Twitter Could Rally to 100

Twitter Inc. (TWTR) has rallied more than 14% since Monday’s opening bell and may be engaged in a long-awaited breakout run above resistance in the mid-70s, posted just six weeks after the social media giant came public in 2013. The sky’s the limit if that happens, as we have seen with other big tech leadership in the last decade. A new advertising platform has energized the latest uptick but the initiative has been adding points since it was first announced in 2020.

Political Pressure Eases

Social media sentiment has steadily improved since the 2020 presidential election, which culminated in Twitter and Facebook Inc (FB) banning President Donald Trump for Terms of Service violations. In addition, there has been less talk about a repeal of FCC Section 230 liability protections under the Biden administration and a recent Congressional hearing on big tech abuse proved to be little more than off-Broadway theater.

The company took another step to bolster ad revenue on Thursday, hooking up with research firm Nielsen (NLSN). Twitter executive Doug Brodman crowed about the partnership, noting “Nielsen’s cross-media suite will make it easier to augment our client’s video strategy and planning with Twitter’s premium video inventory and optimize audience reach and frequency alongside other top video platforms. Ultimately, this expanded partnership brings increased transparency, clarity and value to Twitter’s video solutions.”

Wall Street and Technical Outlook

Wall Street analysts still have not jumped on the bull bandwagon, with a modest ‘Hold’ rating based upon 10 ‘Buy’, 25 ‘Hold’, and 4 ‘Underweight’ recommendations. In addition, four analysts recommend shareholders close positions and move to the sidelines. Price targets currently range from a low of just $30 to a Street-high $95.00 while the stock is now trading about $2 below the median $72.50 target.

Twitter ended a long-term decline in the mid-teens in 2017 and turned higher, stalling in the mid-40s in 2018. A 2019 breakout attempt failed, yielding a two-year low during the pandemic decline, followed by an uptick that reached the 2013 high at 74.73 in February 2021. A breakout failed after hitting an all-time high at 80.75 while the decline into March found support at the 50-day moving average. Positive price action since that time bodes well for a durable breakout and rally into triple digits.

For a look at all this week’s economic events, check out our economic calendar.

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

Twitter Gains Amid Clubhouse Buyout Speculation

Twitter, Inc. (TWTR) shares added nearly 3% Wednesday after Bloomberg reported that the social media giant considered acquiring popular invitation-only audio-chat app, Clubhouse. The platform allows users to host shows, listen to panel discussions and engage in live chats.

People familiar with the matter said both parties discussed a possible valuation of $4 billion for Clubhouse but added that the negotiations had ceased. A potential buyout would have brought across the app’s 10 million active weekly users and complemented Twitter’s own recently launched beta-stage audio offering, Spaces. Such is the success of the Clubhouse app, other tech companies, including Facebook, Inc. (FB), Microsoft Corporation (MSFT), and Salesforce.com, inc. (CRM) have begun to develop similar features on their social media platforms.

As of April 8, 2021, Twitter stock has a market value of $55.1 billion and trades up 27.41% YTD. Over the past 12 months, the shares have surged nearly 170%. From a valuation standpoint, the stock trades 46% above its five-year average forward earnings multiple of 49 times.

Wall Street View

In February, Piper Sandler analyst Thomas Champion bumped up the investment firm’s price target on the stock to $61 from $45 while reiterating his ‘Neutral’ rating. Champion believes the company sits well-positioned to capitalize on daily active user growth it gained from the U.S. election. He also likes improvements the social media giant has made to its products and advertising.

Elsewhere, the stock receives 25 ‘Hold’ ratings, 10 ‘Buy’ ratings, 4 ‘Sell’ ratings, and 1 ‘Underweight’ rating. Twelve-month price targets range from a Street-high $95 to a low of $30. Through Wednesday’s close, the shares trade 5% below the median analyst price target of $72.50.

Technical Outlook and Trading Tactics

Twitter’s share price has remained in a steady uptrend since the 50-day SMA crossed above the 200-day SMA last summer. After a recent retracement to the 50-day SMA, the stock has regained upside momentum, with the MACD moving above its trigger line to generate a buy signal.

Active traders who buy here should look for an initial retest of all-time high (ATH) at $80.75, followed by a possible move higher. Protect against losses by placing a stop-loss order either beneath the 50-day SMA or under last month’s swing low at $59.28, depending on personal risk tolerance.

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

Gold Futures Closed Fractionally Higher on Dollar Weakness and Selling Pressure

Dollar weakness was responsible for all of today’s gains as market participants bid the precious yellow metal lower by actively selling today.

gold april 5

After the three-day holiday weekend, U.S. equities had respectable gains with the Dow Jones Industrial Average gaining just over 393 points, which is a net gain of 1.13% and closed at its highest recorded price level of 33,527.19. The S&P 500 also closed at a new record high after factoring in today’s 58-point gain (+1.44%)., Currently, the index is at 4077.91. Although the NASDAQ composite did not close at a new all-time high it had the largest percentage gains of the three major indices. After factoring in today’s 225-point gain (+1.67), the heavy tech index closed at 13,705.59. A major bounce in the FANG stocks was largely responsible for today’s sizable gains in the NASDAQ with Facebook, Google, Microsoft, and Tesla providing strong tailwinds which led to the 1.67% gain in the NASDAQ.

In both gold futures and spot pricing it was dollar weakness that held any losses to a minimum. The dollar index lost 44 points, or -0.47% and is currently fixed at 92.61. According to the KGX (Kitco Gold Index) spot gold is currently fixed at $1728.10 which is a net decline of $2.20 on the day. On closer inspection market participants bid the precious metal lower by $9.50. Concurrently dollar weakness contributed $7.30 of value resulting in today’s marginal decline of $2.20.

gold HA chart

The cryptocurrencies, specifically Bitcoin futures which trades on the Chicago Mercantile Exchange closed, in essence, unchanged but still remained extremely strong with a single coin valued just shy of $60,000 at $59,525.

