Stimulus And Consumers, Keys To US/Global Economic Recovery – Part I

At this point in our lives, we are hoping the new COVID-19 vaccines will do their part to help move the world towards more normal consumer and economic activities.  The US Senate recently a new $1.9 Trillion stimulus package that should continue to provide assistance to various levels of consumer, state governments, and corporate enterprises.  The next question in our mind is “what will the recovery look like if/when it happens?”.  We need to look at three critical components of the global economy to help answer this question: Consumer Activity, Debt, and Supply/Demand Functions.

Consumer activity makes up more than 60% of the US GDP.  It also drives money flow as consumers engage in economic activity, create credit for new purchases and help to balance the supply/demand equilibrium functioning properly.  The participation of the consumer within an economy is essential for a healthy growing economy.

WHERE ARE CONSUMERS NOW & WHERE WILL THEY BE IN THE FUTURE?

The US has passed more than $4 Trillion in COVID-19 stimulus over the past 12+ months.  At the same time, global central banks have also engaged in various easy money policies to spark global economic activity.  When we combine the efforts of world governments and central banks, we’ve seen an unprecedented amount of money deployed throughout the globe recently – and that money needs to find its purpose and use in the global economy quickly of the global economy is going to recover enough to spark a new wave of economic growth.

We believe two key components of consumer engagement are at play right now; investing/trading in the US and global markets and Real Estate.  Whereas US consumers have been reducing debt exposure on credit cards and tightening their spending in other ways, trading volumes in the stock market Indexes and ETFs have increased dramatically over the past 12 months.  Additionally, low supply and low interest rates have kept the US housing market active, in addition to the boost in activity from people moving to more rural areas as the work-from-home phenomenon settles into the new normal.

CASE-SHILLER HOME PRICE INDEX

This Case-Shiller 20-City Composite Home Price Index chart, below shows how quickly home prices have rallied over the past 12 months. Just prior to the COVID-19 pandemic, this index was flattening.  Then the moratorium on foreclosures and extended assistance for homeowners pulled many homes back off the market in early 2020.  That reduced supply and prompted a rally in home prices across the US.

The assistance provided to these “at-risk” homeowners accomplished two very important economic benefits.  It eliminated a wave of new foreclosures (albeit possibly temporarily) and it prompted a seller’s market because supply had been constricted.  The result is that many homeowners witnessed a 6% to 10% increase in their home values over the last 12+ months.

DELINQUENCY RATES ON CONSUMER LOANS

Unlike in 2006-2008 when delinquency rates skyrocketed during the housing crisis, throughout the COVID-19 pandemic, delinquency rates collapsed to the lowest levels over the past 25+ years.  Consumers took their extra capital, stimulus checks, and federal assistance and used the past 12+ months to eliminate certain debts.  Even though we are starting to see an uptick in delinquency rates in Q4 2020, these levels would have to climb considerably before we get close to the levels before the COVID-19 pandemic.

This suggests that a broad spectrum of US consumers are in a much better economic position related to revolving debt, or credit card debt, than they were before the COVID-19 pandemic.  If these consumers begin to engage in a new economic recovery by engaging in a healthy credit expansion, we may see a boost to certain sectors of the economy over the next 24 to 36+ months.

REAL PERSONAL CONSUMPTION EXPENDITURES

Unlike many other indicators, Real Personal Consumption has risen past the pre-COVID-19 peak levels.  This suggests that consumers are still spending money on Durable Goods and are continuing to buy essential items to support their lifestyles and families.  Yes, there are a number of people that are unemployed or have transitioned to other types of work, but the stimulus efforts and extended unemployment assistance has translated into real consumer engagement for Durable Goods, as we can see from the chart below.

Remember, Durable Goods are not typically found at Grocery Stores or Walmart.  They are items that have extended life-cycles (greater than three years); such as cars, planes, trains, furniture, appliances, jewelry, and books.  This rise in Durable Goods suggests that a large segment of the US consumer is actively engaged in making bigger-ticket purchases recently – possibly as a result of buying a new home, transitioning away from traditional work environments, and/or repositioning family essentials in preparation for a post COVID-19 world.  This type of economic engagement may continue for many months forward.

