Has Netflix Topped Out?

Netflix Inc. (NFLX) is trading higher by about 1% in Tuesday’s pre-market session after boutique firm Argus upgraded the stock from ‘Hold’ to ‘Buy’.  Even so, the streaming giant has struggled since failing a January breakout near 600, dropping into the 200-day moving average for the first time since the March 2020 decline.  Worse yet, It’s now back to the same level first traded in July 2020, not adding a single point in the last eight months.

Higher Risk Ahead

Some analysts have raised concerns that 2021 will signal high subscriber turnover, a.k.a. ‘churn’, across the streaming video on demand (SVOD) universe as millions of consumers get out of their homes to engage in more activities in the physical world. Churn rose ‘materially’ in Q4 2020 according to Needham analyst Laura Martin and Netflix has a lot to lose if that continues, with no cheaper ad-driven tier to bolster revenue.

But not everyone is bearish on the long-term outlook. Argus analyst Joseph Bonner upgraded Netflix to ‘Buy’ from ‘Hold’ on Tuesday with a $650 price target, noting the company continues to expand globally and add new subscribers, strengthening its SVOD leadership with popular and original content. He thinks the stock “offers a sustainable structural competitive advantage in the streaming video space and the recent selloff represents an appropriate entry point”.

Wall Street and Technical Outlook

Wall Street consensus now stands at an ‘Overweight’ rating’, based upon 23 ‘Buy’, 5 ‘Overweight’, 9 ‘Hold’, and 1 ‘Underweight’ recommendation. Four analysts recommend that shareholders close positions and move to the sidelines. Price targets currently range from a low of $340 to a Street-high $840 while the stock is set to open Tuesday’s session more than $80 below the median $650 target.  This low placement indicates a sharp disconnect with less bullish investor opinion.

The stock broke out above 2018 resistance above 420 in April 2020 and carved an impressive uptrend into the July peak at 575.37. It failed September, October, and January breakout attempts, carving a persistent trading range with support near 490.  Higher lows in November, January, and March highlight modest buying interest but the 200-day moving average at 494 needs to hold in this mixed configuration, with a breakdown favoring a decline into April breakout support near 425.

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.

U.S. Market Wrap and Forecast for Wednesday

Major indices oscillated near the flatline in a lazy Tuesday session, with small caps attracting the most buying interest. Gold, bonds, equities, and VIX traded in lockstep while the WTI Crude Oil contract continued its bullish assault, lifting to the highest high since January 2020. Long-time laggard SPDR S&P Oil & Gas Exploration & Production ETF (XOP) rallied to a 52-week high, outperforming the broad-based SPDR Select Sector Energy ETF (XLE).

Netflix Testing Resistance

Netflix Inc. (NFLX) gained 2%, continuing a recovery wave after filling the post-earnings gap on Jan. 27. The stock posted an all-time high after the release and promptly sold off, failing the breakout when it traded through 575. The stock closed about 16 points below that level, setting up an interesting test in coming days. Alphabet Inc. (GOOG) is the only member of the FAANG quintet currently in breakout mode after Apple Inc. (AAPL) reversed on Jan 26.

Former Reddit favorites took another big hit, dropping Gamestop Inc. (GME) below 50 for the first time in nearly three weeks. A true believer messaged me on Monday morning, convinced the stock must rally between 500 and 800 soon because that’s where the biggest open interest was located. Numerous attempts to instruct these folks on the history of broken bubbles is invariably met with derision.

Looking Ahead to Wednesday

Keep an eye on Zoom Video Communications Inc. (ZM) in coming sessions. The stock rose 4% to a two-month high on Tuesday after Dow component Salesforce.com Inc. (CRM) said its employees would continue to work remotely part-time or full-time after the pandemic runs its course. Twitter Inc. (TWTR) earnings this evening could also impact Wednesday’s market, with the stock sitting near resistance ahead of the release.  Even so, the company is not big enough yet to leave a deep footprint on the ticker tape.

