does not constitute a trade recommendation or solicitation for our readers to take any action regarding this research.  It is provided for educational purposes only.

 

Facebook Bounce Could Offer Opportune Profits

Facebook Inc. (FB) more than doubled in price after March’s 52-week low, posting an all-time high at 304.67 during the last week of August. The stock has sold off more than 13% since that time and is now approaching strong support that should generate a reversal and high percentage bounce. Even so, a breakout to new highs appears unlikely at this time, warning market timers to utilize trailing stops and take opportune profits at high-odds reversal levels.

Facebook Parabolic Rally

The social media giant shook off boycott threats from tier one advertisers during the George Floyd protests, racing to higher ground with a select group of other high tech giants. So-called ‘Robinhood traders’ and huge SoftBank Group Corp. (SFTBF – OTC) options plays drove a good part of this parabolic impulse, ahead of a long-overdue pullback that’s dropped the market-leading Nasdaq-100 index a nearly-equal percentage as Facebook, its 5th highest component.

The company just addressed concerns about election manipulation, advising “we won’t accept new political ads in the week before the election. We’ll remove posts that claim that people will get COVID-19 if they take part in voting, and we’ll attach a link to authoritative information about the coronavirus to posts that might use COVID-19 to discourage voting. We will attach an informational label to content that seeks to delegitimize the outcome of the election or discuss the legitimacy of voting methods, for example, by claiming that lawful methods of voting will lead to fraud.”

Wall Street And Technical Outlook

Wall Street consensus has remained steadfastly bullish this year, with a ‘Strong Buy’ rating based upon 30 ‘Buy’ and 4 ‘Hold’ recommendations. A single analyst now recommends that shareholders close positions and move to the sidelines.  Price targets currently range from a low of $195 to a street-high $335 while the stock closed out Friday’s session $27 below the median $293 target. Along with technical factors, this placement now favors a strong recovery wave.

Facebook sold off within a point of the 50-day moving average on Friday and bounced into the closing bell. This level marked support in June and July, raising odds for a bounce that could end at resistance between the 290 and 300 price levels. Relative strength indicators have dropped into their most oversold technical readings since February at the same time, with both elements predicting the stock will bottom out in the low 260s and head to higher ground.

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

FANG Index Nearing Critical Support – Could Breakout At Any Moment

RESEARCH HIGHLIGHTS:

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

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

TWEEZER BOTTOMS MAY SUGGEST MORE UPSIDE POTENTIAL

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

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

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

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

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

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

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

Chris Vermeulen
Chief Market Strategist
Technical Traders Ltd.

 

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

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

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

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

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

Stalemate in Coronavirus Aid Legislation Raising Concerns

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

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

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

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

Mixed News Fuels Two-Sided Volatility

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

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

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

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

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

Asia-Pacific Shares – Worries Over Flaring Tensions Between US-China Capping Gains

The major Asia-Pacific stock indexes are trading mixed early Monday as investors remained cautious over heightened U.S.-China tensions in recent weeks. Worries over flaring tensions between the two economic powerhouses weighed on risk sentiment although a recovery in industrial activity in the world’s second-largest economy capped losses. Nonetheless, ranges remained tight on Monday.

At 03:30 GMT, Japan’s Nikkei 225 Index is trading 22329.94, down 88.21 or -0.39%. Hong Kong’s Hang Seng Index is at 24429.96, down 102.66 or -0.42% and South Korea’s KOSPI Index is at 2373.37, up 21.70 or -0.92%.

In China, the Shanghai Index is trading 3367.01, up 12.97 or +0.39% and Australia’s S&P/ASX 200 Index is at 6085.50, up 80.70 or 1.34%.

Trading is expected to be on the light side with Japanese markets closed for public holidays.

US-China Relations Remain at Forefront

The latest round of concerns was fueled late last week when U.S. President Donald Trump signed two executive orders banning WeChat, owned by Chinese tech giant Tencent, and TikTok in 45 days’ time while announcing sanctions on 11 Chinese and Hong Kong officials.

Additionally, U.S. regulators recommended that overseas firms listed on American exchanges be subject to U.S. public audit reviews from 2022.

In less than a week, traders could feel more grief if the latest moves by the Trump administration jeopardize the U.S.-China trade talks scheduled for August 15. Finally, there is always the possibility of Chinese retaliation to these moves.

“The running assumption in markets has been President Trump needed the phase one deal to succeed, as much as China, this side of the November elections… At the same time President Trump is running a hard China line into the elections,” Tapas Strickland, director of markets & economics at National Australia Bank said.

TikTok suing Trump Administration Over Ban as Soon as Tuesday:  Report

Social media giant TikTok is planning to sue the Trump administration as soon as Tuesday over its planned ban of the app in the United States, according to an NPR report.