CONSUMER PRICE INDEX – ALL URBAN CONSUMERS

The following Consumer Price Index chart shows that general consumer prices briefly dipped when COVID-19 hit in March 2020, but they have since rallied to new highs.  This is partially a result of the rise in home prices and rising commodity prices, which contribute to a rise in price levels for consumers.

All of this data is showing that the US consumer is actually much more economically healthy than consumers were in the midst of the 2007-08 housing crisis. The stimulus efforts and partial economic shutdown did result in a large number of displaced or disadvantaged consumers, but it also shows that many US consumers were able to quickly transition into a different type of economic environment with very little extended economic risks.

The new $1.9 Trillion stimulus package will offer even more assistance to consumers.  This new stimulus will be spent as new COVID-19 vaccines are being rolled out, suggesting the US is quickly moving away from extended risks related to the pandemic.  This means consumers will likely start attempting to go back to normal in certain ways.  Does this mean that the recovery efforts will strengthen the bullish price trend in the future and the US stock markets will continue to rally?

In our effort to better identify opportunities for traders and investors as the post-COVID-19 recovery unfolds, we will continue to identify various market sectors that my research team and I believe have a strong potential for increased bullish price trends.  All of the data we’ve presented so far suggests the US consumer is much healthier than many people consider and that many US consumers are still actively engaged in some type of work/income solution.  The only reason why housing, durable goods, CPI, and other economic indicators continue to rise is because US consumers are actively engaged in buying/consuming bigger, durable goods.  This suggests the new $1.9 Trillion COVID relief effort may begin to push the US economy further into overdrive, and possibly pushing the supply/demand balance even further beyond the equilibrium zone.

Don’t miss the opportunities to profit from the broad market sector rotations we expect this year, which will be an incredible year for traders of my Best Asset Now (BAN) strategy.  You can sign up now for my FREE webinar that teaches you how to find, enter, and profit from only those sectors that have the most strength and momentum. Staying ahead of sector trends is going to be key to success in volatile markets.

For those who believe in the power of trading sectors that show relative strength and momentum but don’t have the time to do the research every day, let my BAN Trader Pro newsletter service do all the work for you with daily market reports, research, and trade alerts. More frequent or experienced traders have been killing it trading options, ETFs, and stocks using my BAN Hotlist ranking the hottest ETFs, which is updated daily for my BAN Trader Pro subscribers.

In Part II of this article, we’ll take the data we’ve reviewed already and apply it to current market conditions, trends, and technical setups as we look for new opportunities in consumer-based sectors.  My team and I believe some very big sector trends are going to set up as a result of everything that is converging on the US and global markets.  It’s time to get ready for some big trends.

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

Chris Vermeulen
Founder & Chief Market Strategist
www.TheTechnicalTraders.com

 

Curaleaf Holdings to Report Relatively Strong Q4 in Terms of Revenue Growth: ROTH

Curaleaf Holdings is expected to post Q4 revenues of $239.5 million leading to EBITDA of $55 million as the market cap/revenue leader in U.S. cannabis industry is coming off a strong third quarter which showed the potential of the consolidated business the Massachusetts-based company has built through licensing wins and aggressive mergers and acquisitions, according to analysts at ROTH Capital Partners.

The leading U.S. provider of consumer products in cannabis will report its financial and operating results for the fourth quarter and fiscal year ended December 31, 2020 after market close on March 9, 2021.

Roth Capital Partners forecasts EPS loss of 2 cents in the fourth quarter, worse compared to a cent loss in the third quarter. For the full-year 2021, Newport Beach, California-based privately held investment banking company forecasts EPS of 14 cents on revenue of $1.25 billion, up 96.8%.

“We believe the results will indicate the direction for the rest of the industry and are expecting a relatively strong quarter in terms of revenue growth, with integration still weighing on profits. Additionally, we are adjusting our estimates to reflect ‘As Reported’ revenue to align our estimates with consensus and company guidance. Maintain Buy,” said Scott Fortune, equity analyst at ROTH Capital Partners.