The second impeachment trial is sapping market interest, killing momentum from stimulus legislation that is needed to keep bulls on the offensive. Americans on both sides of the aisle are exhausted after the election conflict and reliving the sad tale isn’t the best way to encourage higher equity prices. Meanwhile, the slow drift higher continues unabated while bears wait patiently for a more reliable selling opportunity.

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


Netflix Rockets After New Subscribers Fuel Blockbuster Q4 Sales

Netflix, Inc. (NFLX) shares surged over 12% in extended-hours trade Tuesday after the streaming content provider reported better than expected fourth-quarter sales on the back of robust subscriber growth. The company also said it is considering returning free cash flow to shareholders through buybacks.

Revenues for the fourth quarter (Q4) came in at $6.64 billion, slightly above the $6.63 billion consensus mark analysts had forecast. Moreover, the top line grew 20% from a year earlier, thanks to a boost of 8.5 million paid subscribers during the period. The company disclosed quarterly earnings per share (EPS) of $1.19, with the figure falling shy of Wall Street estimates of $1.30 a share and contracting 8% on a year-over-year (YoY) basis.

As of Jan. 20, 2021, Netflix stock has a market value of $221.68 billion and trades 7.21% lower on the year. However, the shares have gained nearly 50% over the past 12 months as investors piled into names that benefited from consumers spending more time at home during the pandemic.

Returning Free Cash Flow to Investors

CFO Spencer Neumann raised the prospect of returning excess free cash flow to investors while remaining on the lookout for strategic investments. “We put a premium on balance sheet flexibility, so we’re going to continue to invest aggressively into the growth opportunities that we see, and that’s always going to come first,” he said, per CNBC. “But beyond that, if we have excess cash, we’ll return it to shareholders through a share buyback program,” Neumann added. He also told investors that the company would no longer need to raise external financing for its daily operations.

Wall Street View

Citi’s Jason Bazinet maintained his ‘Neutral’ rating on Netflix shares earlier this month but raised his price target to $580 from $450. The analyst cautioned price hikes might limit new subscribers in coming quarters, resulting in a loss of market share to Disney’s streaming service, Disney+.

Elsewhere, the Street sentiment remains mostly bullish. The shares receive 21 ‘Buy’ ratings, 4 ‘Overweight’ ratings, and 12 ‘Hold’ ratings. Just one sell-side firm currently recommends selling the shares. Price targets range from as high as $700 to as low as $235, with the median pegged at $580.60. Watch for a flurry of additional upgrades over the next few weeks after yesterday’s upbeat quarterly update.

Technical Outlook and Trading Tactics

Since climbing to a new all-time high in mid-July, Netflix shares have remained stuck in a 110-point trading range. Premarket data indicates the stock will open around $565 today, placing the price toward the range’s upper trendline.

Those looking to play a breakout should plan entries above key resistance at $575 while managing risk with a stop-loss order placed around $20 below the execution price. Consider using a measured move to set a profit target. For example, add the trading range distance, as measured in points, to the breakout level. ($105 + $575 = $680 profit target)

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

How Might Netflix’s Q4 Earnings Affect its Share Price?

While we await the confirmation of such numbers from Netflix, which is set to announce its Q4 results after US markets close on Tuesday, a lot of tailwinds for this pandemic darling has already been baked into its share prices.

NFLX Daily

How have Netflix’s share prices performed so far in 2021?

In fact, its stock prices have dropped by nearly 8 percent so far this year, and is still keeping to the same range since July. With its 50-day and 100-day simple moving averages (SMA) now flat, Netflix’s shares are clearly in need of a new major catalyst to break out of its sideways trend.

Though to be fair to the bulls, Netflix’s shares had a remarkable year in 2020, registering an annual advance of 67.1 percent.

Are the best days over for Netflix’s growth?

