Netflix Under Pressure Ahead of Tuesday Report

Netflix Inc. (NFLX) reports Q4 2020 earnings after Tuesday’s closing bell, with analysts looking for a profit of $1.41 per-share on $6.62 billion in revenue. If met, earnings-per-share (EPS) will mark a modest 8.4% profit increase, compared to the same quarter in 2020. Of course, all hell broke loose after that report, with a worldwide pandemic boosting subscriptions, especially in more resistant older demographics.

Netflix Growth Concerns

The stock posted an impressive 67% return in 2020 but hasn’t added a penny in the last six months and has lost 8% so far in 2021.  Rivals Walt Disney Co. (DIS) and Roku Inc. (ROKU) have ascended the leader board between then and now, with their rapidly-growing services attracting waves of Wall Street upgrades. On the flip side, growth concerns have plagued Netflix since July, with some analysts expecting 2021 to reveal all sorts of structural weaknesses.

That sentiment is far from universal, as evidenced by BMO Capital Market’s call to sell Disney. Analyst Daniel Salmon downgraded the stock to ‘Outperform’ in December, stating that Netflix “retakes the Top Pick mantle”. However, Needham’s Laura Martin is telling clients to sell NFLX and buy ROKU in a pairs trade that highlights a popular opposing view. She also expects DIS to have more subscribers within 18 to 24 months, given the service’s incredible ingrowth trajectory.

Wall Street and Technical Outlook

Wall Street consensus remains at a ‘Moderate Buy’ ahead of Tuesday’s confessional, based upon 19 ‘Buy’ and 7 ‘Hold’ recommendations. However, three analysts now recommend that subscribers close positions and move to the sidelines. Price targets currently range from a low of $235 to a Street-high $700 while the stock ended last week about $85 below the median $583 target. This humble placement raises the potential for a ‘buy-the-news’ reaction.

Netflix entered a broad rectangle pattern after posting the all-time high last summer and has now reversed at range resistance three times. However, it’s also held four tests at range support near 465, establishing a standoff that will end with one side getting trapped by an adverse trend. Monthly and weekly relative strength indicators are now entrenched in sell cycles, raising odds that committed sellers eventually take control of the tape.

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

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

Earnings to Watch Next Week: Logitech, Goldman Sachs, NetFlix and IBM in Focus

Next week’s earnings are of much significance for major market movements as 2021 is believed to be a year of recovery on hopes of successful roll-out of the COVID-19 vaccine.

Earnings Calendar For The Week Of January 18

Monday (January 18)

IN THE SPOTLIGHT: LOGITECH INTERNATIONAL

Logitech International S.A., a Swiss-American manufacturer of computer peripherals and software, is expected to report a profit of $1.08 in the fiscal third quarter, which represents year-over-year growth of about 29% from the same quarter last year when the company reported 84 cents per share.

The Lausanne-based company’s revenue to grow over 35% year-over-year to $1.23 billion from $902.69 million in the same period last year.

“We are bullish into Logitech‘s F3Q21 earnings report next week as our December quarter checks point to a better than the expected market environment, most notably for PC peripherals. We’d be buyers into the print and raise our PT to $113 (from $106) to account for recent peer multiple expansion,” noted Erik Woodring, equity analyst at Morgan Stanley.

Tuesday (January 19)

IN THE SPOTLIGHT: GOLDMAN SACHS, NETFLIX

GOLDMAN SACHS: New York-based leading global investment bank is expected to report a profit of $7.33 in the fourth quarter, which represents year-over-year growth of about 56% from the same quarter last year when the company reported $4.69 per share. The bank’s revenue is expected to dip 4.9% from the year-ago quarter to $9.47 billion.

“As market volatility and the urgency around capital raising activity (both equity and debt) subside in 2021, we expect total revenues decline 11% y/y from a strong 2020. We are valuing the group on normalized 2023 EPS. While we still see 15%+ upside to Goldman Sachs (GS) based on this methodology, we see even more upside elsewhere in the group, particularly in consumer finance stocks which have been under more pressure,” said Betsy Graseck, equity analyst at Morgan Stanley.

“This drives our Underweight rating. Over time, we expect GS can drive some multiple expansion as management executes on its multi-year strategic shift towards higher recurring revenues.”

NETFLIX: California-based global internet entertainment service company is expected to report a profit of $1.35 in the fourth quarter, which represents year-over-year growth of about 4% from the same quarter last year when the company reported $1.30 per share. The streaming video pioneer’s revenue is expected to surge over 20% from the year-ago quarter to $6.60 billion.

“We expect paid net adds to come in the above guide, helped by ongoing shutdowns & seasonal strength. Our view is supported by our positive proprietary 4Q20 survey data, which implies rising pricing power into year-end. We tweaked estimate’s & introduced ’21 quarters; in turn, our DCF-based price target rises to $650 from $625 prior; reiterate ‘Outperform’ rating,” said John Blackledge, equity analyst at Cowen and company.

NetFlix (NFLX) shares were +67% in ’20 alongside a pandemic surge, following massive sub beats in 1Q / 2Q respectively and 28.1MM total paid net adds in 1Q-3Q ’20, up 47% y/y. With consumers staying home amid colder weather & limited social activities, we expect Netflix engagement to remain high; meanwhile, to the extent, there is any NT pressure on UCAN paid subs from the 4Q US price increase, we would consider this a buying opportunity for NFLX shares as the co. grows the value prop alongside rising ARPU.”

TAKE A LOOK AT OUR EARNINGS CALENDAR FOR THE FULL RELEASES FOR THE JANUARY 19

Ticker Company EPS Forecast
PACW Pacwest Bancorp $0.67
CMA Comerica $1.18
ONB Old National Bancorp $0.38
SCHW Charles Schwab $0.65
GS Goldman Sachs $7.33
STT State Street $1.57
HAL Halliburton $0.15
FULT Fulton Financial $0.27
JBHT J B Hunt Transport Services $1.30
ZION Zions Bancorporation $1.01
PNFP Pinnacle Financial Partners $1.36
FNB FNB $0.24
UCBI United Community Banks $0.60
NFLX Netflix $1.35
IBKR Interactive Brokers $0.58
RNST Renasant $0.59
SBNY Signature Bank $2.91

Wednesday (January 20)

IN THE SPOTLIGHT: UNITEDHEALTH

UNITEDHEALTH: Minnesota-based health insurance and health care data analysis giant is expected to report a profit of $2.41 in the fourth quarter, which represents a year-over-year decline of about 40% from the same quarter last year when the company reported $3.90 per share.

The largest insurance company by Net Premiums is witnessing a slowdown in its international business as increased joblessness due to the COVID-19 pandemic has dented demand for commercial membership.

UnitedHealth Group is the number one Medicare Advantage player with 28% market share, the number two Medicare PDP player with 20% market share, and the number two commercial player with 15% market share. United’s model is enhanced via vertical integration with its OptumRx PBM platform, which is one of the three largest PBMs in the country,” wrote Ricky Goldwasser, equity analyst at Morgan Stanley.

“With a large lead in the breadth of services offerings and considerable exposure to government businesses, UnitedHealth is well-positioned for any potential changes in the US healthcare system. A strong balance sheet and continued solid cash generation give flexibility for continued M&A.”

United Airlines is expected to report a deep loss in the fourth quarter due to the COIVD-19 pandemic, which harmed demand for travel.

Ohio-based Tide detergent and Pampers diaper manufacturer Procter & Gamble is expected to report an increase in profits on rising demand for home care and laundry products amid the COIVD-19 pandemic.

TAKE A LOOK AT OUR EARNINGS CALENDAR FOR THE FULL RELEASES FOR THE JANUARY 20

Ticker Company EPS Forecast
UNH UnitedHealth $2.41
PG Procter & Gamble $1.51
ASML Asml $2.96
MS Morgan Stanley $1.30
USB US Bancorp $0.95
BK Bank Of New York Mellon $0.88
FAST Fastenal $0.33
CFG Citizens Financial $0.91
CBSH Commerce Bancshares $0.92
BOKF BOK Financial $1.92
FCEL Fuelcell Energy -$0.07
KMI Kinder Morgan $0.24
DFS Discover Financial Services $2.36
UAL United Airlines Holdings -$6.56
AA Alcoa $0.09
WTFC Wintrust Financial $1.41
UMPQ Umpqua $0.48
HWC Hancock Whitney Corp $0.90
PLXS Plexus $1.10
STL Sterling Bancorp $0.46
PTC PTC $0.65

Thursday (January 21)

IN THE SPOTLIGHT: IBM

IBM: Armonk, New York-based technology and consulting company is expected to report a profit of $1.81 in the fourth quarter, which represents a year-over-year decline of over 60% from the same quarter last year when the company reported $4.71 per share.