“We believe 2021 will be the transformational year for CURA with revenue estimates above $1.2 billion and full integration of all its acquisitions provides the true leverage/scale of its footprint. We are expecting a conservative guidance for the 2021 year without factoring in new legalized states or acquisitions being layered on. We believe CURA will continue to lead the industry through its 100+ store footprint and sizable distribution network.”

Curaleaf Holdings Stock Price Forecast

The U.S.-listed Curaleaf Holdings shares, which surged about 90% in 2020 and added another 23% so far this year, closed nearly 2% lower at $14.75 on Friday.

Six analysts who offered stock ratings for Curaleaf Holdings in the last three months forecast the average price in 12 months of $20.34 with a high forecast of $25.41 and a low forecast of $15.76. The average price target represents a 37.90% increase from the last price of $14.75. All of those six analysts rated “Buy”, according to Tipranks.

Curaleaf had its price objective hoisted by Stifel Nicolaus to $32.25 from $23. The firm currently has a buy rating on the stock. Roth Capital lifted their price target to $20 from $14 and gave the stock a buy rating. Craig Hallum began coverage and issued a buy rating and a $19 price target.

Several other analysts have also updated their stock outlook. Needham & Company LLC raised their price target to $18.50 from $14 and gave the stock a buy rating. Canaccord Genuity boosted their price objective to $29.00 and gave the company a buy rating. Cantor Fitzgerald raised their target price to $23.50 from $20 and gave the stock an overweight rating.

“Our $20 price target is derived using a 22x multiple on our 2022 EV/EBITDA estimate of $632.6 billion, discounted back 15%. Our target price deserves a premium to the MSO peers due to its leading national scale. We set valuation using a multiple we thought appropriate for the growth rate while discounting for risks,” ROTH Capital Partners’ Fortune added.

Check out FX Empire’s earnings calendar

European Equities: German Industrial Production and China in Focus

Economic Calendar:

Monday, 8th March

German Industrial Production (MoM) (Jan)

Tuesday, 9th March

German Trade Balance (Jan)

French Non-Farm Payrolls (QoQ) (Q4)

Eurozone GDP (QoQ) (Q4) Final

Eurozone GDP (YoY) (Q4) Final

Thursday, 11th March

ECB Interest Rate Decision (Mar)

ECB Press Conference

Friday, 12th March

German CPI (MoM) (Feb)

Spanish CPI (YoY) (Feb)

Spanish HICP (YoY) (Feb)

Eurozone Industrial Production (MoM) (Jan)

The Majors

It was a bearish end to the week for the European majors on Friday.

On Friday, the DAX30 fell by 0.96%, with the CAC40 and the EuroStoxx600 ending the day with losses of 0.82% and 0.78% respectively.

Economic data from Germany and the U.S failed to reverse losses from early in the day, as U.S Treasury yields climbed further.

For the European markets, it had also been the first opportunity to respond to FED Chair Powell’s post-European session speech.

A lack of commitment to address yields led to a pullback in the U.S equities, which spilled into the European session.

The Stats

It was a relatively busy day on the economic calendar on Friday.  German factory orders were in focus going into the European open.

In January, factory orders increased by 1.4%, coming in ahead of a forecasted 0.7% increase. In December, orders had fallen by 1.9%.

According to Destatis,

  • Compared with January 2020, new orders were up 2.5% and by 3.7% when compared with February 2020.
  • Domestic orders slid by 2.6%, while foreign orders increased by 4.2%, month-on-month.
  • New orders from the euro area rose 3.9%, with new orders from other countries jumping by 4.4%.
  • Manufacturers of intermediate goods saw new orders increase by 0.2%, with new orders of capital goods up 3.3%.
  • Consumer goods manufacturers, however, reported a 5.8% slide in new orders.

From the U.S

It was a busier session, with official government labor market figures for February in focus late in the European session.

Nonfarm payrolls impressed, with a 379K jump in February. The better than expected rise took the unemployment rate down from 6.3% to 6.2%.

In January, nonfarm payrolls had risen by a more modest 166k.