The forward-looking nature of the markets mean that Netflix shareholders have already trained their sights on this year’s prospects and beyond. Some market estimates see Netflix boasting 300 million subscribers by 2024, but will have to first overcome near-term challenges.

Netflix is likely to post subdued year-on-year comparisons in 2021, given that the pandemic had front-loaded much of the company’s growth in the first half of 2020. It’s difficult to imagine Netflix repeating or beating such a feat during this current quarter and next.

For example, the streaming giant added 15.8 million subscribers in Q1 2020. According to the Bloomberg consensus estimates, Netflix is expected to add “only” 7.3 million more subscribers in the current quarter, which would be less than half of the total added in the first three months of 2020.

More price hikes to come?

Besides being tested on its ability to lure even more subscribers, Netflix will also be tested on its ability to retain existing customers. The streaming giant began a new price hike cycle in September, with the US seeing an 8-13% price hike in Q4, while prices in the UK and Ireland were raised in December. Subscribers in Germany had to start paying more last week. More price hikes are expected in other markets soon.

As long as Netflix can limit the subscriber churn amid these price hikes, that should bode well for its top line, with revenue set to come in at $6.6 billion in Q4 2020, which would mark an increase of over 20 percent compared to the same period in 2019.

Still, such prices hikes should raise the ARPU (average revenue per user) – which means Netflix is becoming more efficient in generating more income per subscriber – even as the top line revenue sees slowing year-on-year growth for a 5th consecutive quarter.

What are Netflix’s plans for this year?

Amid the price hikes, Netflix has ambitious plans to keep its ever-demanding customers satiated.

The streaming giant is set to release 70 original films in 2021 (that’s more than one new title for every week), and that doesn’t include documentaries.

It remains to be seen how much this lineup of new titles can add to Netflix’s subscribers tally, given the tempting offerings by the likes of Disney+, HBO Max, Peacock and the like, all of whom are vying for a larger share of the streaming pie.

How do Netflix shares tend to react after earnings day?

Markets are already pricing in a 6.8 percent one-day move when Netflix shares resume trading after its earnings release. Also note that shareholders have seized the opportunity to book profits after the last four consecutive earnings announcements, while single-day declines have been registered in 8 out of the past 12 earnings announcements.

Netflix bulls are going to need an outsized positive surprise on Tuesday or a very bullish outlook from the company’s top brass that markets can buy into. Such rhetoric may put Netflix shares on a path towards breaking past the upper limits of its 7-month long-range and potentially set a new record high.

Written on 19/01/2021 08:30 GMT by Han Tan, Market Analyst at FXTM

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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)


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)


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.”


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)


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.


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)


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.”


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


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

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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.


Dow, S&P Dip Again on Lockdown Fears

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

News Recap

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

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

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

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

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

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

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

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

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

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

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

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

Therefore, to sum it up:

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

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

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

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

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

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

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

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

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

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

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

Thank you.

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

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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.


Few US Stocks That Could Brighten Up Your Portfolio

Markets are really quiet recently and that is why we will shift our focus towards the American Stocks, coming in right on time as Axiory have increased their product offering by introducing CFD stocks on MT4. This can significantly help you diversify your portfolio and take advantage of more trading opportunities.

Apple is testing the upper line of the symmetric triangle.

Home Depot locked in the sideways trend, waiting for a breakout.

McDonald’s defending the neckline of the H&S formation.

Netflix aiming for the lower line of the rectangle.

Pfizer with a false bullish breakout.

Prudential enjoying the buy signal after the breakout of the upper line of the triangle.

Tesla testing the lower line of the triangle.

Western Digital with a fresh buy signal coming from the breakout of a major resistance.

Micron Technology enjoying a proper buy signal after making new long-term highs.

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

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

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

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


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

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

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


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

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


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

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

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

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

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

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

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

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

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

Enjoy the rest of your weekend!