TikTok declined to comment on a potential lawsuit, but the company has said that it will do whatever is possible to ensure that TikTok is treated fairly.

“We will pursue all remedies available to us in order to ensure that the rule of law is not discarded and that our company and our users are treated fairly – if not by the Administration, then by the U.S. Courts,” TikTok said in a statement.

NPR reports that the lawsuit will argue the ban is unconstitutional and that its national security justification is baseless.

“TikTok automatically captures vast swaths of information from its users, including Internet and other network activity information such as location data and browsing and search histories, the executive order reads. “This data collection threatens to allow the Chinese Communist Party access to Americans’ personal and proprietary information.”

TikTok disputes this, and said Friday that it “has never shared user data with the Chinese government, nor censored content at its request.”

Why is this important to investors? According to Fox Business News, “Multiple American companies, including Microsoft, Google, and Facebook, have expressed interest in buying TikTok. President Trump has insisted that the U.S. Treasury get a cut of whatever deal is made, which could complicate the negotiations.”

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

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

Big Tech Beats Earnings Estimates

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

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

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

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

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

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

Coronavirus Aid Package Negotiations Have Yielded No Deal Yet

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

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

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

Personal Income Fell By 1.1% In June

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

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

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

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

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

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

Facebook Q2 Revenue Surges 11% Despite COVID-19 Crisis; Target Price $300

Facebook Inc, the world’s largest online social network, reported revenue growth of 11% in the second quarter despite ongoing COVID-19 pandemic and advertising boycott on social media platforms, sending its shares up over 6% pre-market on Friday.

The social media conglomerate said its revenue rose to $18.7 billion in the second quarter, with a net income of $5.2 billion, or $1.80 per share.

That is despite several companies, including UnileverStarbucksCoca-ColaHonda and others, have signed for an advertising boycott of social media platforms including Facebook and Twitter in June. Ben & Jerry’s, Verizon Wireless and Eddie Bauer have also joined the race to pause advertisements for July.

Advertisement sales, the primary source of Facebook’s revenue, jumped 10% to $18.3 billion in the second quarter ended June 30. Facebook’s monthly active users increased 12% year-over-year to 2.70 billion and headcount was 52,534, an increase of 32% year-over-year.

“Due to the strong second-quarter numbers, we have increased our projections for this year and 2021 which resulted in a $265 fair value estimate, up from $245. We recommend waiting for a wider margin of safety before investing in this wide-moat and high uncertainty name,” said Ali Mogharabi, senior equity analyst at Morningstar.

Facebook forecasts its full quarter year-over-year ad revenue growth rate for the third quarter of 2020 will be roughly similar to its July performance and total expenses in the range of $52-55 billion this year, narrowed slightly from the prior range of $52-56 billion. This year’s capital expenditures are anticipated at nearly $16 billion.

Facebook’s shares rose over 6% to $248.8 pre-market on Friday. It has risen over 14% so far in 2020, registering its biggest quarterly rise of more than 35% in the June quarter.

“Facebook 2Q20 results beat on Rev/Op Inc./EPS, as user and engagement strength led to an adv. rebound in May/June vs. April’s flattish levels. FB expects 3Q20 adv revenue +10% y/y (vs. our +9% y/y pre-print estimate). The midpoint of FY20 opex guide was lowered; FY20 capex guide is a bit higher as data center construction resumes. We raised estimate, price target to $290 vs. $280, maintain Outperform. FB shares +7% AH,” said John Blackledge, equity analyst at Cowen.

Facebook stock forecast

Thirty analysts forecast the average price in 12 months at $268.31 with a high forecast of $320.00 and a low forecast of $220.00. The average price target represents a 14.42% increase from the last price of $234.50. From those 30, 27 analysts rated ‘Buy’, three analysts rated ‘Hold’ and none rated ‘Sell’, according to Tipranks.

Just after the earnings result, Credit Suisse upped its target price to $315 from $305; JP Morgan raised its target price to $300 from $290; Cowen and Company raised target price to $290 from $280; RBC raised target price to $290 from $280 and Canaccord Genuity raised it to $290 from $275. Morgan Stanley target price is $285 with a high of $340 under a bull scenario and $200 under the worst-case scenario.

We think it is good to buy at the current level and target at least $300 in the short-term and $400 in a best-case scenario as 100-day Moving Average signals a strong buying opportunity.

Analyst comment

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

“Investing from Position of Strength to Drive Faster Long-Term Growth: We are modelling 11% GAAP opex (excl. one-time items) growth in 2020, implying an incremental $5 billion in opex. Our base case model implies opex per employee moderates in ’20 while FB hiring remains roughly flat on an absolute basis. We believe FB will grow EPS at a 14% CAGR (2019-2022),” he added.