The Market Movers

For the DAX: It was a bullish day for the auto sector on Friday. Volkswagen rallied by 3.68%, with Daimler rising by 1.32%. BMW and Continental saw relatively modest gains of 0.90% and 0.45% respectively.

It was also a bullish day for the banks. Deutsche Bank rallied by 3.59%, with Commerzbank gaining by 0.92%.

From the CAC, it was a mixed day for the banks. BNP Paribas fell by 0.12%, while Credit Agricole and Soc Gen ended the day with gains of 0.87% and 0.57% respectively.

The French auto sector saw further losses. Stellantis NV and Renault fell by 1.04% and by 1.60% respectively.

Air France-KLM and Airbus SE ended the day down by 6.13% and by 4.87% respectively.

On the VIX Index

A run of 3 consecutive days in the green came to an end for the VIX on Friday. Reversing a 7.12% rise from Thursday, the VIX slid by 13.69% to end the day at 24.66.

The NASDAQ rose by 1.55%, with the Dow and S&P500 gaining by 1.85% and by 1.95% respectively.

VIX 08321 Daily Chart

The Day Ahead

It’s quieter day ahead on the European economic calendar. German industrial production figures for January are due out later this morning.

With little else for the markets to consider, we can expect the numbers to influence going into the European session.

From the U.S, there are no material stats to provide direction, leaving the majors in the hands of FOMC member chatter and chatter from Capitol Hill.

Ahead of the European open, any updates from China’s National People’s Congress will need considering.

Trade data from China will also set the tone.

In February, China’s U.S Dollar trade surplus widened from $78.17bn to $103.25bn. Economists had forecast a narrowing to $60.00bn.

Year-on-year, exports jumped by 60.6%, following an 18.1% increase in January. Economists had forecast a 38.9% surge.

Imports rose by 22.2%, following a 6.5% increase in January. Economists had forecast a 15.0% jump.

The Futures

In the futures markets, at the time of writing, the Dow Mini was up by 101 points with the DAX up by 133 points.

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

E-mini NASDAQ-100 Index (NQ) Futures Technical Analysis – Formed Potentially Bullish Reversal Bottom on Friday

March E-mini NASDAQ-100 Index futures posted a dramatic closing price reversal bottom on Friday after touching its lowest level since November 30 earlier in the session. For those scoring at home, this means the recent sell-off has taken away three-month’s worth of gains, while turning the index lower for the year.

None-the-less, we have to respect the chart pattern because if confirmed, it could trigger the start of a minimum 2 to 3 day correction or a 50% to 61.8% correction of the entire break from 13900.50 to 12207.25.

On Friday, March E-mini NASDAQ-100 Index futures settled at 12663.75, up 208.75 or +1.65%.

Daily March E-mini NASDAQ-100 Index

Daily Swing Chart Technical Analysis

The main trend is down according to the daily swing chart, however, the closing price reversal bottom suggests momentum may be getting ready to shift to the upside.

A trade through 12207.25 will negate the closing price reversal bottom, signaling a resumption of the downtrend.

A move through Friday’s high at 12797.00 will confirm the closing price reversal bottom, while a move through 13328.25 turns the main trend to up.

The main range is 10936.25 to 13900.50. Its 50% to 61.8% retracement zone at 12418.25 to 12068.50 stopped the selling on Friday at 12207.25.

The minor range is 13328.25 to 12207.25. Its 50% to 61.8% retracement zone at 12767.75 to 12900.00 is the first upside target area.

The short-term range is 13900.50 to 12207.25. Its retracement zone target is 13054.00 to 13253.75.

The minor and short-term retracement zone are very important to the longer-term structure of the market. Sellers could come in on a test of these areas in an effort to form a potentially bearish secondary lower top.

Short-Term Outlook

The closing price reversal bottom chart pattern indicates the direction of the index on Monday will be determined by trader reaction to 12797.00.

Bullish Scenario

A sustained move over 12797.00 will indicate the presence of buyers. The first target is the minor 50% level at 12767.75, followed by last year’s close at 12885.50 and the minor Fibonacci level at 12900.00.

Turning higher for the year and taking out 12900.00 will indicate the buying is getting stronger. If this move generates enough upside momentum then look for the rally to possibly extend into the short-term retracement zone at 13054.00.