“For 2020, IBM refrained from providing any guidance, citing business uncertainty. Nevertheless, management stated that the fourth quarter is a seasonally strong quarter. The company is witnessing robust pipelines across hybrid cloud and data platform, AI solutions, in Cognitive Apps business driven by strength in Cloud Paks and Security, cloud-based transformation services in GBS segment, and App modernization offerings,” noted analysts at ZACKS Research.

“Also, management is banking on advancement in Red Hat “actual backlog growth.” Moreover, gains from the rapid uptake of IBM z15 is anticipated to be a tailwind. The company also anticipates to end 2020 with reduced debt levels.”

TAKE A LOOK AT OUR EARNINGS CALENDAR FOR THE FULL RELEASES FOR THE JANUARY 21

Ticker Company EPS Forecast
UNP Union Pacific $2.24
TFC Truist Financial Corp $0.85
TAL TAL International $0.04
TRV Travelers Companies $3.16
BKR Baker Hughes Co $0.17
FITB Fifth Third Bancorp $0.68
NTRS Northern $1.49
MTB M&T Bank $3.02
KEY KEY $0.43
CTXS Citrix Systems $1.34
HOMB Home Bancshares $0.39
INDB Independent Bank $1.02
FBC Flagstar Bancorp $2.36
WBS Webster Financial $0.75
BKU BankUnited $0.71
WNS Wns Holdings $0.59
INTC Intel $1.10
IBM IBM $1.81
ISRG Intuitive Surgical $3.09
CSX CSX $1.01
PPG PPG Industries $1.58
SIVB SVB Financial $3.79
TCBI Texas Capital Bancshares $1.13
ASB Associated Banc $0.30
PBCT People’s United Financial $0.32
OZK Bank Ozk $0.78
WAL Western Alliance Bancorporation $1.33
BKRKY Bank Rakyat $0.17
MTCH Match Group $0.50
MTG MGIC Investment $0.37
STX Seagate Technology $1.13

Friday (January 22)

Ticker Company EPS Forecast
EDU New Oriental Education Tech $0.26
ABBV AbbVie $2.86
HON Honeywell International $2.00
SLB Schlumberger $0.17
KSU Kansas City Southern $1.93
RF Regions Financial $0.42
HBAN Huntington Bancshares $0.29
ALLY Ally Financial $1.05
FHN First Horizon National $0.28
HRC Hill-Rom $1.05
NEP Nextera Energy Partners $0.39
IBN Icici $0.14
TOP Topdanmark A/S kr3.63

 

Gold Sheared, Silver Smeared

160121_gold_scoreboard

But relax: have a cracker ‘n schmear, perhaps even a beer, and we’ll try to relate to making it all clear.

To be sure — given all that we and you from here to Kalamazoo fundamentally understand about Gold – its moving lower in the ongoing financial environment makes nary a wit of sense whatsoever. The market is never wrong by traders having put price where ’tis, irrespective of its going the wrong way.

And given the fundamental precious-metals-positive state of essentially everything, ’tis diabolical that price descend.

Indeed as Gold leaped out of the gate to commence the New Year by gaining +3.2% (and Silver +6.0%) within the first three trading days, it struck us that our call for a Gold high this year of 2401 may have been too conservative. And from the “Under-State and Over-Deliver Dept.”, such 2401 forecast may still be too conservative even given the present pullback.

Either way, Gold settled out the week yesterday (Friday) at 1828 … which is but half the above Scoreboard’s debasement valuation of 3644. Moreover, ’tis before President-to-be-Biden rolls out his nearly $2 trillion instant COVID/economic relief plan, which with Congress now all “blue” ought pass right through.

“But even that is already priced into Gold, right mmb?”

Of course ’tis, Squire, just as always is everything. (Pity the poor trader who thinks he has it all figured out before anyone else does: “Take a seat at the back of the bus, buddy…”).

And again, please spare us the argument that bits**t is the modern alternative to Gold. Cryptocrap — which within two trading days just fell -27% — ain’t fallin’ into our lap.

And again (again), the fundamental stance for Gold we continue to view as 100% positive given the ever-burgeoning levels of the 3Ds (Debasement, Debt, Derivatives), the declining Economic Barometer (as we’ll below show), COVID clearly not contained (nor the effects of its vaccines preordained), and the endless spending of even more $trillions beyond the initial $2 trillion under Biden/Harris/Congressional reign!

So: why has Gold been declining? Reprise: the technical stance for Gold may merely be viewed as price having leapt too far too fast, as least by its recent deviation above the 300-day moving average.

To wit: since the start of the millennium we’ve had 5,043 trading days. Therein, Gold has settled more than 10% above its 300-day moving average a fair amount of the time: 1,697 days, to be precise (or one-third of days overall). That alone is a testament to the price of Gold rising over the long-term whilst all of the aforementioned fundamentals reduce the value of the faux dough Dollar.

In commencing 2021, so swift was Gold’s up move that price found itself nearly 13% above its 300-day moving average. And from the year 2001-to-date, Gold’s average price decline within three months upon a deviation of greater than 10% above that average is -6.2% (the standard deviation being 4.9%). So with Gold recently settling at 1954 (05 January), ’twas +12.6% above said average. A -6.2% decline from there puts price at 1833, (the recent low being 1817). ‘Course, hardly have three months yet to ensue: thus let’s further subtract the standard deviation which puts price down to 1739. On verra, but a positive Gold stance by the fundamentals belies such demise.

Besides, as we saw a week ago, Gold’s weekly parabolic trend has flipped from Short to Long, dubious as it appears on the following graphic of the price bars from one year ago-to-date. The wiggle room between the rightmost blue dot (1771) and present price (1828) is but 57 points, somewhat daunting as Gold’s “expected weekly trading range” is now 72 points. Thus the new Long trend is within range of being Short-lived.

And to quickly flip back to Short would leave any fundamentalist further flabbergasted. The point is: the Gold Bull ought not be put out of sorts should the lower 1700s be tested. Indeed, Gold appears to be structurally supported in the 1792-1673 range, but we don’t honestly find any rationale for price to venture there.

160121_gold_weekly

‘Course, the Dollar has actually been getting a bit of a bid to start the year, which in turn is why the BEGOS Markets year-to-date ain’t lookin’ all that great, the sole exception being Oil which typically shall slide during a Dollar up-glide. (Speaking of Oil for those of you who follow the website’s Market Rhythms page, the 12-hour MACD study looks to confirm a negative crossing in starting the new week). Otherwise, through these first 10 trading days of 2021, Gold as we below see is thus far the weakest of the five primary components which comprise BEGOS:

160121_begos_markets

In trying to ferret it all out from the FinMedia, one may be better off with a shot of tequila. Try these “back-to-back” readings from the Dow Jones Newswires: “…the labor market is losing momentum amid rising coronavirus cases…” (followed by) “…This Could Be the Best Year on Record for Job Growth. Gains are expected to be driven by a re-emerging economy…” That must have come from their “Now and Then Dept.”

Or try this FinTimes and Reuters bit: “…JPMorgan, Citigroup and Wells Fargo cite increased certainty on vaccines and improving economic outlook…” (followed by) “…U.S. Labor Market Losing Speed as COVID-19 Spirals Out of Control…”

And we know throughout history that such opposing opinions when elicited as policy result as follows:

160121_deux_locos

And it appears that the S&P finally is beginning to crack, the “live” price/earnings ratio being essentially a record — indeed stratospheric — 78.7x and our “textbook” technicals reaching “extremely overbought” this past Tuesday into Wednesday. ‘Tis right in line as we’ve written of late that the S&P “is horribly due for a massive crash”.

Even a terrific Q4 Earnings Season would hardly right this ship: bottom lines ought need triple to-quadruple just to get the P/E in line with any acceptable historical norm. And hardly is the economy helping: beyond December’s improvements in Industrial Production and Capacity Utilization, the month’s Retail Sales actually shrank whilst Import and Export Prices rose. Can you say “stagflation”? As well, January’s New York Empire State Index sported its weakest reading since July.

Then we’ve Cleveland FedPrez “Jump Back” Loretta Mester pointing to the StateSide economy’s needing strong 2021 government support, (and you know ’tis coming in $trillions: Got Gold?) Chiming in, too, is overall FedHead Jerome Powell stating the road to recovery for jobs is long with open-ended easy money to remain available. Again: Got Gold?