While gold futures were able to eke out a fractional gain the same cannot be said for silver. Silver futures basis the most active May contract lost approximately 3 ½ cents in trading today (-0.15%) and is currently fixed at $24.915.

Today Reuters reported that the service sector gauge surged to a record high in March based on strong growth in new orders.

“A measure of U.S. services industry activity surged to a record high in March amid robust growth in new orders, in the latest indication of a roaring economy that is being boosted by increased vaccinations and massive fiscal stimulus.”

The record numbers reported from the Institute of Supply Management (ISM) coupled with Friday’s jobs report which revealed that the United States added 916,000 jobs last month (which is the largest monthly gain since August) clearly underscores that the economy in the United States is truly rebounding as the economic scenario in the United States continues to gain momentum. Considering those factors gold and silver prices held up rather well.

For more information on our service, simply use this link.

Wishing you, as always, good trading and good health,

Gary Wagner

 

S&P 500 Moves Closer To The 4000 Level

Tech Stocks Gain Ground As Treasury Yields Decline

S&P 500 futures are gaining ground in premarket trading as traders are optimistic on Biden’s infrastructure plan.

Interestingly, Treasury yields are moving lower despite the announcement of a roughly $2 trillion plan, which is bullish for tech stocks. Apple, Facebook, Microsoft and other leading tech shares are gaining ground in premarket trading.

Meanwhile, the U.S. dollar pulls back against a broad basket of currencies which is bullish for precious metals which have a chance to continue their rebound. Gold managed to settle above the $1700 level and is moving towards the resistance at the 20 EMA at $1730, providing additional support to shares of gold miners.

WTI Oil Tries To Settle Below The $60 Level As Traders Wait For Results Of OPEC+ Meeting

Today, OPEC+ members meet virtually to discuss the current situation in the oil market. Europe is facing a third wave of the virus, and European countries have already extended virus-related restrictions until late April. The situation in Brazil and India is also moving in the wrong direction, so oil demand recovery remains fragile.

According to recent reports, OPEC+ will choose between keeping current production cuts in place and gradually increasing production. Obviously, the market would like to see the extension of current production cuts.

At the same time, it remains to be seen whether the potential gradual increase of production levels will put additional pressure on the oil market.

Initial Jobless Claims Increase To 719,000

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

The Initial Jobless Claims report indicated that 719,000 Americans filed for unemployment benefits in a week compared to analyst consensus of 680,000. The previous report was revised from 684,000 to 658,000. Continuing Jobless Claims declined from 3.84 million (revised from 3.87 million) to 3.79 million, mostly in line with the analyst consensus.

The U.S. will soon release the final reading of Manufacturing PMI report which is projected to show that Manufacturing PMI grew from 58.6 to 59. Unless the report is much worse than the analyst estimate, it should not have a major impact on today’s trading.

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

Facebook Could Rally to 400

Facebook Inc. (FB) has shaken off all sorts of political headwinds, sidestepping ferocious opposition from the conservative side of the aisle, and appears poised to break out in a major uptrend that could target 400. If so, it will become the second member of the legendary FAANG quintet to hit new highs in 2021, trailing only Alphabet Inc. (GOOG), which broke out after a strong January earnings report.

Political Ad Moratorium Ends

CEO Mark Zuckerberg appeared before Congress last week with other tech titans, listing his efforts to combat misinformation and proclaiming limited support for new transparency and liability rules. Despite the politics, most investors are still focused on advertising revenue rather than keeping bad players off the platform and the Mar. 3 decision to resume political ads has had an immediate impact on sentiment, lifting the stock to a 6-month high.

Deutsche Bank analyst Lloyd Walmsley raised his target to $385 on Monday, noting “focus is starting to shift away from fears around iOS changes towards a continued ad recovery and benefits from more eCommerce activity shifting into Facebook’s platform. In addition to higher estimates, some fading fears around overhangs can drive a return to FB’s multiple premium to the S&P 500 (at parity today vs. a historical 20% premium), driving a catch-up trade in FB shares that have lagged year to date”.

Wall Street and Technical Outlook

Wall Street consensus has barely budged despite the political intrigue, with a ‘Buy’ rating based upon 39 ‘Buy’, 4 ‘Overweight’, 5 ‘Hold’, and 2 ‘Sell ‘recommendations. Price targets range from a low of $220 to a Street-high $418 while the stock is set to open Monday’s session more than $75 below the median $350 target. This placement should improve as analysts look past first quarter results, which may have been hurt by the moratorium and winter’s pandemic surge.

Facebook completed a round trip into the 2018 high at 218.62 in January 2020 and fell nearly 40% into March. It returned to resistance for the third time in May and broke out, posting an all-time high at 304.67 in August. The trading range since that time has held 200-day moving average support while weekly and monthly relative strength readings have slowly crossed into buy cycles, building a tailwind that could trigger a breakout early in the second quarter.

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 Retreat Ahead Of Fed Interest Rate Decision

It’s Fed Day

S&P 500 futures are losing ground in premarket trading while traders wait for the Fed Interest Rate Decision and the subsequent commentary.

The Fed has previously signaled that it was not going to change the interest rate anytime soon, so the market will remain focused on the commentary. Traders will pay special attention to Fed’s economic projections which will show whether Fed’s view of the economic rebound has changed.

The huge $1.9 trillion stimulus package may push inflation to higher levels, but the Fed was not concerned about higher inflation in its previous comments. Most likely, Fed Chair Jerome Powell will remain focused on the state of the job market which has not recovered from the blow dealt by the pandemic.