Bearish Scenario

A sustained move under 12797.00 will signal the presence of sellers. This could trigger a retest of the main 50% level at 12418.25. This is followed by the closing price reversal bottom at 12207.25, followed by the main Fibonacci level at 12068.50.

Side Notes

Over the week-end, the U.S. Senate passed President Joe Biden’s Covid Relief Package. Although this has been in the news for weeks, we could see a bullish reaction on Monday. Furthermore, the price action on Friday suggests Treasury yields may have hit a short-term top. If this come off the highs strong then look for NASDAQ stocks to soar.

Additionally, it’s not too early to think about the Fed’s monetary policy decisions on March 17. With Powell’s speech out of the way and the bullish jobs data, there isn’t a lot to think about so traders could begin to take profits and square positions ahead of the FOMC meeting. This could trigger a short-covering rally in the NASDAQ.

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

Microsoft Hit By Worldwide Hack Attack

Dow component Microsoft Corp. (MSFT) could trade lower on Monday after a cybersecurity firm revealed at least 30,000 U.S. organizations, including local governments and small businesses, have been hacked by an aggressive Chinese cyber espionage unit. According to KrebsOnSecurity, the hack  exploits “four newly-discovered flaws in Microsoft Exchange Server email software, and has seeded hundreds of thousands of victim organizations worldwide with tools that give the attackers total remote control over affected systems.”

Microsoft Testing Breakout Support

Mr. Softee has sold off with other big tech names since posting an all-time high in February but has traded better the majority of its mega-cap peers, holding steadfastly to new support generated by a January triangle breakout. It bounced strongly at that price level and the 50-day moving average on Friday, in a perfect position to attract fresh buying interest. However, the post-market bombshell could have the final say on short-term price direction.

The Chinese hacking crew, dubbed “Hafnium”, is believed to be conducting “targeted attacks on email systems used by a range of industry sectors, including infectious disease researchers, law firms, higher education institutions, defense contractors, policy think tanks, and NGOs”. Microsoft responded by releasing an emergency update on Mar. 2, plugging security holes in Exchange Server versions 2013 through 2019.

Wall Street and Technical Outlook

Wall Street consensus has been pristine in the last year, with a ‘Buy’ rating based upon 30 ‘Buy’, 3 ‘Overweight’, and 2 ‘Hold’ recommendations. No analysts are recommending that shareholders close positions and move to the sidelines. Price targets currently range from a low of $245 to a Street-high $315 while the stock ended the week more than $12 below the low target. This weak placement highlights Main Street caution after years of outsized share gains.

Microsoft entered a powerful uptrend in 2016 and hasn’t traded below the 20-month moving average in the last five years. It broke out above the February 2020 high in June, posting strong gains into the September peak at 232.86. Price action then eased into a symmetrical triangle, ahead of a January 2021 breakout that hit an all-time high at 246.13 in February. The stock has been testing new support since that time, with a decline through 224 signaling a failed breakout.

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. 

E-mini Dow Jones Industrial Average (YM) Futures Technical Analysis – Sentiment Shift Rekindles Bullish Tone

March E-mini Dow Jones Industrial Average futures bounced back from a series of setbacks on Friday as stronger-than-expected U.S. jobs data boosted optimism for a speedier economic recovery. The blue chip average received an additional boost as Treasury bond yields eased after soaring earlier in the session in reaction to government report.

On Friday, March E-mini Dow Jones Industrial Average futures settled at 31465, up 587 or +1.87%.

The Dow was led higher by components Apple and Microsoft, which gained 1% and 2% respectively.

While an optimistic outlook for the economy may have stop the selling pressure on Friday, price climbed throughout the session as bond yields retreated from their session highs. The 10-year Treasury yield eased back to 1.55% after popping above 1.6% to touch a 2021 high following data showing a surge in jobs growth.

In breaking news, the Dow could rally early Monday in reaction to the news that the Senate passed a $1.9 trillion coronavirus relief package on Saturday as Democrats rush to send out a fresh round of aid. Although the news may have been priced into the market for weeks, the announcement could trigger strong kneejerk buying especially since some shares have hit oversold territory.