Still, not everyone has got Gold (now that is to Under-State) nor are stocking up en masse as we turn to our two-panel graphic of Gold’s daily bars from three months ago-to-date on the left and those for Silver on the right. Problematic for both markets is their respective sets of “Baby Blues” falling below the 0% axis, meaning that the 21-day linear regression trends have rotated from positive to negative: Sheared and smeared, indeed:

160121_gold_silver_dots

And as for the past fortnight — which is year-to-date — both precious metals obviously find themselves near the bottom of their respective 10-day Market Profiles:

160121_gold_silver_profiles

We’ll sum it up here with the stack:

The Gold Stack

  • Gold’s Value per Dollar Debasement, (from our opening “Scoreboard”): 3644
  • Gold’s All-Time Intra-Day High: 2089 (07 August 2020)
  • Gold’s All-Time Closing High: 2075 (06 August 2020)
  • 2021’s High: 1963 (06 January)
  • The Gateway to 2000: 1900+
  • 10-Session “volume-weighted” average price magnet: 1887
  • Trading Resistance: (most immediate) 1843 / 1849 / 1859
  • Gold Currently: 1828, (expected daily trading range [“EDTR”]: 34 points)
  • Trading Support: none per the 10-day Market Profile
  • 10-Session directional range: down to 1817 (from 1963) = -146 points or -7.4%
  • 2021’s Low: 1817 (11 January)
  • The Final Frontier: 1800-1900
  • The Northern Front: 1800-1750
  • The Weekly Parabolic Price to flip Short: 1771
  • On Maneuvers: 1750-1579
  • The 300-Day Moving Average: 1745 and rising
  • The Floor: 1579-1466
  • Le Sous-sol: Sub-1466
  • The Support Shelf: 1454-1434
  • Base Camp: 1377
  • The 1360s Double-Top: 1369 in Apr ’18 preceded by 1362 in Sep ’17
  • Neverland: The Whiny 1290s
  • The Box: 1280-1240

Next week is lite for incoming economic data and brings joyous relief for the media in welcoming the 46th President of the United States via an Inauguration replete with virtual festivities. But ’tis said the 47th President in terms of time may not be far behind. So let the StateSide and geo-political schmear unfold whilst you fortify your financial well-being with Gold!

160121_25th_sec3

Cheers!

www.deMeadville.com
www.TheGoldUpdate.com

Darkest Before Dawn

This includes the release of the preliminary January PMI figures at the end of the week. Japan is extending its national emergency to another five prefectures, which collectively account for over half of the nation’s GDP. Germany’s Merkel, not given to hyperbole, warns that the lockdown may last ten more weeks. The Dutch do not appear far behind. England is talking bot tightening its restrictions. Even China appears to be experiencing a flare-up. The pandemic is out of control in the US, although the curve appears to be flattening in some areas.

It was widely recognized that the virus and vaccine are going to dictate the economic story in 2021. The new variant of the virus is more contagious and the roll-out of the vaccine has been frustratingly slow in most countries. The recovery in Q3 seen among the high-income countries was a dramatic snapback but for many, it was not the beginning of a sustained recovery. That recovery may be several months away. The point is that the economic risks for the remaining Q4 20 data and for Q1 21, which just began, are on the downside.

If that is indeed the case, then why have bond yields risen? Is this another disconnect between Main Street and the House of Finance, like stocks rallying during the pandemic? It is darkest before dawn and whether it is four months or six months, the investors expect better news in the second half of the year. At the same time, there will be a new stimulus push in the US. The UK Chancellor of the Exchequer will have to extend aid as the lockdown is extended and intensified. It is likely Germany will have to, as well. Italy’s projected debt issuance is a third higher than it was a couple of weeks ago.

At least four Fed officials have said they could consider tapering before the end of the year. To be specific, the four are regional presidents, while the governors, including Powell and Clarida, have played this down. Currently, the Fed is buying $80 a month of Treasuries (about 55% have been notes of 4.5-years or less before maturing and about 13% in the 20-30 year bucket) and $40 bln a month in Agency mortgage-backed securities. No one is saying that tapering is imminent and a majority of officials that have spoken suggest it does not look particularly likely this year at all. That was also the thinking in last month’s primary dealer survey conducted by the Federal Reserve.

Yet if tapering is not the real culprit for the sharp rise in US yields this year, what is the driver? Where you begin your narrative points you in the direction of the answer, In one telling, the US 10-year yield has risen by around 45 bp since the election as investors discounted greater supply and became more committed to the reflation trade, which means higher real rates, and arguably a sensitivity for higher inflation. At the same time, the price of oil has surged.

The February WTI futures contract closed in October near $36.5. It approached $54 a barrel before profit-taking kicked-in ahead of the weekend. Recall that end of last January it was around $50.50. The deflationary thrust from oil prices has ended. Inflation expectations often track significant moves in oil prices.

Asian demand, including China’s apparent inventory accumulation, drove industrial metal prices higher at the end of last year. On the other hand, supply concerns following last week’s disappointing report on US plantings saw corn and soy prices rise to 6-7 year highs, and cotton traded at a two-year high. The CRB index has risen by over 22% since the end of October.

Even the coming Treasury supply may be exaggerated by partisans. The idea from both sides is that Biden will press ahead with the Democratic control of the legislative branch to push through the rest of the $3.2 trillion bill passed by the House of Representatives last year. However, we suspect it is more likely that Biden, judging from his disposition and that he learned from his experience with Obama, will avoid antagonizing the opposition and souring the relationship from the get-go. Instead, he is likely to find a compromise and make it bipartisan even if it results in a small package. In appointments and temperament, Biden is moderate.

Biden will be inaugurated on January 20. The day before, Yellen will speak at her confirmation hearings. In addition to broad economic issues, she will likely be asked about the dollar. As an economist, she recognizes that ideally one wants the currency to move in line with policy, otherwise it blunts or undermines it. At the Federal Reserve, she recognized that dollar policy is a Treasury remit. That makes it her call now.

The “strong dollar” mantra that existed before 2016 cannot simply be returned to now. A new formulation is needed to confirm that the US will not purposely seek to devalue the dollar to reduce its debt burden or for trade advantage. To signal a multilateral spirit, Yellen may be best served by reiterating the G7 and G20 stance that markets ought to determine exchange rates, that they should move in line with fundamentals, and avoid excess volatility. It does not have to be the final word, but as the first word, it would be reassuring.

Four G10 central banks meet in the coming days. The gamut of outcomes is likely, with the ECB, ironically, being the least perhaps the least interesting. Since it met on December 10, the pandemic has gotten worse and social restrictions and lockdowns have intensified and lengthened. The uncertainty of the US election and UK-EU trade negotiations has been resolved. Key hurdles to the EU’s budget and Recovery Fund were lifted.

The day before the last ECB meeting, the euro settled near $1.2080. It settled last week around $1.2150. March Brent was trading a little below $49 is rallied to almost $57.5 last week before consolidating. The 10-year German Bund yield has risen around 10 bp (to around minus 50 bp) and Italy’s premium has softened from almost 120 bp before the December meeting to almost 100 bp before widening again (115 bp) amid the political challenges in Rome. There is little for the ECB to do now.

The extension of the emergency in Japan to cover the area which generates more than half of the country’s output raises the downside risks. The central bank is likely to formally recognize this in one or two ways. It may shave its downgrade its qualitative assessment. It could also adjust its forecasts. In its last forecasts, issued in October, it anticipated the economy to contract 5.5% in the current fiscal year. Its previous forecast was for a 4.7% slump. The BOJ could also reduce the projection of growth for the next fiscal year, which was seen at 3.6%, up from 3.3% last July.

While peak monetary policy may generally be at hand, the Bank of Canada may be an exception. The overnight target rate sits at 25 bp. It is clear that officials do not want to adopt a negative rate, but Governor Macklem has suggested the lower bound for Canada maybe a little lower than where it is now but still above zero. Given the economic consequences of the spreading virus and some disappointing high-frequency data, the market (overnight index swaps) has a few basis points of easing discounted. It may not exactly be clear what a small rate cut achieves, but last year, the Bank of England and the Reserve Bank of Australia delivered small moves of 15 and 10 bp respectively.

Before this intensification of the virus, the Bank of Canada had seemed to be a candidate for an early exit from emergency policies. Now Norway’s Norges Bank appears at the front of the line. At its last meeting in the middle of December, the central bank brought forward its anticipated first hike to the first half of 2022. Since the December meeting, the high-frequency data points suggest that economic activity and prices are more resilient than feared.

The economy contracted by 0.9% in the three months through November. It was also half as bad as economists projecting. Underlying CPI, which adjusts for tax changes and excludes energy, rose by 3% year-over-year in December. The record drawdown from the sovereign wealth fund provided an early and strong fiscal cushion.

Two emerging market central banks of note meet as well next week. Turkey’s new central bank governor Agbal has made several steps that have given notice that there is a new economic regime. On Christmas Eve he delivered a 200 bp hike outstripping median forecasts for a 150 bp move. The one-week repo rate now stands at 17%. Inflation reached 14.6% last month.

Since the end of last October, the Turkish lira has been the strongest currency in the world, appreciating by about 13.4% against the US dollar. It is still off a little more than 19% since the end of 2019. Over the past three months, the yield on its 10-year dollar bond has fallen by about 105 bp to 5.60%. The market is signaling another rate hike is not needed.