Chris Vermeulen
Chief Market Strategist

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


Netflix Could Fail Second Quarter Breakout

Netflix Inc. (NFLX) sold off nearly 7% on Oct. 21 after missing Q3 subscriber estimates and offering mixed Q4 guidance. It lifted back into the sell gap and dropped like a rock on Monday after Pfizer’s (PFE) blockbuster vaccine announcement triggered a broad-based exodus from COVID-19’s biggest beneficiaries. The decline has now arrived at range support for the fifth time, raising odds the stock will break down and fail the second quarter breakout.

High Churn Levels

Churn levels surged after the August release of the provocative “Cuties” film, which many believe sexualizes young girls. The controversy may have undermined Netflix quarterly performance, with many folks cancelling the service in protest. More importantly, huge subscriber gains in the first and second quarters as a result of pandemic shutdowns may have sapped future demand, especially in older demographics reluctant to abandon traditional broadcasting.

Jefferies analyst Alex Giaimo raised their target to $585 after the October report, noting “while the stock will likely get hit on the net add miss, we see many fundamental positives from the 3Q print (rich pipeline, inflecting FCF story, potential price hikes). History says to accumulate shares on earnings dips and own the stock longer-term, and we recommend sticking to that strategy. While bears will push back on slowing trends, we see many levers the company can pull to maintain healthy double digit revenue growth over time.”

Wall Street And Technical Outlook

Wall Street consensus is mildly bullish after the mixed quarter, with a ‘Moderate Buy’ rating based upon 21 ‘Buy’ and 5 ‘Hold’ recommendations. Three analysts now recommend that shareholders close positions and move to the sidelines. Price targets currently range from a low of $235 to a Street-high $700 while the stock opened Wednesday’s session nearly $100 below the median $580 target. This placement suggests analysts have over-estimated the long-term outlook.

Netflix broke out above the 2018 high near 420 in June and took off in a strong trend advance that posted an all-time high at 575 in July. Price action since that time has carved a near-perfect rectangle pattern, with resistance at that level and support in the 460s. The stock bounced off support for the fifth time this week but accumulation, as measured by the on-balance volume (OBV) indicator, continues to deteriorate and is now at a 4-month low. This bearish divergence raises odds for a failed breakout into the 400 level.

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

Netflix Testing Key Support Zone for Third Time

The Netflix (NFLX) stock is testing the support zone again (green line). This is a key decision zone for a bullish break or bearish bounce.

This article reviews both bullish and bearish scenarios. And we dive into the expected Elliott Wave outlook, which is the same for both directions.

Price Charts and Technical Analysis

Netflix daily chart

Netflix is in a bearish ABC (orange) pattern after completing a strong wave 3 (blue). Therefore, the current pullback is expected to be a wave 4 (blue).

The main question is this: how deep will the wave 4 retracement go?

  • A bearish breakout below the support zone could indicate a decline that will test the Fibonacci retracement level.
  • A bullish bounce will indicate an immediate end of the wave 4 and the start of the bullish wave 5.

For the bulls to firmly take back control, they need price action to break above the 21 ema zone. Then price action must go sideways and stay above the 21 ema zone to confirm the continuation higher.

On the 1 hour chart, we can try to analyze whether the wave 5 (pink) of wave C (orange) has been completed. The key aspect to keep an eye on is this:

  • A bearish pullback that respects the previous bottom: bullish bounce is expected to take price back to resistance.
  • A bearish pullback that breaks the previous bottom: expect wave 5 to go lower.

The previous top (red line) is the main bull-bear line at the moment. A bullish break indicates that traders can expect a bullish price swing.

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

Good trading,

Chris Svorcik

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



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

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

Congress is Always Looking to Flex in Muscles

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

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

Buying Opportunity in Snapchat

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

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

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

Netflix Has its First Oversold Pullback in a Fresh New Uptrend

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

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

The Bottom Line

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

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

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

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

Chris Vermeulen
Chief Market Strategist

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


Netflix Stock Price Forecast Raised to $630 at Morgan Stanley; $840 in Best Case Scenario

Morgan Stanley raised their stock price forecast on Netflix to $630 from $600, assigning an “Overweight” rating to the Internet television network’s stock and foresees short and long-term benefits to Netflix growth and earnings power due to the changes brought on by the COVID-19 pandemic.