Daily March E-mini Dow Jones Industrial Average

Daily Swing Chart Technical Analysis

The main trend is down according to the daily swing chart. A trade through 30512 will signal a resumption of the downtrend. The main trend will change to up on a move through the record high at 32033.

The minor trend is also down. A trade through 31637 will change the minor trend to up. This will also shift momentum to the upside.

The minor range is 32033 to 30512. On Friday, the Dow closed on the strong side of its 50% level at 31273. Trader reaction to this level is likely to set the tone on Monday.

The short-term range is 29552 to 32033. Its 50% level at 30793 is support.

The main range is 23918 to 32033. Its retracement zone at 30676 to 30355 stopped the selling last week at 30512.

The Dow also found support when buyers came in to defend the December 31 close at 30497.

Short-Term Outlook

The direction of the March E-mini Dow Jones Industrial Average on Monday is likely to be determined by trader reaction to the minor pivot at 31273.

Bullish Scenario

A sustained move over 31273 will indicate the presence of buyers. The first upside target is the minor top at 31637. Taking out this level could create the upside momentum needed to challenge the record high at 32033.

Bearish Scenario

A sustained move under 31273 will signal the presence of sellers. If this generates enough downside momentum then look for the selling to possibly extend into a series of potential support levels at 30793, 30676, 30497 and 30355.

Side Notes

Given the positive news over the weekend, we should know on the pre-market opening whether investors consider the passing of the COVID relief bill as bullish.

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

E-mini S&P 500 Index (ES) Futures Technical Analysis – Covid Relief News Could Fuel Follow-Through Rally

March E-mini S&P 500 Index futures closed higher on Friday, reversing a three-day setback, as government data showing faster-than-expected monthly jobs growth reinforced bets on an economic rebound driven by massive fiscal stimulus and vaccination drives.

The rally came as a surprise after robust non-farm payrolls data drove the benchmark 10-year U.S. Treasury yield to a new one-year high of 1.626%.

On Friday, March E-mini S&P 500 Index futures settled at 3839.00, up 73.50 or +1.91%.

All major S&P 500 sectors rose, led by gains in energy and financial stocks. Rate-sensitive bank stocks rose about 1.6% on prospects of an improved economic outlook.

Daily March E-mini S&P 500 Index

Daily Swing Chart Technical Analysis

The main trend is down according to the daily swing chart. A trade through 3720.50 will signal a resumption of the downtrend. The main trend will change to up on a trade through 3934.50.

The minor range is 3959.25 to 3720.50. Its 50% level at 3840.00 stopped the buying on Friday, but will be an important pivot on Monday.

The short-term 50% level at 3807.75 and the intermediate 50% level at 3777.50 is support.

The main range is 3216.25 to 3959.25. Its retracement zone at 3587.75 to 3500.00 is the major support zone controlling the longer-term trend.

Short-Term Outlook

Based on Friday’s price action, the direction of the March E-mini S&P 500 Index on Monday is likely to be determined by trader reaction to the pivot at 3840.00.

Bullish Scenario

A sustained move over 3840.00 will indicate the presence of buyers. This could trigger a near-term surge into 3934.50. Taking it out could lead to a test of the record high at 3959.25.

Bearish Scenario

A sustained move under 3839.75 will signal the presence of sellers. This could trigger a labored break into a pair of 50% levels at 3807.75 and 3777.50.

If 3777.50 fails as support then look for a retest of last week’s low at 3720.50.

Side Notes

The market could start off on a strong note on Monday after the Senate passed a $1.9 trillion coronavirus relief package on Saturday as Democrats rush to send out a fresh round of aid. Although the news has probably been priced into the market for weeks, we could see some knee-jerk buying especially in the wake of Friday’s strong U.S. jobs report.