The South African Reserve Bank can also stand pat, though for different reasons. SARB cannot afford to cut any further. Its repo rate is at 3.5% and December CPI stood at 3.2%. After cutting by 300 bp last year, the central bank held steady at the last two meetings of 2020. The implied policy path of SARB’s projections points to a rate hike in Q3 and Q4 this year., though we are a little skeptical that it can be delivered.

This article was written by Marc Chandler, MarctoMarket.

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

Stimulus Doesn’t Always Stimulate – Pushing On A String

According to the dictionary,  stimulus is “a thing that rouses activity or energy in someone or something; a spur or incentive”.
Besides spur and incentive, other synonyms for stimulus are boost, impetus, prompt, provoke, etc.
Much discussion recently has centered on ‘stimulus’ checks to individual citizens and taxpayers. Within a nine-month period, two specific rounds of stimulus checks were issued.
The legislation that authorized the issuance of stimulus checks to individuals also included liberal increases in unemployment benefits and financial aid for small businesses.
The checks, increased unemployment benefits, and aid for small businesses are forms of financial stimulus; but, the legislation is referred to as an “economic stimulus package”.
The distinction between the terms financial and economic should not be overlooked.
The purpose of the financial incentives included in the legislation is to promote economic activity. It was a response to the horrendous decline in economic activity that was precipitated by the response to the Covid-19 pandemic.
Very literally, though, the financial incentives were an attempt to stave off economic collapse; or at least buy some time. This is true notwithstanding attempts by politicians of all stripes to justify the measures in more humane terms.

21st CENTURY – SLOW GROWTH, NO GROWTH

The first fifteen years of this century were spent in reverse and recovery modes. The trillions of dollars that have been created and spent were reactions to financial and economic catastrophe, which continue to increase in volatility.
Which brings us back to the title of this article. With artificial stimulants, such as certain drugs, there is an expectation of desirable positive effects from its use.
Over time, the positive effects of the stimulus become muted and lose their potency. It takes higher doses and more frequent use of the stimulus to create the same original results. Remember how long it took to bring the economy back to a level reasonably commensurate with its activity prior to the credit collapse in 2007-08?
Some were expecting an overwhelming inflationary surge due to the (at that time) historically large amounts of money and credit creation. Some even expected runaway inflation, but it did not happen.
Also, over time, the cumulative negative effects of the stimulus take their toll. For example, the Federal Reserve has been inflating the supply of money and credit intentionally for more than a century.
The cumulative negative effects of that intentional inflation have resulted in a loss of purchasing power for the US dollar of ninety-nine percent.
An excellent example of the declining effects of continued money and credit creation by the Fed is seen on the chart (source) below:

DEBT TO GDP RATIO HISTORICAL CHART

debt-to-gdp-ratio-historical-chart-2021-01-12-macrotrends

It is clear on the chart that each dollar of increasing debt provides for less and less economic output (GDP, Gross Domestic Product).  The results of debt stimulus for the economy have grown weaker and weaker since 1980.
Noteworthy is the fact that it now takes more than one dollar ($1.27 in October 2020) of debt to produce one dollar of GDP. Anything in excess of 100% (a 1:1 ratio Debt/GDP) is a losing effort; the losses are growing.

PUSHING ON A STRING

Sometime after the distribution of stimulus checks to individuals last April and since then, there has been a growing resistance to sending out additional stimulus checks. When the recent checks were authorized, the amount ($600) was significantly smaller than the first ($1200) checks.
Some of our representatives did not think that the first round of stimulus checks to individuals had their desired impact. It was hoped, and intended, that recipients would spend the money; but evidence indicated that much of it was held or saved.
The huge amounts of dollars and cheap credit gifted to us by the Federal Reserve and the US government seem more illustrative of emergency patchwork rather than stimulus. We should all hope it works as good as Flex Seal.

Oil Price Fundamental Daily Forecast – Dollar Strength, China Lockdowns Encourage Longs to Trim Positions

U.S. West Texas Intermediate and international-benchmark crude oil futures finished sharply lower on Friday as a stronger U.S. Dollar weighed on foreign demand for the dollar-denominated asset. Weak U.S.  economic data also raised concerns about domestic demand.

Meanwhile, U.S. Drillers continued to add rigs to take advantage of higher prices and OPEC+’s willingness to give up market share. Coronavirus lockdowns in China and U.S. stimulus concerns also pressured prices.

On Friday, March WTI crude oil futures settled at $52.42, down $1.20 or -2.24% and March Brent futures finished at $55.10, down $1.32 or -2.40%.

US Dollar Rises as Currency Markets Turn Risk-Averse

The U.S. Dollar rose and riskier assets fell on Friday, as President-elect Joe Biden rolled out a $1.9 trillion stimulus plan that was offset by fresh U.S.-China tensions and a rise in COVID-19 infections in China. The move helped the greenback post its biggest weekly gain since November 2020, with its recent recovery from three-year lows challenging the narrative of dollar bearishness for 2021.

A nearly two-month long break in the U.S. Dollar was one of the catalysts behind the huge surge in crude oil prices since late October, so it makes sense that a stronger dollar would be one of the factors encouraging bulls to trim long positions at current price levels.

Bearish Factors Piling Up

Besides the stronger U.S. Dollar, crude oil bulls were disturbed by weak U.S. economic data that could weigh on future demand. U.S. consumer sentiment came in below expectations in January and other economic data such as sluggish retail sales and producer prices also pointed toward the possibility of weaker demand especially for gasoline.

As the country faces obstacles related to rising coronavirus cases, President-elect Joe Biden said he will ask Congress for $1.9 trillion to fund immediate relief for the U.S. economy that has been devastated by the pandemic. However, traders reacted to this news with trepidation, questioning how easily Democrats will be able to get their proposals through the Senate. The large price tag and inclusion of initiatives opposed by many Republicans set up the relief package for a drawn out battle in the Senate.

US Drillers Add Oil and Gas Rigs for 8th Week in a Row – Baker Hughes

U.S. energy firms last week added oil and natural gas rigs for an eighth week in a row as crude prices recover to their highest in nearly a year.

The oil and gas rig count, an early indicator of future output, rose 13 to 373 in the week to January 15, its highest since May, energy services firm Baker Hughes Co said in its closely followed report on Friday.

Those eight weeks of additions were the most since November when the rig count climbed for nine weeks in a row. Despite gains in recent months, that count was still 423 rigs, or 53%, below this time last year.

U.S. oil rigs rose 12 to 287 this week, their highest since May, while gas rigs gained one to 85, their highest since April, Baker Hughes data showed.

Short-Term Outlook

Technical and fundamental factors could continue to weigh on prices next week, but all we are expecting is a short-term pullback. The size of the break will be determined by the strength of the U.S. Dollar and the extent of the spread of COVID-19 cases in China.

Long-term bulls will likely welcome a sell-off into a value zone since crude oil prices are a little ahead of the fundamentals. Prices are trading at levels not seen in a year, but demand remains well below pre-pandemic levels.

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

Natural Gas Price Fundamental Daily Forecast – ‘Just Enough Cold’ Late January Fuels Short-Covering Rally

Natural gas futures closed higher on Friday after recovering from an early session loss. The market opened under pressure as overnight forecasts pointed toward a short-term warming trend, but prices turned up at the mid-session as volatile midday outlooks shifted back to expectations for a severe winter chill in late January that could trigger a surge in heating demand.

On Friday, March natural gas futures settled at $2.696, up $0.066 or +2.51%. The strong gains more than offset losses from the previous session that were fueled by forecasts calling for warmer temperatures.

Midday Weather Forecasts Reverse Early Session Weakness

“We finally see a colder pattern arrive here as we head into late month” focused on central and western portions of the lower 48, “but with some cold bleeding eastward” under a North Atlantic Oscillation block in the Atlantic, Bespoke Weather Services said.

“Because the strongest cold looks to focus back from the Plains to the Pacific Northwest, it’s not an extreme pattern to the cold side in terms of national demand, but it’s easily the coldest we have seen all season long,” the firm added. “We continue to believe this can give us a couple of colder weeks before potentially moderating after the first week or so of February.”

Cash Prices Advance

Natural Gas Intelligence (NGI) reported that spot gas prices advanced Friday after a bout of harsh winter weather in the upper reaches of the central United States.

“Blizzard conditions blanketed much of the Upper Midwest late Thursday and into Friday, and forecasters said the weather system, bringing both rain and snow, was expected to extend from the Great Lakes to portions of the East over the weekend,” NGI wrote.

“Prices in the Northeast surged Friday and led the overall gains. Algonquin Citygate spiked $2.185 day/day to average $5.205 and PNGTS jumped 79.5 cents to $4.990,” according to NGI.