At the same time, Powell must find words to calm bond traders as Treasury yields have increased materially since the beginning of the year.

Treasury Yields Move To New Highs

Bond traders remain nervous ahead of the Fed Interest Rate Decision and sell U.S. government bonds, pushing their yields higher.

Currently, the yield of 10-year Treasuries is trying to settle above 1.66%, while the yield of 30-year Treasuries is testing the 2.41% level. It should be noted that Treasury yields have already recovered to pre-pandemic levels as traders expect higher inflation after the new round of economic stimulus.

Higher yields may put more pressure on tech stocks. Big tech stocks like Tesla, Apple, Facebook are down by more than 1% in premarket trading. If Jerome Powell fails to calm bond markets and yields continue to move higher, tech stocks will find themselves under more pressure.

Housing Starts Declined By 10.3% In February

The U.S. has just released Building Permits and Housing Starts reports. Building Permits decreased by 10.8% month-over-month in February compared to analyst forecast which called for a decline of 7.2%.

Housing Starts declined by 10.3% month-over-month while analysts expected that they would grow by 2.3%.

Housing market reports were weaker than expected, but it remains to be seen whether they will put additional pressure on the stock market as traders remain focused on the Fed.

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

Facebook to Label all Posts About COVID-19 Vaccines

By Elizabeth Culliford

The social media company said in a blog post it is also launching a tool in the United States to give people information about where to get COVID-19 vaccines and adding a COVID-19 information area to its photo-sharing site Instagram.

False claims and conspiracies about the coronavirus vaccines have proliferated on social media platforms during the pandemic.

Facebook and Instagram, which recently tightened their policies after long taking a hands-off approach to vaccine misinformation, remain home to large accounts, pages and groups that promote false claims about the shots and can be easily found through keyword searches.

Facebook’s Chief Product Officer Chris Cox said in an interview that the company had taken viral false claims “very seriously” but said there was “a huge gray area of people who have concerns…some of which some people would call misinformation and some of which other people would call doubt.”

“The best thing to do in that huge gray area is just to show up with authoritative information in a helpful way, be a part of the conversation and do it with health experts,” he added.

The company said it was labeling Facebook and Instagram posts that discuss the safety of COVID-19 vaccines with text saying the vaccines go through safety and effectiveness tests before approval.

In the blog post, it also said that since expanding its list of banned false claims about the coronavirus and vaccines in February, it has removed an additional 2 million pieces of content from Facebook and Instagram. Facebook said it had also implemented temporary measures including reducing the reach of content from users who repeatedly share content marked false by fact-checkers.

(Reporting by Elizabeth Culliford in New York; Editing by Lisa Shumaker)

Facebook to Let Content Creators Earn Money from Short-Form Videos

The announcement came in a blog https://about.fb.com/news/2021/03/helping-content-creators-diversify-revenue-on-facebook where the company detailed its plans to help creators make more money, as smaller tech rivals have been racing to attract famous social media personalities.

Snapchat owner Snap Inc has been paying $1 million per day to creators who make viral short videos on its feature called Snapchat Spotlight. Twitter recently announced it would launch “Super Follows,” which would let users charge followers for exclusive content.

Facebook said creators can now earn ad revenue from videos as short as one minute, down from three minutes previously.

It will also begin testing ads that look like stickers, which content creators can use in their Facebook Stories to earn money.

More creators can now qualify to earn ad revenue from live-streaming videos on Facebook, previously an invite-only program.

The social media giant said it would also give away $7 million in free Facebook Stars, which users can pay to creators on Facebook Live as a form of tipping.

(Reporting by Munsif Vengattil in Bengaluru and Sheila Dang in Dallas; Editing by Devika Syamnath, Alexandra Hudson)

US Stock Markets Daily Recap: That’s Why You Buy the Dips

Days like Tuesday (Mar. 9) are why you buy the dips. It was nothing short of a reverse rotation from what we’ve seen as of late. Bond yields moved lower; tech stocks popped.

That’s why I called BUY on the Nasdaq.

Inflation fears and the acceleration of bond yields are still a concern. But it looks as if things are stabilizing, at least for one day. The lesson here, though, is to be bold, a little contrarian, and block out the noise.

Unless you’ve been living under a rock, you know that recent sessions have been characterized by accelerating bond yields driving a rotation out of high growth tech stocks into value and cyclical stocks that would benefit the most from an economic recovery. The Nasdaq touched correction territory twice in the last week and gave up its gains for the year.

But imagine if you bought the dip as I recommended.

The Nasdaq on Tuesday (Mar. 9) popped 3.7% for its best day since November. Cathie Wood’s Ark Innovation ETF (ARKK) surged more than 10% for its best day ever after tanking by over 30%. Semiconductors also rallied 6%.

Other tech/growth names had themselves a day too: Tesla (TSLA) +20%, Nvidia (NVDA) +8%, Adobe (ADBE) +4.3%, Amazon +3.8%, Apple (AAPL) +4.1%, and Facebook (FB) +4.1%.

In keeping with the theme of buying the dip, do you also know what happened a year ago yesterday to the date? The Dow tanked 7.8%!

There’s no way to time the market correctly. If you bought the Dow mirroring SPDR DJIA ETF (DIA) last March 9, you’d have still seen two weeks of pain until the bottom. However, you’d have also seen a gain of almost 36% if you bought that dip and held on until now.

Look, I get there are concerns and fears right now. The speed at which bond yields have risen is concerning, and the fact that another $1.9 trillion is about to be pumped into a reopening economy makes inflation a foregone conclusion. But let’s have a little perspective here.