The world’s leading streaming entertainment service company is set to report its third-quarter results on October 20. According to Zacks Research, Netflix forecasts Q3 earnings to be $2.09 per share, implying over 40% of year-over-year growth, but the Zacks consensus estimate was pegged at $2.12 per share. The Zacks consensus estimate for September quarter revenues was pegged at $6.38 billion, over 20% higher than a year earlier.

“Price increases as a lagging indicator… Our ‘Overweight’ thesis assumes Netflix has additional pricing power. We believe signals that Netflix looks for before raising prices are engagement growth and falling churn, trends that indicate an increase in “value” delivered to the consumer. Recent price increases in Australia and Canada, 2% and 4% of the estimated paid member base respectively, indicate to us that engagement levels and engagement growth rates are likely high and accelerating in these markets,” said Benjamin Swinburne, equity analyst at Morgan Stanley.

“We realize the 2019 rate adjustments led to slightly more elevated churn levels, particularly in the US, that sustained into subsequent quarters. However, we believe Netflix’s competitive moat is perhaps deeper than ever today. Production delays due to (the) COVID-19 have likely impacted its competitors more significantly than Netflix. Finally, given the size of the base business price increases create substantial long-term value.”

Netflix’s shares closed 2.05% lower at $530.79 on Friday; however, the stock is up over 60% so far this year.

Twenty-six analysts forecast the average price in 12 months at $564.83 with a high forecast of $670.00 and a low forecast of $220.00. The average price target represents a 6.41% increase from the last price of $530.79. From those 26, 19 analysts rated “Buy”, four rated “Hold” and three rated “Sell”, according to Tipranks.

Morgan Stanley gave a target price of $840 under a bull scenario and $400 under the worst-case scenario. Other equity analysts also recently updated their stock outlook. Netflix had its price objective lifted by KeyCorp to $634 from $590. They currently have an overweight rating on the Internet television network’s stock.

Pivotal Research boosted their stock price forecast on shares of Netflix to $650 from $600 and gave the stock a buy rating. Loop Capital raised their price objective to $600 from $500 and gave the company a buy rating.

“We believe share performance is highly dependent on increasing global membership scale. Proven success in the US and initial international markets provides a roadmap to success in emerging markets, and scale should allow Netflix (NFLX) to leverage content investments and drive margins,” Morgan Stanley’s Swinburne added.

“Higher global broadband penetration should increase the NFLX addressable market, driving member growth and providing further opportunity given NFLX’s global presence. Longer-term, we see the ability to drive ARPU growth, particularly given increased original programming traction.”

The success of programming drives increased subscriber growth and pricing increases lead to revenue upside, driving – were highlighted by Morgan Stanley as two major downside risks.

Pricing increases drive elevated churn, increased competition drives higher pricing for exclusive content lowering margins, challenges in newer markets negatively impacts member growth expectations, were the major downside risks.

Check out FX Empire’s earnings calendar

Subscriber Exodus Could Trigger Netflix Breakdown

Netflix Inc. (NFLX) is under pressure in Tuesday’s U.S. session after reports the streaming service has lost a substantial number of subscribers due to controversy arising from the August release of the French movie ‘Cuties”, which many viewers believe sexualizes young girls.  The exodus has forced some analysts to lower Q3 2020 estimates from previously impressive growth underpinned by pandemic isolation.

Netflix September Subscriber Losses

Netflix’s typical monthly churn is “impressively low” at 3.5% to 4% but that number may have risen above 5% in September as a result of cancelled subscriptions. In turn, this would translate into a quarterly loss of 28 million subscribers, or an increase of 8 million quarter-over-quarter. Unfortunately, the company has been quiet as a church mouse about the movie’s impact so investors may have to wait until Oct. 20 earnings to measure the exact impact.