‘Price gains generally were much more modest in other regions. In the Rocky Mountains, CIG picked up 5.5 cents to $2.635, while in Appalachia, Columbia Gas climbed 5.0 cents to $2.580. Out West, there were a few hubs that lost ground. SoCal Citygate shed 12.5 cents to $3.260, while El Paso S. Mainline/N. Baja dropped 6.0 cents to $2.830,” NGI reported.

Daily March Natural Gas

Short-Term Outlook

Friday’s overall gains aside, looking ahead to the third week of January, temperatures were expected to be above normal outside of the northern Plains and interior West, NatGasWeather said on Friday. “With high pressure ruling most of the rest of the United States,” national heating degree days “will be much lighter than normal.”

NatGasWeather experts went on to say that gas prices may have to wait until late January and the anticipated widespread surge in cold to generate and sustain upward momentum.

Technically, the key support zone is $2.552 to $2.485. The major resistance zone is $2.794 to $2.918. The upper or Fibonacci level is a potential trigger point for an acceleration to the upside. Overcoming this level is not an automatic buy, traders still have to watch the price action and read the order flow if this level is taken out. If the volume isn’t there to support the move then overly aggressive longs could get caught in a bull trap.

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

US Stock Market Overview – Stocks Close Lower; Led Down by Energy; Retail Sales Disappoints

U.S. stocks moved lower on Friday, as weak retail sales weighed on sentiment. Most sectors in the S&P 500 index were lower, driven down by Energy shares, Utilities bucked the trend. For the second consecutive month, retail sales were negative and more fragile than expected. The spending seen in mid-2020 was driven by a stimulus that is now on deck for the Biden administration. Producer prices rose in December and were buoyed by energy and food. The bid banks kicked off the earnings season on Friday. J.P. Morgan was the standout, but the financial sector fell as traders appear to be taking profits.

Retail Sales Fall

U.S. retail sales dropped in  December as lockdowns to battle the spread of COVID-19 undercut spending. According to the U.S. Commerce Department, Retail sales dropped 0.7% last month. November was revised down to show sales declining 1.4% instead of 1.1% as previously reported. Expectations had been for retail sales to be unchanged in December.

Core retail sales were also lower. Excluding automobiles, gasoline, building materials and food services, retail sales tumbled 1.9% last month after a downwardly revised 1.1% decline in November. These so-called core retail sales correspond most closely with the consumer spending component of gross domestic product. They were previously estimated to have decreased by 0.5% in November.

U.S. producer prices increased in December. According to the Labor Department, U.S. Producer price index increased 0.3% in December after nudging up 0.1% in November. In the 12 months through December, the PPI rose 0.8%, matching November’s gain. Excluding food, and energy, producer prices increased 0.4%. The core PPI inched up 0.1% in November. In the 12 months through November, the core PPI gained 1.1% after rising 0.9% in November.

JP Morgan Chase Beats

J.P. Morgan Chase reported profits of $12.14 billion or $3.79 per share, better than expected. The bank reported $29.22 billion for the quarter in revenue, up 3% from a year earlier, also topping analysts’ expectations for $28.67 billion. JPMorgan posted a record revenue of $119.54 billion, up 4% from 2019. The growth was powered by trading as clients were eager to raise capital and trade securities amid a troubled economy and record-high markets.

Natural Gas Price Prediction – Prices Rise on Colder Weather Forecast

 

Natural gas prices moved higher on Friday, recovering Thursday’s losses following a larger than expected draw in natural gas inventories. The weather is expected to become colder than normal throughout the United States’ northern portion, potentially bringing a ridge trough pattern that would bring cold weather. Natuaral gas production is expected to fall 2% in 2021 according to the latest Short-term energy outlook from the EIA.

Technical analysis

Natural gas prices moved higher  on Friday, recovering back through the 10-day moving average near 2.71. The resistance is seen near the 50-day moving average at 2.74. Short-term momentum has reversed and turned positive as the fast stochastic generated a crossover buy signal.. Medium-term positive momentum is decelerating. The MACD (moving average convergence divergence) histogram is printing in positive territory with a declining trajectory which points to consolidation.

U.S. Prodution will Decline in 2021

EIA estimates that the annual U.S. gas production for 2021 will fall 2% and average 96.2 billion cubic feet per day. However, in 2022, EIA estimates that natural gas production will rise by 2% compared with year-ending 2021 production of 98.2 Bcf per day, accompanied by rising natural gas prices. The United States set annual natural gas production records in 2018 and 2019, largely based on increased drilling in shale and tight oil formations. This increased production led to higher volumes of natural gas in storage and decreased natural gas prices. In 2020, the supply and demand contraction resulting from the COVID-19 pandemic resulted in marketed natural gas production decreasing by 2% from 2019 levels.

Gold Price Prediction – Price Slide as the Dollar Rallies Despite Weak U.S. Retail Sales

 

Gold prices dropped on Friday as the dollar gained traction while U.S. yields fell. This decline followed a weaker than expected U.S. retail sales report and December PPI, which was in line with expectations. After breaking out earlier in the month, gold prices have reversed course and are poised to test target support.

Trade gold with FXTM

[fx-broker slug=fxtm]

Technical analysis

Gold prices slide on Friday and are testing an upward sloping trend line that comes in near 1,825. A close below this level would lead to a test of the November lows at 1,764. Short-term momentum has reversed and turned negative as the fast stochastic generated a crossover sell signal. The current reading on the fast stochastic is 16, below the oversold trigger level of 20. Medium-term momentum has turned negative as the MACD (moving average convergence divergence) line generated a crossover sell signal. This occurs as the MACD line (the 12-day moving average minus the 26-day moving average) crosses above the MACD signal line). The MACD histogram is printing in the red with a downward sloping trajectory, which points to lower prices. The RSI also broke down which reflects accelerating negative momentum.

Retail Sales Fall

U.S. retail sales dropped in  December as lockdowns to battle the spread of COVID-19 undercut spending. According to the U.S. Commerce Department, Retail sales dropped 0.7% last month. Data for November was revised down to show sales declining 1.4% instead of 1.1% as previously reported. Expectations had been for retail sales to be unchanged in December.

USD/CAD Daily Forecast – U.S. Dollar Rebounds Ahead Of The Weekend

USD/CAD Video 15.01.21.

Canadian Dollar Is Losing Ground Against U.S. Dollar

USD/CAD gained strong upside momentum while the U.S. dollar gained ground against a broad basket of currencies.

The U.S. Dollar Index managed to get above the resistance at 90.50 and tested the next resistance level at 90.70 but failed to develop sufficient upside momentum and pulled back towards 90.60. If the U.S. Dollar Index settles above 90.70, it will move towards the 50 EMA at 90.95 which will be bullish for USD/CAD.

Today, U.S. reported that Retail Sales declined by 0.7% month-over-month in December as the second wave of the virus put pressure on consumers.

Meanwhile, U.S. Industrial Production increased by 1.6% month-over-month in December compared to analyst consensus which called for growth of 0.5%. Manufacturing Production was also better than expected as it grew by 0.9% compared to analyst consensus of 0.5%.

Today, commodity-related currencies found themselves under pressure on foreign exchange market as oil and other commodities gained downside momentum. If this sell-off continues, Canadian dollar will move lower.

Technical Analysis

usd cad january 15 2021

USD to CAD made an attempt to settle above the resistance level at 1.2750 but pulled back towards 1.2720. If USD to CAD manages to stay above 1.2720, it will head towards the next resistance level at the 20 EMA at 1.2740.

A move above this level will push USD to CAD towards the resistance at 1.2750, so USD to CAD may face material resistance in the 1.2740 – 1.2750 area.

If USD to CAD manages to settle above the resistance at 1.2750, it will head towards the next resistance level which is located at 1.2775.

On the support side, the nearest support level for USD to CAD is located at 1.2700. If USD to CAD declines below this level, it will move towards the support at 1.2665. A successful test of this level will open the way to the test of the next support which is located near the recent lows at 1.2625.

From a big picture point of view, the current rebound is a major disappointment for USD to CAD bears as USD to CAD failed to settle below 1.2625 for the second time in January.

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

US Stock Indices Daily Recap (14th Jan) – Decline, Don’t get Caught

This market reminds me of the days leading up to Christmas Eve 2018. For those who don’t remember, it was a pretty dark day for those trading in financial markets.

I was in the office, alone, and felt particularly responsible for my clients that day. You see, since October of that year, markets had been in a tailspin lower.

“Fundamentals look good, add some exposure to equities here” I found myself saying, more than once. And just when I thought I would get a break, have a half day in the markets, and take a couple days off – boom. Markets fell 2 to 3 percent on the day .

I still remember the feeling, it was like a gut punch. We were unprepared and had added more equity exposure for most of our clients in the prior few weeks. My boss was furious, as I was responsible for allocating hundreds of millions of dollars and we were having our worst quarter ever. I vowed to never be caught unprepared and foolhardy about markets ever again after that quarter.