Bond yields are still at a historically low level, and the Fed Funds Rate remains 0%.

So is the downturn overblown and already finished?

Time will tell. I think that we could still see some volatile movements over the next few weeks as bond yields stabilize and the market figures itself out. While I maintain that I do not foresee a crash like what we saw last March and feel that the wheels remain in motion for an excellent 2021, Mr. Market has to figure itself out.

A correction of some sort is still very possible. I mean, the Nasdaq’s already hit correction territory twice in the last week and is still about 3-4% away from returning to one. But don’t fret. Corrections are healthy and normal market behavior. Only twice in the last 38 years have we had years WITHOUT a correction (1995 and 2017).

Most importantly, a correction right now would be an excellent buying opportunity. Just look at the Nasdaq Tuesday (Mar. 9).

It can be a very tricky time for investors right now. But never, ever, trade with emotion. Buy low, sell high, and be a little bit contrarian. There could be some more short-term pain, yes. But if you sat out last March when others bought, you are probably very disappointed in yourself. Be cautious, but be a little bold too.

You can never time the market.

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

With that said, to sum it up:

There is optimism but signs of concern. The market has to figure itself out. A further downturn is possible, but I don’t think that a decline above ~20%, leading to a bear market, will happen any time soon.

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

 Nasdaq- That’s Why I Called BUY

Figure 1- Nasdaq Composite Index $COMP

For the second time in a week, the Nasdaq hit correction territory and rocketed out of it. It saw its best day since November and proved once again that with the Nasdaq, you always follow the RSI. There could be more uncertainty over the next few weeks as both the bond market and equity market figure themselves out. However, the Nasdaq declines were very buyable, as I predicted.

If you bought the dip before Tuesday’s (Mar. 9) session, good on you. Be a little bit bold and fearless right now. Take Ark Funds guru Cathie Wood, for example. Many old school investors scoffed at her comments on Monday (Mar. 8) after she practically doubled down on her bullishness for her funds and the market as a whole. After crushing 2020, her Ark Innovation Fund (ARKK) tanked over 30%. Many called her the face of a bubble. Many laughed at her.

Tuesday, March 9, ARKK saw its best day in history.

I’m not saying that we’re out of the woods with tech. All I’m saying is don’t try to time the market, don’t get scared and have perspective.

The Nasdaq is once again roughly flat for the year, its RSI is closer to oversold than overbought, and we’re still below the 50-day moving average, near a 2-month low, and right around support at 13000.

It can’t hurt to start nibbling now. There could be some more short-term pain, but if you waited for that perfect moment to start buying a year ago when it looked like the world was ending, you wouldn’t have gained as much as you could have.

I think the key here is to “selectively buy.” I remain bullish on tech, especially for sub-sectors such as cloud computing, e-commerce, and fintech.

Mike Wilson , chief investment officer at Morgan Stanley, had this to say about recent tech slides- “I don’t think this is the end of the bull market or the end of tech stocks per se, but it was an adjustment that was very necessary.”

I like the levels we’re at, and despite the possibility of more “adjustments” in the short-run, it’s a good time to BUY. But just be mindful of the RSI, and don’t buy risky assets. Find emerging tech sectors or high-quality companies trading at a discount.

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

For more of my thoughts on the market, such as when small-caps will be buyable, more thoughts on inflation, and emerging market opportunities, sign up for my premium analysis today.

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

Thank you.

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

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

* * * * *

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

 

Too Tough to Buy Twitter at 60

Twitter Inc. (TWTR) reports Q4 2020 earnings after Tuesday’s closing bell in the United States, with analysts expecting a profit of $0.31 per-share on $1.19 billion in revenue. If met, earnings-per-share (EPS) will mark a 106% profit increase compared to the same quarter last year. The stock lost ground in October despite beating Q3 top and bottom line estimates after modest revenue growth failed to inspire buying interest.

No Backlash After Trump Ban

The social media sector sold off in January after banning Donald Trump for Terms of Service violations but an expected backlash never materialized. Ironically, punitive actions taken by Twitter and Facebook Inc. (FB) have lower the prospects for repeal of FCC section 230, which provides limited immunity for their platforms. The rule was a frequent Trump political target but the Biden administration is unlikely to bite the hand that feeds it.

KeyBanc Capital Markets analyst Justin Patterson upgraded Twitter to ‘Overweight’ in late January, noting, “Our view is that execution is improving, and the combination of a cyclical ad recovery and new products creates potential for revenue to outpace our above-consensus revenue estimates in 2021 and 2022. We see sustainable 20%+ annual revenue growth from the core business, with monetization of Revenue (estimated $36B TAM) and other new services creating significant option value.”

Wall Street and Technical Outlook

Wall Street consensus now stands at a skeptical ‘Hold’ rating based upon 12 ‘Buy’, 21 ‘Hold’, 1 ‘Underweight’, and 4 ‘Sell’ recommendations. Price targets currently range from a low of just $17 to a Street-high $67 while the stock has opened Tuesday’s U.S. session about $8 below the high target. Additional upside will be tough with this lofty placement but a strong quarterly report could generate higher targets.

The stock posted an all-time high at 74.73 a month after coming public in 2013 and sold off in a three-year downtrend. It broke out above tough resistance in the mid-40s in September 2020 and is now trading less than two points below the .786 Fibonacci selloff retracement level. This marks major resistance for uptrends cutting through old supply, raising odds for a reversal and intermediate correction that could offer a low risk buying opportunity in the 40s.

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

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

Facebook Earnings Beat Wall Street Estimates, But Shares Dip on 2021 Uncertainties

The world’s largest online social network Facebook reported better-than-expected earnings in the fourth quarter of 2020, largely driven by solid ad-revenue growth and advertiser demand during the holiday period.