Wells Fargo analyst Steven Cahall discussed the exodus in a morning note, commenting, “If we are to believe reports then NFLX faced a short-lived but potentially stark churn uptick in September due to controversy around Cuties. We think this could weigh more heavily on Q3 net adds than investors realize so we reduce our estimate for global streaming net adds from +5mm to +2.5mm (NFLX’s guidance). Given how strong Netflix is as a service we’re loathe to get too negative, but our churn analysis does imply some meaningful pressure.”

Wall Street And Technical Outlook

Wall Street consensus has been stuck in the middle for months, highlighting persistent conflict about potential upside, with a ‘Moderate Buy’ rating based upon 21 ‘Buy’ and 9 ‘Hold’ recommendations. However, five of the 35 analysts covering the stock now recommend that shareholders take profits and move to the sidelines. Price targets range from a low of $220 to a street-high $625 while Netflix is now trading more than $36 below the median $524 target.

Unfortunately for bulls, the Netflix chart is flashing warning signs as we head into the fourth quarter. The stock topped out at 568 in July and pulled back into the 460s, establishing the edges of a rectangle pattern that’s still in force, nearly 3-months later. The stock sold off to range support for the second time earlier this month and still hasn’t bounced, waving a red flag at the same time that accumulation readings have fallen to 4-month lows. This is a near ideal set-up for a breakdown that reaches the 200-day moving average near 430.

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

Netflix Bearish ABC Pullback Offers Discount in Uptrend

Some stocks are offering potential discounts within a large uptrend. For instance, Netflix (NFLX) is showing a bearish pullback after the price dropped about $85 (-15%) in recent trading. Could this be a support zone for price action and restart the uptrend?

Price Charts and Technical Analysis

Netflix 4 hour chart

The Netflix chart is in a strong uptrend but the current bearish pullback is likely to continue lower for the moment. Price action is below the 21 ema zone. Furthermore, price action broke below the support fractals. The main bouncing spots seem to be slightly lower. The next bearish swing could complete a wave 5 (orange) of a larger wave ABC (purple) of wave 4 (pink). The first key support zone is at the -27.2% and 38.2% Fibonacci levels. The second support zone is located around the -61.8% and 50% Fibs. Bullish candlestick patterns at these price levels could make it an interesting stock.

Only a deep break below the 61.8% Fibonacci level invalidates (red x) the bullish outlook at the moment. An unexpected bullish break above the 61.8% Fibonacci level places the stock in an immediate uptrend (blue arrows). But the space towards any upside target could be limited to $600-650. For the moment, a deeper bearish pullback could provide a sufficient discount to expect a good bounce and run up. The Nextflix earnings date is expected around the end of October.

Netflix 4 hour chart

Good trading,

Chris Svorcik

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

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


Netflix Testing Bull Market High

Netflix Inc. (NFLX) reversed at an all-time high in July after lowering H2 2020 guidance and issuing conservative Q3 new subscriber estimates of just 2.5 million. A few hedge funds took profits after the news, including Stanley Druckenmiller’s Duquesne Capital and David Tepper’s Appaloosa Management. However, the streaming giant may have ‘low-balled’ estimates because folks over 60 are still hiding in their homes to avoid COVID-19. This represents an untapped market opportunity because they’ve subscribed in smaller numbers than younger demographics.

Netflix Adding Older Subscribers

Bernstein’s Todd Juenger highlighted this set-up in an August note, commenting the company “added 5.7 million subs in H1 2020, bringing total subs to 72.9 million, up from 67.7 million at the end of 2019. That’s a lot of growth for a market that was already supposedly saturated. Nielsen’s latest Total Audience Report provides some important clues into where that growth came from and where the leading streaming services sit in terms of engagement and value”.