It was a great lesson, and one that allowed me to flourish in 2020. While I did not foresee a global pandemic, back in January of 2020, things were looking eerily similar to 2018. Markets were frothy, and it appeared that no downside was possible. And I cut exposure for my family assets significantly.

That allowed me to avoid the worst of the pullback, and in March, with an eye on the long run, I took my family assets and picked up several companies at mouth watering valuations, some we hadn’t seen in years.

So far, so good. My old boss would have been pleased – not that it matters…

And now? Well. We’re falling into the same song and dance lately, aren’t we. I have some tips below for those interested, and if you want to know how my personal portfolios have performed, slip into my DMs.

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

Although stocks closed mildly lower on Thursday (Jan. 14), stocks have overall had a strong start to 2021.

Be that as it may, I am still concerned about overheated valuations for stocks and the return of inflation. The S&P 500 is trading at its highest forward P/E ratio since 2000, and the 10-year treasury is at its highest level since March. The Russell 2000 is also up over 37% from its 200-day moving average for the first time in its history.

Overvalued stocks combined with inflation returning by mid-year is quite concerning for me. I feel that a correction between now and the end of Q1 2020 is likely.

I like how economist Mohammed El-Erian described the market as a “ rational bubble .” But he did caution against four major risks that could cause a downturn.

The first two risks, and the least likely are the Fed pulling back on monetary stimulus and the potential for corporate bankruptcies. As Fed Chair Jay Powell said himself Thursday though, (Jan. 14) “be careful not to exit too early,”

The last two risks could be riskier.

The first is “some sort of market accident” akin to the dot-com bubble popping in 1999. THIS is what concerns me most right now. The IPO market is simply absurd right now. The DoorDash (DASH) and AirBnB (ABNB) IPOs were ridiculous, and other IPOs are looking more and more like a circus. Lender Affirm went public on Wednesday (Jan. 13) and nearly doubled. Shares of Poshmark also surged more than 130% in its debut Thursday (Jan. 14).

The other risk is the bond market and its effect on inflation. According to El-Erian, “If we were to see another 20 basis point move in yields, that would be bad news.”

Despite my concerns, it is clear to me that investors are loving the potential for a $1.9 trillion stimulus package under President-elect Biden.

Although a short-term tug of war between good news and bad news could continue, it seems to me that investors (for now) would just prefer to ride this out for what could be a strong second half of the year. According to CNBC’s Jim Cramer , there appears to be a lack of “people willing to sell”.

Be that as it may, jobless claims surged to their highest levels since August, and the pandemic is still out of control. According to Goldman Sachs’ Chief Economist Jan Hatzius, U.S. stocks and bond markets could possibly “ take more of a breather ” in the near term.

Generally, corrections are healthy, good for markets, and more common than most realize. Only twice in the last 38 years have we had years WITHOUT a correction (1995 and 2017). Because we haven’t seen a correction since March 2020, we could be well overdue.

This is healthy market behavior and could be a very good buying opportunity for what should be a great second half of the year.

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. I don’t think that a correction above ~20% leading to a bear market will happen.

Hope everyone has a great day. Best of luck, and happy trading!

S&P 500’s Valuation is its Highest in Years

Figure 1- S&P 500 Large Cap Index $SPX

Conventional wisdom would tell you that the S&P had overheated and valuations are crazy. The index’s forward P/E ratio is the highest it’s been in two decades.

But did you just see JP Morgan ’s (JPM) earnings report?

Wow.

The big bank crushed both top and bottom line estimates, and saw a net income growth of 42% from a year ago.

But look deeper into the earnings call, and there are some things to worry about. JP Morgan reported a net benefit of $1.89 billion in credit reserves and is maintaining a reserve topping $30 billion.

Why is this worrying? According to CEO Jamie Dimon, this is because of “significant near term uncertainty” due to the pandemic.

Dimon further added that despite vaccine and stimulus-related optimism, JP Morgan is holding onto these reserves in order to “withstand an economic environment far worse than the current base forecast by most economists.”

That’s a bit troubling.

The S&P 500 has been trading in a streaky matter as of late and reflects the broader tug-of-war between good news and bad. The index seemingly goes on multiple day winning streaks and losing streaks on a weekly basis. After seeing its worst sell-off since October last Monday (Jan. 4), for example, it went on a four-day win streak and broke past 3800.

We are now back below 3800. Although I always cheer stocks going up and hitting records, I want buying opportunities. I would like to see a drop to around 3600 or below before making a BUY call for the long-term.

For now, my near-term outlook is murky. A short-term correction could inevitably occur by the end of Q1 2021, but for now, I am calling the S&P a HOLD. I would like to see a sharp correction before initiating S&P exposure at a discount. There is clear upside for the second half of 2021, but I would just prefer to maximize the upside from a lower level.

For an ETF that attempts to directly correlate with the performance of the S&P, the SPDR S&P ETF (SPY) is a good option.

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

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

Thank you.

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

* * * * *

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

 

Oil Tries To Settle Below The $52 Level As Traders Take Some Profits Off The Table

Oil Video 15.01.21.

Oil Moves Lower As Traders Take Profits After Rally

Yesterday, U.S. President-elect Joe Biden unveiled his stimulus proposal worth $1.9 trillion, and it looks like traders took this announcement as a signal to take some profits after the recent rally.

Today, riskier assets are under pressure in what can be seen as a classic “sell the news” move. Oil is losing ground together with other riskier assets and is currently trying to settle below the $52 level.

The near-term fundamental outlook for oil remains challenging as European countries are set to keep their lockdown measures for the upcoming weeks. Meanwhile, the start of mass vaccination programs was not as robust as expected.

At the same time, the recent rally was caused by general optimism and Saudi Arabia’s decision to cut oil production by 1 million barrels per day (bpd) in February and March, and these factors may still be in play in the near term.

It should be noted that WTI oil managed to get from the $34 level at the beginning of November to the recent highs at $53.90 without any material pullback, so traders’ desire to take some profits near highs makes perfect sense.

OPEC Leaves Its 2021 Oil Demand Forecast Unchanged

OPEC has recently released its new Monthly Oil Market Report and left demand estimates unchanged. According to OPEC, world oil demand will increase from 90 million bpd in 2020 to 95.9 million bpd in 2021.

Interestingly, the negative developments in Europe did not lead to the revision of OPEC’s forecast. Perhaps, OPEC’s analysts decided that the previous forecast was conservative enough and took current downside risks into account.

Meanwhile, Italy has just extended current virus containment measures amid risks of a third wave of the virus. Other European countries will likely announce similar measures in the upcoming weeks, putting more pressure on demand for oil.

According to the recent Bloomberg analysis, transportation fuel demand in Europe is at its lowest point since the end of the first lockdowns. If market’s attention shifts from vaccine optimism to current challenges on the demand side, oil will move lower.

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

Wells Fargo Shares Plunge as Q4 Revenue Disappoints

The United States’ fourth-largest bank Wells Fargo’s profit modestly beat consensus estimates for the fourth quarter, but its revenue fell short of market expectations, sending its shares down over 7% on Friday.

The San Francisco-based financial services company reported a net income of $2.99 billion, or 64 cents per share, beating the Wall Street consensus estimates of 58 cents after missing expectations in the last six consecutive quarters. The company’s total revenue plunged 10% to $17.93 billion, missing forecasts of $18.127 billion.

“Expect FY ’21 expense to come down $1 billion to $53 billion which includes $3.7 billion of cost saves from efficiency initiatives and offsets from biz investments, revenue-related comps, and other items. Wells Fargo (WFC) expects restructuring charges to remain flat in ’21 vs. ’20 and notes that operating losses can be unpredictable with $1 billion currently baked into the guide. The guide looks in-line with cons. at $53 billion.”

At the time of writing, Wells Fargo shares traded 7.28% lower at $32.21 on Friday; the stock fell more than 40% in 2020.

On the other hand, the world’s largest asset manager BlackRock reported better-than-expected earnings in the fourth quarter with 11% increase in full-year revenue reflecting strong organic growth, record performance fees and 17% growth in technology services revenue.

Executive Comments

“Although our financial performance improved and we earned $3.0 billion in the fourth quarter, our results continued to be impacted by the unprecedented operating environment and the required work to put our substantial legacy issues behind us,” Chief Executive Officer Charlie Scharf commented on the quarter.

Wells Fargo Stock Price Forecast

Fifteen analysts who offered stock ratings for Wells Fargo in the last three months forecast the average price in 12 months at $34.23 with a high forecast of $40.00 and a low forecast of $27.00.

The average price target represents a 6.57% increase from the last price of $32.12. From those 15 analysts, nine rated “Buy”, six rated “Hold” and none rated “Sell”, according to Tipranks.