Menlo Park, California-based social media conglomerate said its total revenue jumped 33% to $28.07 billion in the quarter ended December 31 from $21.08 billion a year earlier. That was higher than the Wall Street consensus estimate of $26.44 billion.

“Q4 results reinforce our conviction in Facebook (FB) as a top large-cap pick. 33% Y/Y rev growth was 6.5% ahead of the street and was supported by a 46% op. margin (18.8% ahead of the street). Forward rev guidance was conservative as usual, and we were not surprised to hear mgmt. point to decelerating growth in 2H21 (mostly due to iOS 14 changes and tough comps),” said Brent Thill, equity analyst at Jefferies.

“We are raising our FY21 revenue and EPS estimates by 3% and 5%, respectively. Our $350 price target implies 26x our FY22 EPS.”

Facebook said its net income rose to $11.22 billion, or $3.88 per share, which represents year-over-year growth of over 50% from the same quarter a year ago when the company reported $7.35 billion or $2.56 cents per share. The company said its monthly active users surged 12% to 2.80 billion, beating the Wall Street consensus estimate of 2.75 billion.

The world’s largest online social network expects to face more significant ad targeting headwinds in 2021. This includes the impact of platform changes, notably iOS 14, as well as the evolving regulatory landscape. While the timing of the iOS 14 changes remains uncertain, the company expects to see an impact beginning late in the first quarter.

Due to these uncertainties, Facebook shares fell about 2% to $267.00 in extended trading on Wednesday. However, the stock surged 33% in 2020.

Facebook Stock Price Forecast

Thirty-five analysts who offered stock ratings for Facebook in the last three months forecast the average price in 12 months at $329.53 with a high forecast of $375.00 and a low forecast of $205.00.

The average price target represents a 21.09% increase from the last price of $272.14. From those 35 analysts, 31 rated “Buy”, three rated “Hold”, and one rate “Sell”, according to Tipranks.

Morgan Stanley gave a base target price of $78 with a high of $126 under a bull scenario and $30 under the worst-case scenario. The firm currently has an “Overweight” rating on the social network’s stock.

Several other analysts have also recently commented on the stock. Jefferies raised the target price to $350 from $330. Piper Sandler upped the target price to $285 from $275. Pivotal Research increased the target price to $340 from $315. Baird raised the target price to $320 from $310.

In addition, Facebook had its target price lifted by research analysts at Deutsche Bank to $350 from $325. The firm presently has a “buy” rating on the social networking company’s stock. JP Morgan upped their price objective to $315 from $300 and gave the company a “buy” rating. Barclays upped their target price to $325 from $285 and gave the company an “overweight” rating.

Analyst Comments

“Monetization Potential: We are positive on Facebook’s (FB) 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 high and growing engagement we see monetization upside going forward,” said Michael Cyprys, equity analyst at Morgan Stanley.

“Investing from Position of Strength to Drive Faster Long-Term Growth: We are modeling 28% GAAP opex (excl. one-time items) growth in 2021, implying an incremental $15 billion in opex. Our base case model implies opex per employee moderates in ’21 while FB hiring remains roughly flat on an absolute basis. We believe FB will grow EPS at a 29% CAGR (2019-2022).”

Check out FX Empire’s earnings calendar

Facebook Stuck in Neutral Ahead of Earnings

Facebook Inc. (FB) reports Q4 2020 earnings after Wednesday’s U.S. closing bell, with Wall Street analysts looking for a profit of $3.20 per-share on $26.4 billion in revenue. If met, earnings-per-share (EPS) will mark a 25% profit increase compared to the same quarter in 2020. The stock fell more than 6% despite beating Q3 top and bottom line estimates in October but has carved little upside or downside since that time.

Ad Revenue vs. Political Headwinds

The stock topped out above 300 in August and eased into a trading range, with support below 250. Heavy criticism by the former president weighed on fourth quarter sentiment, with CEO Zuckerberg accused of bias against conservative opinions. The climax reached a boiling point after the insurrection, with Facebook and other social media outlets banning Donald Trump for inciting violence.  Even so, ad revenue is likely to be the final arbiter of 2021 price action.

Credit Suisse analyst Stephen Juour lowered his target to $325 last week, noting “advertiser checks are indicating better-than-expected ad budget growth for both Facebook and Instagram, and we raise our FX neutral revenue growth estimates for 4Q20, which now stand at 26% vs. prior 24%. We have anticipated a slower start to 2021 and have modestly lowered our growth expectations for 2021 to 26% vs. our prior 27%. We maintain our ‘Outperform’ rating”.

Wall Street and Technical Outlook

Wall Street consensus hasn’t budged in the last quarter, with a ‘Buy’ rating based upon 39 ‘Buy’, 3 ‘Overweight’, 6 ‘Hold’, and 1 ‘Sell’ recommendation. Price targets currently range from a low of $205 to a Street-high $397 while the stock opened Tuesday’s U.S. session more than $50 below the median $330 target. Diminishing political headwinds have impacted this humble placement, raising odds for higher prices in reaction to strong quarterly metrics.

Facebook topped out at 219 in 2018 and sold off after a privacy scandal, dropping to a two-year low at year’s end. The stock completed a round trip into the prior high in January 2020 and broke out in May, lifting into August’s all-time high at 304.67. Price action since that time has carved a trading range that now looks like a bearish descending triangle top. However, price structure also looks incomplete, suggesting it will be months before confirmed breakout or breakdown.

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.

Biden’s Presidency from a Market Perspective

Chief Market Analyst of XTB group discusses Biden’s presidency from a market perspective.