The analyst saved the best for last, concluding “our two biggest takeaways: Netflix’s sub growth was largely fueled by older age cohorts. We have argued, adamantly, for a long time that contrary to popular belief; Netflix is not fully penetrated in North America, because of the low penetration among older age cohorts. Over time, there will be a natural growth tailwind as younger cohorts age and carry-forward their higher penetration rates. We have estimated this aging benefit to be worth 23 million U.S. subs over the next 15 years.”

Wall Street And Technical Outlook

Wall Street consensus hasn’t changed much in recent weeks, highlighting persistent conflict about potential upside, with a ‘Moderate Buy’ rating based upon 20 ‘Buy’ and 9 ‘Hold’ recommendations. Notably, 5 analysts now recommend that shareholders take profits and move to the sidelines. Price targets range from a low of $220 to a street-high $625 while Netflix is now trading more than $25 above the median 519 target.

The selloff that started in July found support above 460 while a successful August test at that level has fortified buying interest into September. The stock has now rallied within 30 points of the July high but it will take a lot of buying power to trigger a breakout and sustained trend advance toward 600. Even so, the long-term technical outlook is highly bullish, with the potential to mount the 1,000 level in the next one to two years.

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

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

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

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

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

Stalemate in Coronavirus Aid Legislation Raising Concerns

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

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

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

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

Mixed News Fuels Two-Sided Volatility

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

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

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

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

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

Markets’ Weather Weekly: Сloud-Computing and Office Software Business Missed Quarterly Estimates.

Overview and trends

U.S. weekly jobless claims hit 1.4 million, the first increase since March, as spiking virus cases halt reopening plans.

Microsoft shares tumbled as much as 2.8% on Thursday after its cloud-computing and office software business missed quarterly estimates. The share price slump caused nearly $46 billion dollars erased from the company’s market capitalization. Intel Corporation (INTC) shares were trading lower yesterday despite the company reported better-than-expected second-quarter EPS and earnings results.

As a result, the tech-heavy Nasdaq Composite finished down 2.3%. The S&P 500 closed down 1.2%. It was their worst performance since June 26. The Dow (INDU) fell 1.3%, or 354 points, its worst day in two weeks.

Stocks weren’t the only assets in the red. The US dollar, as measured by the ICE US Dollar Index, fell 0.2%. The index hit its lowest level since September 2018.

So far quarterly earnings come very mixed. On positive side there are good reports and good responses to the earnings reports from IBM (IBM), Texas Instruments (TXN), Biogen (BIIB), KeyCorp (KEY), as well as yesterday’s miracle from Tesla (TSLA) and upbeat sales commentary from Best Buy (BBY).

Then again, a close candidate for why things are “bad” would be the negative responses to earnings reports from Bank of America (BAC), Netflix (NFLX), Snap (SNAP), Capital One (COF), United Airlines (UAL), and Interactive Brokers (IBKR). Microsoft (MSFT) stock sank over 2% after reporting earnings that beat Wall Street expectations in most ways except in a key business. All these stories prompt us to be extremely vigilant, resourceful and contemplative – correct instrument selection and trade direction is key to trading success through this period!

The week was full of important news. US stocks climbed on Wednesday on positive earnings numbers from Microsoft and Tesla and as traders weighed raging tensions between the U.S. and China, a potential legislative extension to unemployment benefits, and coronavirus vaccine news. Donald Trump’s administration ordered the abrupt closure of China’s consulate in Houston, and official Beijing promptly responded with its intention to close the U.S. consulate in Wuhan in a tit-for-tat game condemned by Beijing as outrageous and unprecedented.

The U.S. government has struck an agreement with Pfizer (PFE) and BioNTech (BNTX) for up to 600 million doses of their COVID vaccine candidate should it be approved. This optimistic expectation and early preparation effort have created positive sentiment in terms of thinking about light at the end of the tunnel down the road.