Morgan Stanley gave a base target price of $40 with a high of $54 under a bull scenario and $20 under the worst-case scenario. The firm currently has an “Overweight” rating on the financial services company’s stock.

Several other analysts have also recently commented on the stock. Compass point raised the target price to $41 from $31. UBS upped their price objective to $41 from $23 and upgraded their ratings to buy from neutral. Citigroup raised the stock price forecast to $37 from $33. JP Morgan upped the target price to $32 from $31.

In addition, Wells Fargo & Company had its target price hoisted by Deutsche Bank to $37 from $35. The firm currently has a buy rating on the financial services provider’s stock. Credit Suisse Group raised their price objective to $35 from $33 and gave the company a neutral rating. At last, Barclays lifted their price target to $36 from $33 and gave the stock an equal weight rating.

Analyst Comments

“Wells Fargo (WFC) appears to be beginning to take action to restructure its business mix as it works to exit the Fed consent order/asset cap and reduce its expense base. While uncertainty remains around impact of business exits and timing of consent order/asset cap exit, we believe risk more than accounted for in the stock at 7.7x our 2022e EPS and 0.9x BV,” said Betsy Graseck, equity analyst at Morgan Stanley.

“WFC benefit to EPS from rising long end rates is the highest in the group, with each ~50bps increase in the 10yr driving ~4% to NII and as much as ~10% to EPS. We model WFC driving their expense ratio down to 66% by 2023 on reduced risk and compliance spend, operational efficiencies, and branch optimization. Lower expense ratio possible.”

Upside and Downside Risks

Risks to Upside: 1) New CEO’s financial targets higher than expectations. 2) Fed asset cap and consent order lifted in 1H21. 3) Business exits have minimal EPS impact and increase ROE. 4) Rates rise faster than forward curve – highlighted by Morgan Stanley.

Risks to Downside: 1) Fed does not lift asset cap until well into 2022+ 2) Business exits reduce EPS more than 10%. 3) Lower than expected operating leverage. 4) 10-year yield below expectations Macro environment remains challenging through 2021.

Check out FX Empire’s earnings calendar

Silver Price Daily Forecast – Silver Is Losing Ground Ahead Of The Weekend

Silver Video 15.01.21.

Silver Is Under Pressure As Gold/Silver Ratio Moves Higher

Silver managed to get below the 50 EMA at $25.20 and is trying to settle below the support at $25.00 while the U.S. dollar is gaining ground against a broad basket of currencies.

The U.S. Dollar Index is currently testing the nearest resistance level at 90.50. This resistance level has already been tested many times in recent trading sessions and proved its strength. If the U.S. Dollar Index manages to settle above 90.50, it will gain upside momentum and get to the test of the next resistance level at 90.70 which will be bearish for silver and gold price today.

Meanwhile, gold continues to trade near the $1850 level. Gold has already made several attempts to settle above this level in recent trading sessions but these attempts yielded no results. If gold manages to settle below the nearest support level at $1830, silver will find itself under pressure.

Gold/silver ratio managed to get above the 20 EMA at 72.80 and gained strong upside momentum. Currently, gold/silver ratio is testing the resistance at the 50 EMA at 74.30. In case gold/silver ratio gets above the 50 EMA, it will gain additional upside momentum which will be bearish for silver.

Technical Analysis

silver january 15 2021

Silver declined below the 50 EMA at $25.20 and is currently testing the support level at $25.00. RSI is in the moderate territory so there is plenty of room to gain additional downside momentum.

If silver declines below the support at $25.00, it will move towards the next support level at $24.70. A successful test of this level will push silver towards the support at $24.50. In case silver settles below the support at $24.50, it will head towards the next support level which is located at $24.25.

On the upside, the 50 EMA at $25.20 will likely serve as the first resistance level for silver. The next resistance is located at $25.30. If silver gets above the resistance at $25.30, it will head towards the next resistance level at $25.55. This level has been tested many times in recent trading sessions so silver will likely need additional upside catalysts to settle above $25.55.

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

Natural Gas Price Fundamental Daily Forecast – Weather Outlook as Well as Reaction to $2.698 Sets the Tone

Natural gas futures are trading higher after reversing earlier losses on Friday. The price action suggests bullish investors are still placing bets on extremely cold temperatures at the end of the month despite weather patterns shifting to the milder side. Support is also being provided by yesterday’s bullish government storage report and rising U.S. liquefied natural gas (LNG) volumes.

At 13:16 GMT, March natural gas futures are trading $2.702, up $0.072 or +2.74%.

US Energy Information Administration Weekly Storage Report

The EIA on Thursday reported a withdrawal of 134 Bcf from natural gas storage for the week-ended January 8. The report was bullish because the withdrawal exceeded pre-report estimates of 129 Bcf.

Ahead of the report, Natural Gas Intelligence (NGI) said a Bloomberg survey found estimates ranging from withdrawals of 120 Bcf to 141 Bcf, with a median of a 129 Bcf decrease. NGI modeled 130 Bcf withdrawal for this week’s report, which covers the week-ending January 8. Energy Aspects predicts a 128 Bcf withdrawal.

A year ago, the EIA recorded a 91 Bcf withdrawal for the comparable year-ago period, while the five-year average withdrawal is 161 Bcf, according to the agency.

Short-Term Weather Outlook

According to NatGasWeather for January 14-20, “Most of the U.S. will be mild and dry the next few days with highs of 30s to 50s across the northern U.S. and 50s to 70s across the southern U.S. for light national demand.

A weather system will extend from the Great Lakes to the Southeast late this week and this weekend for a minor bump in demand, although countered by mild conditions over the rest of the U.S. Frigid air with lows of -10s to 20s will arrive across the Rockies and Northern Plains next week, although warmer versus normal over the South and East with highs of 40s to 70s for light demand.”

Daily Forecast

We expect natural gas to continue to be supported by strong LNG demand, but I don’t think we’ll see a breakout to the upside unless the weather models start to show frigid temperatures in late January.

Expectations of this continue to be mixed however. “The latest GFS still shows cold air eventually reaching the Great Lakes and Northeast January 25-28, but we think this period is also subject to warmer trends in time,” NatGasWeather said.

Technically, trader reaction to $2.698 will determine the short-term direction of the market. A move over $2.698 could drive prices into $2.794 to $2.835. A move under $2.698 will target $2.552 to $2.485.

The longer-term direction of natural gas will be determined by trader reaction to $2.794 to $2.918. The latter is a potential trigger point for an acceleration to the upside.

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

Daily Gold News: Friday, Jan. 15 – Gold Still Going Sideways

The gold futures contract lost 0.19% on Thursday, as it extended its short-term consolidation following last week’s Friday’s sell-off of 4.1%. In late November the market has reached new local low below $1,800 price level. Since then it has been retracing the decline. Last week, the yellow metal got closer to its early November local high but then it has retraced the whole advance, as we can see on the daily chart ( the chart includes today’s intraday data ):

Gold is 0.1% lower this morning, as it is extending the short-term consolidation. What about the other precious metals? Silver gained 0.90% on Thursday and today it is 1.2% lower. Platinum gained 1.41% and today it is 2.5% lower. Palladium gained 1.09% and today it’s 1.0% lower. So precious metals are lower this morning.

Yesterday’s Unemployment Claims release has been worse than expected at 965,000. Today we will get the Retail Sales release at 8.30 a.m. The main number is expected to be unchanged vs. the previous one.

Where would the price of gold go following last week’s Friday’s Nonfarm Payrolls announcement? We’ve compiled the data since September of 2018, a 28-month-long period of time that contains of twenty eight NFP releases.

The following chart shows the average gold price path before and after the NFP releases for the past 28 months. The market was usually 0.37% higher on the 10th day after the NFP release.

Below you will find our Gold, Silver, and Mining Stocks economic news schedule for today:

Friday, January 15

  • 8:30 a.m. U.S. – Retail Sales m/m , Core Retail Sales m/m , PPI m/m, Core PPI m/m, Empire State Manufacturing Index
  • 9:15 a.m. U.S. – Industrial Production m/m, Capacity Utilization Rate
  • 10:00 a.m. U.S. – Preliminary UoM Consumer Sentiment, Preliminary UoM Inflation Expectations, Business Inventories m/m

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

Paul Rejczak
Stock Selection Strategist
Sunshine Profits: Analysis. Care. Profits.

* * * * *

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.

 

Price of Gold Fundamental Daily Forecast – Set Up for Volatile Move as Traders Await Next Catalyst

Gold futures are trading flat shortly before the regular session opening on Friday as traders try to make sense of a number of mixed economic news that have held prices in a tight range for much of the week. Traders are saying gold is being supported by fresh coronavirus-led lockdowns in Europe and on dovish policy cues from the U.S. Federal Reserve, while gains are being capped by firm Treasury yields.