Watch this video to learn:

  • Key themes of Joe Biden’s presidency
  • Chances and risks for the markets
  • Present market situation on indices, fx and commodities
  • Key calendar positions for this week

Other top news this week include:

Earnings to Watch Next Week: Microsoft, Apple, Tesla and Facebook in Focus

Earnings Calendar For The Week Of January 25

Monday (January 25)

IN THE SPOTLIGHT: KIMBERLY-CLARK

Kimberly-Clark, an American multinational personal care corporation, is expected to report a profit of $1.62 in the fourth quarter of 2020, which represents a year-over-year decline of about 5.2% from the same quarter a year ago when the company reported $1.71 cents per share.

However, Wall Street forecasts the company’s revenue to grow over 3% to $4.7 from the same period year ago. For full-year 2020, revenue is expected to be at $19.1 billion.

“We maintain our Buy-rating and above-consensus EPS estimate into KMB’s 4Q report BMO on Monday. Kimberly Clark’s (KMB) shares have lagged staples as the market remains concerned about moderating POS trends in Dec/Jan and commodities; however, we see an upside to Street 4Q20 and ’21/’22 ests. w/commodity inflation reasonably reflected at current spots and view the bar as low into the print w/KMB trading at 16x P/E (30% discount to HPC peers vs. 20% hist. avg.),” noted Kevin Grundy, equity analyst at Jefferies, who rated the paper products giant “Buy” and set the price target at $152.

Florida-based insurance broker Brown & Brown will post earnings of $0.29 per share for last quarter of 2020.

TAKE A LOOK AT OUR EARNINGS CALENDAR FOR THE FULL RELEASES FOR THE JANUARY 25

Ticker Company EPS Forecast
CBU Community Bank System $0.76
BOH Bank of Hawaii $1.11
PHG Koninklijke Philips $1.04
KMB Kimberly Clark $1.62
WSFS Wsfs Financial $0.91
AUY Yamana Gold USA $0.11
CR Crane $1.10
HXL Hexcel -$0.20
BXS BancorpSouth $0.62
JJSF J&J Snack Foods $0.26
SFBS ServisFirst Bancshares $0.81
BRO Brown & Brown $0.29
GGG Graco $0.51
AGNC American Capital Agency $0.65
STLD Steel Dynamics $0.76
FUL HB Fuller $0.85
ACKAY Arcelik ADR $0.61
ASH Ashland $0.44
ELS Equity Lifestyle Properties $0.33
BKRKY Bank Rakyat $0.17

Tuesday (January 26)

IN THE SPOTLIGHT: MICROSOFT

MICROSOFT: The global technology giant is expected to report a profit of $1.64 in the fiscal second quarter, which represents year-over-year growth of about 8.6% from the same quarter last year when the company reported $1.51 per share.

The world’s largest software maker’s revenue is forecasts come at $40.23, up from the $36.91 billion reported the same quarter a year earlier.

“Q2 results likely highlight the durability of Microsoft‘s commercial businesses and conservatism in forward consensus expectations. After clearing tough Q2 product cycle comps and lingering COVID-19 impacts, strong secular positioning and an attractive multiple make Microsoft (MSFT) a top stock for the recovery,” said Keith Weiss, equity analyst at Morgan Stanley.

“At 26x CY22e GAAP EPS, MSFT trades at a premium to the S&P, warranted due to MSFT‘s premium return profile. Multiple expansion will likely come from gaining comfort in the durability of commercial business gross profit dollars.”

Johnson & Johnson, one of the world’s largest and most comprehensive manufacturers of healthcare products, will post earnings of $1.83 per share for last quarter of 2020.

TAKE A LOOK AT OUR EARNINGS CALENDAR FOR THE FULL RELEASES FOR THE JANUARY 26

Ticker Company EPS Forecast
NEE NextEra Energy $0.38
NEP Nextera Energy Partners $0.37
JNJ Johnson & Johnson $1.83
NVS Novartis $1.36
RTX Raytheon Technologies Corp $0.69
GE General Electric $0.09
AXP American Express $1.31
LMT Lockheed Martin $6.42
MMM 3M $2.15
PLD ProLogis $0.39
FCX Freeport-McMoran $0.38
PCAR PACCAR $1.21
ROK Rockwell Automation $1.89
DHI DR Horton $1.68
WAT Waters $2.87
IVZ Invesco $0.57
ALV Autoliv $1.92
PII Polaris Industries $2.90
ALK Alaska Air -$2.86
SNV Synovus Financial $0.81
PPBI Pacific Premier Bancorp $0.56
GATX GATX Corp $0.87
SFNC Simmons First National $0.42
XRX Xerox $0.63
CIT CIT $0.57
ADM Archer-Daniels Midland $1.10
RNST Renasant $0.59
MSFT Microsoft $1.64
TXN Texas Instruments $1.34
SBUX Starbucks $0.56
AMD Advanced Micro Devices $0.47
CNI Canadian National Railway USA $1.42
COF Capital One Financial $2.80
MXIM Maxim Integrated Products $0.68
VAR Varian Medical Systems $1.05
BXP Boston Properties $0.60
CHRW C.H. Robinson Worldwide $0.97
FFIV F5 Networks $2.44
WRB W.R. Berkley $0.79
EHC Encompass Health Corp $0.85
RNR Renaissancere -$1.92
SLGN Silgan $0.53
UMBF UMB Financial $1.32
NAVI Navient $0.83
WSBC WesBanco $0.61
FMBI First Midwest Bancorp $0.26
RXN Rexnord $0.38
EBAY eBay $0.84
HOG Harley Davidson $0.10

Wednesday (January 27)

IN THE SPOTLIGHT: APPLE, TESLA, FACEBOOK

APPLE: The consumer electronics giant is expected to report profit growth of more than 12% of $1.41 in the fiscal first quarter of 2021 on sales of $102.61 billion, highlighted growth of over 11% from the year-ago quarter. That growth is largely driven by a strong demand iPhone handset, Mac computers, iPad tablets and wearables in the holiday season.