Trading ideas

The Gold/Silver complex has caught renewed bids this week, which was tipped off by the major gold ETF – SPDR Gold Trust – showing up on the “Doji Week” scan back on Monday. The Doji Week scan is designed to find stocks that are in narrow ranges compared to prior week’s activity that is geared up for a stronger directional move.

There are a number of Gold/Silver – related ETFs and stocks appearing on the Wide Range Breakouts, Power Up, and Overbought results today as the market gets behind their momentum against a sliding US Dollar. As investors’ classics – Barrick Gold (GLD) and Newmont Corp. (NEM) – look increasingly overvalued by both investment multiples and technically, new kids on the block, such as Agnico Eagle Mines (AEM) and Kinross Gold (KGC) look increasingly promising. The two latter stocks unveil single digit price-to-sales ratios as opposed to double-digit ones for Barrick and Newmont.

AT&T (T)

The largest American telecom AT&T (T) beat estimates by 4 cents a share, with quarterly earnings of 83 cents per share. Revenue was in line with forecasts. The company said the COVID-19 pandemic impacted results across all its businesses. Thus, WarnerMedia revenue fell 23% to $6.8 billion as the pandemic shut down film production and movie theaters. Group revenue was down 9% YoY to $41 billion, roughly in line with the $41.1 billion consensus. In contrast, AT&T’s HBO Max boasted by around 36 million active customers (including legacy HBO subscribers), picking up 3 million in the quarter. Cash from operations was $12.1 billion with free cash flow of healthy $7.6 billion.

Total dividend payout ratio remains slightly below 50%. Nevertheless, we must not forget about this telecom’s two extremely important properties: number one, it is the value high dividend stocks. And number two, it is classic defensive countercyclical stock. Given increasing odds of exacerbating recession and noting almost ridiculously cheap valuations at P/E of less than 15, dividend yield of 7% and price-to-cash-flow of just 8 (yes, this is a single-digit number, eight), at the current price level AT&T is perhaps one of very few smart medium term buys.

Vladimir Rojankovski, Grand Capital Chief Analyst

U.S. Stocks Set To Open Higher As Housing Starts Increased By 17.3% In June

Netflix Adds 10.1 Million Subscribers But Mr. Market Is Not Pleased

Netflix has recently provided its second-quarter report, missing analyst estimates on earnings and beating them on revenue.

The company reported revenue of $6.15 billion and earnings of $1.59 per share which was not sufficient enough to please the market. Netflix added 10.1 million net global subscribers but traders hoped for a truly blowout quarter.

In addition, Neftlix guided for just 2.5 million net global subscripers to be added in the third quarter.

Netflix shares were up 63% before the earnings release so it was hard to match elevated expectations.

Not suprisingly, Netflix shares found themselves under presure after the release of its earnings report and are losing about 8% in premarket trading.

Netflix report highlights a potential problem for other high-flying tech stocks – expectations are so high that it could be nearly impossible to match them.

European Leaders Try To Negotiate A Recovery Fund

European leaders are meeting to discuss a giant 750 billion euro recovery fund needed to take EU out of recession.

These negotiations will have a material impact on the world markets since failure to come up with a deal will put pressure on commodities and earnings forecasts for multinationals.

At this point, more frugal northern countries do not want to subsidize the already indebted sourthern EU members.

For example, Dutch Prime Minister Mark Rutte has stated that there was a less than 50% chance that a recovery fund deal would be reached during the current summit.

Housing Starts Grow By 17.3% In June

The U.S. has just provided Building Permits and Housing Starts data for June.

Building Permits increased by 2.1% and stay materially lower than pre-pandemic levels. This is not surprising since the economy will need more time to get back to normal while the continued surge in the number of new coronavirus cases threatens the current recovery.

Meanwhile, Housing Starts increased by 17.3% in June. This is a direct result of Building Permits’ growth of 14.1% back in May.

In short, the economic data for June tells a story of robust recovery. The key question is whether the recent problems on the coronavirus front are hurting the recovery in July.

S&P 500 futures are gaining some ground after the release of economic reports.

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