At 12:41 GMT, February Comex gold futures are trading $1847.70, down $3.70 or -0.20%. This is down from an intraday high of $1856.60.

Helping to provide some confusion for traders is the higher U.S. Dollar, which is trading slightly under its high for the week. Traders were hoping that the dollar would weaken after President-elect Joe Biden unveiled his economic relief plan on Thursday night because a weaker dollar is good for gold prices, but that didn’t happen. This is probably because it will be weeks before the plan is debated in Congress as Washington politicians deal with the distractions of a second impeachment of President Trump.

Coronavirus Concerns

Traders are concerned about the failure to get to the other side of the pandemic after months of celebrating the creation of a number of vaccines. The vaccine rollout is not moving fast enough for some, which is helping to create a bid in the market.

Furthermore, tighter lockdowns in Germany and France as well as new COVID-19 restrictions in China cut into optimism about a global economic recovery.

Gains Capped by Firm Benchmark Yields

Despite the market being underpinned by COVID concerns, buyers are not chasing gold higher because benchmark 10-year Treasury yields remain close to 10-month highs reached earlier in the week. This is helping to support the U.S. Dollar, which is dampening foreign demand for dollar-denominated gold.

Fed’s Powell Provides Some Support for Gold

The gold market found some support from comments from the U.S. Federal Reserve Chairman on Thursday after he suggested no change in interest rates. U.S. Federal Reserve Chair Jerome Powell said an interest rate hike would not be coming anytime soon and pushed back against suggestions that it might taper bond purchases.

Daily Forecast

Gold prices are consolidating because the fundamentals are mixed. In other words, there are no strong catalysts to push prices in either direction at this time. The chart pattern suggests volatility may be just around the corner, however.

In order to get gold prices moving to the upside it’s going to need help from Treasury yields and the U.S. Dollar. Yields are going to have to start declining and the dollar is going to have to resume its downtrend.

We may not get a clear signal on either until the Fed meets at the end of the month. Therefore, a prolonged sideways trade is a strong possibility.

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

Oil Price Fundamental Daily Forecast – China Demand Concerns Encouraging Bulls to Trim Long Positions

U.S. West Texas Intermediate and international-benchmark Brent crude oil futures are trading lower on Friday as new lockdowns in Chinese cities due to coronavirus outbreaks raised concerns over future demand. The potentially bearish news is outweighing earlier in the week reports on strong import data from the world’s biggest crude importer and U.S. plans for a large stimulus package.

At 11:02 GMT, March WTI crude oil is trading $52.78, down $0.84 or -1.57% and March Brent crude oil is at $55.38, down $1.04 or -1.84%.

In another potentially bearish short-term signal, Brent is in a position to post its first weekly decline in three, while WTI is on track for a third straight weekly gain.

Focus Shifts to Chinese Demand

Crude imports into China were up 7.3% in 2020, with record arrivals in two out of four quarters as refineries increased runs and low prices prompted stockpiling, customs data showed on Thursday. That may be good news, but it’s also old news. Traders want to know “What have you done for me lately?”

The fresh news that could have an impact on future demand is China’s reporting of the highest number of daily COVID-19 cases in more than 10 months on Friday, capping a week that has resulted in more than 28 million people under lockdown and the country’s first death from the coronavirus in eight months.

“Oil market euphoria is unequivocally strong, but market indicators from Asia are mixed,” RBC Capital Markets said.

“China, the global engine of oil demand growth, is wrestling with fresh COVID outbreaks,” it said.

Biden Pledges New COVID Relief

U.S. President-elect Joe Biden on Thursday revealed details of a $1.9 trillion coronavirus rescue package. Biden’s proposal, called the American Rescue Plan, includes some familiar stimulus measures in the hope of sustaining families and companies till vaccines are widely distributed. Some of the proposed measures include stimulus checks as well as unemployment support.

Bullish traders are hoping this new stimulus injection stabilizes the economy and steadies fuel demand, but it may be weeks before the economy sees any of the cash stimulus he has promised.

Meanwhile, the weakening labor market remains a major concern for traders. On Thursday, the Labor Department’s weekly jobless report showed the number of Americans filing first-time claims for unemployment benefits increased more than expected last week, underscoring the impact of a resurgence in COVID-19 infections.

Daily Forecast

The market is still strong and likely to remain in that position due to Saudi Arabia’s decision to trim a million barrels per day from production in February and March. However, it may be a little overpriced and due for a short-term pullback because of the mixed demand picture coming out of Asia and especially China.

The world’s biggest importer of crude oil will become a greater concern for bulls if it begins to lose control of the COVID outbreaks, but at this time, the news is just bearish enough to encourage the professionals to lighten up on the long side, but not enough to encourage outright shorting. That being said, a decent break from current price levels will likely be welcomed by longer-term bulls.

Yearly Analysis: Will 2021 Be Better for Gold?

After a disastrous year of 2020, which brought about the COVID-19 pandemic , the Great Lockdown , and the economic crisis the question is what will 2021 be like – both for the U.S. economy and the gold market.

To provide an answer, below I analyze the most important economic trends for the year and their implications for the yellow metal.

  1. Society gains herd immunity by vaccination and the health crisis is overcome.
  2. With herd immunity approaching, the social fabric returns to normality, and the economy recovers.
  3. The vaccine rollout increases the risk appetite, reducing the safe-haven demand for both gold and the greenback .
  4. The return to normality and realization of the pent-up demand (comeback of spending that was put on hold during the U.S. epidemic ) accelerates the CPI inflation rate .
  5. The Fed stays accommodative, but the recovery in the GDP growth and the labor market makes the U.S. monetary policy less aggressively dovish than in 2020.
  6. However, the Fed continues to use all of its tools to support the economy in 2021 and, in particular, it does not hike the federal funds rate , even if inflation rises.
  7. As a result, the real interest rates stay at ultra-low levels. However, the potential for further declines, similar in scale to 2020, is limited, unless inflation jumps.
  8. The American fiscal policy also remains easy, although relative to 2020, government spending declines, while the budget deficit narrows as a share of the GDP.
  9. However, the public debt burdens continue to rise. Although the ratio of debt to GDP decreased in Q3 2020 amid the rebound in the GDP, it’s likely to increase further in the future, especially if Congress approves the new fiscal stimulus.
  10. Given the dovish Fed conducting a zero-interest rate policy , increasing debt burden, and strengthened risk appetite amid the vaccine rollout, the U.S. dollar weakens further. The American currency has already lost more than 11 percent against a broad basket of other currencies since its March peak.

What does this macroeconomic outlook imply for the gold prices? This is a great question, as some of the trends will be supportive for the yellow metal, while others might constitute headwinds, and some factors could theoretically be both positive and negative for the price of gold. For instance, the end of the recession seems to be bad for the yellow metal, but gold often shines during the very early phase of an economic recovery, especially if it is accompanied by reflation , i.e., a return of inflation.

The tailwinds include the continuation of easy monetary and fiscal policies . The federal debt will remain high, while the interest rates will stay low, supporting the gold prices, as was the case in the past (see the chart below).

There is also an upward risk of higher inflation. In such a macroeconomic environment, the U.S. dollar should weaken against other currencies, thus supporting gold prices . As a reminder, the relative strength of the greenback in recent years (see the chart below) limited the gains in the precious metals market.

However, there are also headwinds . You see, levels are significantly different concepts than changes. The latter often matter more for the markets. What do I mean? Well, although both monetary and fiscal policies will remain accommodative, they will be less accommodative than in 2020. Although the real interest rates should stay very low, they will not decline as much as last year (if at all).

In other words, the economy will normalize this year after suffering a deep downturn in 2020, so the economic policy will be less aggressive. Hence, the level of bond yields and the ratio of federal debt to GDP should stabilize somewhat – actually, thanks to the rebound in the GDP in the third quarter of 2020, the share of public indebtedness in the U.S. economy has decreased, as the chart below shows.

Hence, although the price of gold could be supported by the continuation of easy monetary and fiscal policies, low real interest rates, and weak dollar, it’s potential to rally could be limited. The accommodative stance of central banks and unwillingness to normalize the monetary policy for the coming years should prevent a significant bear market in gold , but without any fresh triggers of further declines in the bond yields or without the spark of inflation, the great bull market is also not very likely. So, unless we either see a serious solvency crisis or sovereign debt crisis , or an substantial acceleration in inflation, gold may enter a sideways trend . Or it can actually go south, if it smells the normalization of monetary policy or increases in the interest rates.

Thank you for reading today’s free analysis. We hope you enjoyed it. If so, we would like to invite you to sign up for our free gold newsletter . Once you sign up, you’ll also get 7-day no-obligation trial of all our premium gold services, including our Gold & Silver Trading Alerts. Sign up today!

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

Arkadiusz Sieron, PhD
Sunshine Profits: Effective Investment through Diligence & Care.