“Our December quarter revenue of $108.2B is 5% above consensus, while our EPS of $1.50 is 7% above consensus. We expect demand strength to continue and our FY21 revenue and EPS estimates are both 5% above consensus,” wrote Katy Huberty, equity analyst at Morgan Stanley.

“Given positioning into the quarter is muted after the rotation out of high-quality stocks over the past several months, we expect strong follow-through post-earnings and are buyers into the print. We also raise our price target to $152, from $144, as we mark our price target to market accounting for recent peer multiple expansion.”

TESLA: The California-based electric vehicle and clean energy company is expected to report a profit of $1.04 in the fourth quarter of 2020, posting a profit for the sixth straight quarter. The manufacturer of high-performance electric vehicles’ revenue is forecast to surge about 35% to $10 billion.

“A double-fly-wheel. We believe Tesla can leverage its cost leadership in EVs to aggressively expand its user base, over time generating a higher % of revenue from recurring/high-margin services revenue. Services drive the upside. We forecast Tesla’s (TSLA) network services EBITDA as a % of total TSLA EBITDA to reach 11% by 2025, 19% by 2030 and 37% by 2040. Tesla Service revenue includes automated driving, infotainment, upgrades, supercharging, maintenance, telematics, etc.,” said Adam Jonas, equity analyst at Morgan Stanley.

“Valuation supportive vs. tech. Including Network Services, Energy & Insurance to our core auto forecasts, at $810 Tesla trades at 25x EV/EBITDA in 2025 and 5x 2025 sales. Expensive vs. auto but not vs. software/tech comps.”

FACEBOOK: The world’s largest online social network is expected to report a profit of $3.16 in the fourth quarter of 2020, which represents year-over-year growth of 23.4% from the same quarter a year ago when the company reported $2.56 cents per share.

According to the Zacks Research, the social media conglomerate’s revenue will increase of 24.7% to $26.29 billion from the year-ago, largely driven by solid ad-revenue growth amid advertiser demand during the holiday period.

“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,” noted Brian Nowak, equity analyst at Morgan Stanley.

“Investing from Position of Strength to Drive Faster Long-Term Growth: We are modeling 29% GAAP opex (excl. one-time items) growth in 2021, implying an incremental $15bn in opex. Our base case model implies opex per employee moderates in ’21 while FB hiring remains roughly flat on an absolute basis. We believe FB will grow EPS at a 28% CAGR (2019-2022).”

TAKE A LOOK AT OUR EARNINGS CALENDAR FOR THE FULL RELEASES FOR THE JANUARY 27

Ticker Company EPS Forecast
ANTM Anthem $2.53
GIB CGI Group USA $0.97
VFC VF $0.90
TDY Teledyne Technologies $3.05
KNX Knight Transportation $0.91
PB Prosperity Bancshares $1.35
OSK Oshkosh $0.73
NYCB New York Community Bancorp $0.26
CVLT Commvault Systems $0.47
EAT Brinker International $0.35
T AT&T $0.73
ABT Abbott $1.35
BA Boeing -$1.60
ADP ADP $1.29
NSC Norfolk Southern $2.49
PGR Progressive $1.64
GD General Dynamics $3.54
BX Blackstone $0.90
TEL TE Connectivity $1.28
APH Amphenol $1.02
GLW Corning $0.48
NDAQ Nasdaq Omx $1.46
MKTX MarketAxess $1.81
HES Hess -$0.65
ROL Rollins $0.11
TXT Textron $0.90
SEIC SEI Investments $0.78
PTC PTC $0.66
TTEK Tetra Tech $0.81
CACI Caci International $3.59
LSTR Landstar System $1.72
SLM SLM $0.36
RLI RLI $0.66
SLG SL Green Realty -$0.27
AXS Axis Capital -$0.28
AVT Avnet $0.39
CNS Cohen & Steers $0.68
CNMD CONMED $0.77
MTH Meritage Homes $3.33
CATY Cathay General Bancorp $0.76
ISBC Investors Bancorp $0.27
CALX Calix $0.33
CP Canadian Pacific Railway USA $5.03
AMP Ameriprise Financial $4.52
AAPL Apple $1.41
TSLA Tesla $1.04
FB Facebook $3.16
NOW ServiceNow $1.06
SYK Stryker $2.55
LRCX Lam Research $5.69
CCI Crown Castle International $0.62
EW Edwards Lifesciences $0.53
LVS Las Vegas Sands -$0.29
TER Teradyne $1.00
HOLX Hologic $2.17
URI United Rentals $4.26
DRE Duke Realty $0.16
RJF Raymond James Financial $1.65
PKG Packaging Of America $1.48
WHR Whirlpool $6.00
MKSI MKS Instruments $2.01
AZPN Aspen Technology $1.17
CREE Cree -$0.25
LPL Lg Display $0.19
CVBF CVB Financial $0.34
XLNX Xilinx $0.69
UMC United Microelectronics $0.08

Thursday (January 28)

IN THE SPOTLIGHT: Mastercard, McDonald’s, Visa

Mastercard Inc, a leader in global payments and a technology company, will post earnings of $1.53 per share for last quarter of 2020, which represents a year-over-year decline of about 22% from the same quarter a year ago when the company reported $1.96 cents per share.

McDonald’s Corporation, one of the world’s largest American fast-food chain, will post earnings of $1.79 per share for last quarter of 2020. Visa Inc is also expected to report first-quarter earnings on the same day, with earnings of $1.28 per share for the quarter.

TAKE A LOOK AT OUR EARNINGS CALENDAR FOR THE FULL RELEASES FOR THE JANUARY 28

Ticker Company EPS Forecast
MKC McCormick $0.81
LEA Lear $3.40
FCFS FirstCash $0.82
VLO Valero Energy -$1.28
LUV Southwest Airlines -$1.66
AAL American Airlines -$4.12
NUE Nucor $1.16
MSCI Msci $1.92
JBLU JetBlue Airways -$1.67
FRME First Merchants $0.66
MA Mastercard $1.53
CMCSA Comcast $0.48
ATI Allegheny Technologies -$0.35
ABMD Abiomed $1.12
ADS Alliance Data Systems $2.44
TROW T. Rowe Price $2.64
MCD McDonalds $1.79
STM Stmicroelectronics $0.54
DHR Danaher $1.87
DOW Dow Chemical $0.64
CNX Consol Energy $0.16
SHW Sherwin-Williams $4.84
KEX Kirby $0.24
MO Altria $1.01
NTCT Netscout Systems $0.52
CFR Cullen/Frost Bankers $1.28
PNR Pentair Ordinary Share $0.63
TSCO Tractor Supply $1.47
PHM PulteGroup $1.39
EWBC East West Bancorp $1.01
RCI Rogers Communications USA $0.72
NOC Northrop Grumman $5.77
SWK Stanley Black & Decker $2.99
AIT Applied Industrial Technologies $0.74
BPOP Popular, Inc. $1.62
AOS A.O. Smith $0.58
XEL Xcel Energy $0.55
FLWS 1-800-Flowers $1.38
EXP Eagle Materials $1.74
MMC Marsh & McLennan Companies $1.13
COLB Columbia Banking System $0.60
BC Brunswick $1.02
FLEX Flextronics International $0.37
WRK WESTROCK $0.54
MTSI MACOM Technology Solutions $0.37
VLY Valley National Bancorp $0.25
PEXNY PTT Exploration & Production $0.01
DOV Dover $1.38
DLB Dolby Laboratories $0.34
FFBC First Financial Bancorp $0.45
HTH Hilltop $1.13
NATI National Instruments $0.13
RMD ResMed $1.25
GBCI Glacier Bancorp $0.74
ABCB Ameris Bancorp $1.16
CE Celanese $1.69
FIBK First Interstate BancSystem $0.80
JNPR Juniper Networks $0.53
SIGI Selective $1.20
V Visa $1.28
WDC Western Digital $0.52
EGHT 8X8 -$0.03
X United States Steel -$0.62
FHI Federated Hermes Inc $0.78
AJG Arthur J. Gallagher $0.78
SWKS Skyworks Solutions $2.08
OLN Olin -$0.11
MDLZ Mondelez International $0.66
PFG Principal Financial $1.42
EMN Eastman Chemical $1.50
ORI Old Republic International $0.43
FICO Fair Isaac $2.35
MSTR Microstrategy $1.62
RHI Robert Half International $0.68
LANC Lancaster Colony $1.57
RDN Radian $0.60
CAJ Canon $0.31
TOELY Tokyo Electron Ltd PK $0.78
HOCPY Hoya Corp $0.84
DGE Diageo £80.90
KPELY Keppel Corporation -$0.05
NVR NVR $78.78
FFIN First Financial Bankshares $0.37

Friday (January 29)

Ticker Company EPS Forecast
PSXP Phillips 66 Partners $0.89
JCI Johnson Controls $0.40
AN AutoNation $2.05
HON Honeywell International $2.00
MSGS Madison Square Garden Sports -$1.63
ATLCY Atlas Copco ADR $0.39
SAP SAP $1.95
LLY Eli Lilly $2.37
CHD Church Dwight $0.52
LHX L3Harris Technologies Inc $3.09
CL Colgate-Palmolive $0.76
BAH Booz Allen Hamilton $0.93
BBVA Banco Bilbaoizcaya Argentaria $0.13
ERIC Ericsson $0.20
RDY Drreddys Laboratories $0.58
CVX Chevron $0.07
SYF Synchrony Financial $0.89
CAT Caterpillar $1.48
CHTR Charter Communications $4.82
PSX Phillips 66 -$0.81
BMI Badger Meter $0.43
GNTX Gentex $0.50
ROP Roper Industries $3.49
WY Weyerhaeuser $0.42
LYB LyondellBasell Industries $1.36
ROLL Rbc Bearings $0.82
FBP First Bancorp FBP $0.18
KKR KKR & Co LP $0.41
HMC Honda Motor $0.89
GCTAY Siemens Gamesa ADR $0.02
NNIT Nnit A/S kr1.62
SPG Simon Property Group $0.85
ASEKY Aisin Seiki Co $1.19
ALNPY ANA Holdings ADR -$0.35
KMTUY Komatsu $0.26
TTM Tata Motors $0.17
TOTDY Toto $0.46

 

Stocks Move Lower After Disappointing Reports From IBM And Intel

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

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

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

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

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

Oil Is Under Strong Pressure Amid Rising Coronavirus Cases In China

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

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

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

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

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

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

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

Markets Surge Despite Unprecedented Violence at U.S. Capitol

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

News Recap

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Therefore, to sum it up:

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

Can Small-caps Own 2021?

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

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

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

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

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

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

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

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

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

Thank you.

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

* * * * *

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

 

Stocks Retreat As Democrats Lead In Georgia Senate Runoff Elections

Traders Sell Tech Stocks

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

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

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

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

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

OPEC+ Reached A Compromise Deal

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

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

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

ADP Employment Change Report Disappoints

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

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

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

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

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.