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

Earnings to Watch Next Week: MongoDB, Campbell Soup, JD.com and Oracle in Focus

Earnings Calendar For The Week Of March 8

Monday (March 8)

Ticker Company EPS Forecast
PSON Pearson £32.79
CASY Casey’s General Stores $0.95
YQ M17 Entertainment -$0.06
GOCO Gocompare.Com $0.47
DM Dominion Midstream Partners -$0.06
YALA Yalla $0.12

 

Tuesday (March 9)

IN THE SPOTLIGHT: MONGODB

MongoDB Inc, which provides an open-source database platform for automating, monitoring, and deployment backups, is expected to report a loss of $0.39 per share in the fourth quarter, which represents a year-over-year decline of 56% from -$0.25 per share seen in the same quarter a year ago. However, in the last four consecutive quarters, on average, the company has delivered an earnings surprise of over 30%.

New York City-based company would post year-over-year revenue growth of over 27% to $156.97 million.

MongoDB has established itself as one of the most popular databases to support the development of modern net-new apps. Into CY21, we see the business at a crucial inflection point. First, it is poised to garner the majority of revs from its public cloud business – the segment where market growth and share gains are the strongest. Second, the acceleration in customer adds suggests that its go-to-market model has matured to scale a modern, cloud-first business,” said Sanjit Singh, equity analyst at Morgan Stanley.

“As a result, an equation for durable 30%+ growth emerges (20%+ customer base growth with near 120% net-expansion from the existing base) – a growth story that does not look overly demanding given the strategic nature of this asset.”

TAKE A LOOK AT OUR EARNINGS CALENDAR FOR THE FULL RELEASES FOR THE MARCH 9

Ticker Company EPS Forecast
SLA Standard Life Aberdeen PLC £6.04
CMD Cantel Medical Corp $0.51
NAV Navistar International $0.01
DQ Daqo New Energy $1.12
THO Thor Industries $1.57
DKS Dick’s Sporting Goods $2.24
OSH Oak Street Health -$0.23
ABM ABM Industries $0.59
AVAV AeroVironment $0.00
MDB MongoDB Inc -$0.39
HRB H&R Block -$1.19
CLNE Clean Energy Fuels $0.00
ADOOY Adaro Energy ADR $0.05
ITV ITV £5.82

 

Wednesday (March 10)

IN THE SPOTLIGHT: CAMPBELL SOUP

CAMPBELL SOUP: Camden County, New Jersey-based processed food and snack company is expected to report a profit of $0.83 per share in the fiscal second quarter, which represents year-over-year growth of over 15% from $0.72 per share seen in the same quarter a year ago.

In the last four consecutive quarters, on average, the company has delivered an earnings surprise of over 9%. One of the world’s top soup makers would post year-over-year revenue growth of over 6% to $2.3 billion.

“High exposure to secularly challenged soup category: Shelf-stable soup (26.5% of sales) faces headwinds given shifts in preferences toward better-for-you and fresh foods, competition from private label, and pricing pressure. Snacking brands are well-positioned, but face competitive pressures: Milano, Goldfish, Farmhouse, and Snyder’s-Lance have strong brand equity but face high competition from PEP and MDLZ,” said Pamela Kaufman, equity analyst at Morgan Stanley.

“Significant organizational changes over last two years refocused the company and show promise: Divesting non-core businesses and new leadership refreshes the company’s strategic plan, allowing the company to focus on its key segments and geographies.”

TAKE A LOOK AT OUR EARNINGS CALENDAR FOR THE FULL RELEASES FOR THE MARCH 10

Ticker Company EPS Forecast
VERX Vertex Inc. Cl A $0.07
CPB Campbell Soup $0.83
AMC AMC Entertainment -$3.39
SUMO Sumo -$0.12
CLDR Cloudera Inc. $0.11
FNV Franco Nevada $0.70
VNET 21Vianet $0.05
BAK Braskem $1.05
SMTC Semtech $0.48

 

Thursday (March 11)

IN THE SPOTLIGHT: JD.COM, ORACLE

JD.COM: Chinese e-commerce platform JD.com is expected to report a profit of $0.22 in the fourth quarter, which represents year-over-year growth of over 177% from $0.08 per share seen in the same quarter a year ago.

The leading B2C e-commerce player in China, which accounts for over 20% of China’s total B2C online market and over 50% of the online direct sales market, would post year-over-year revenue growth of about 35% to $33.1 billion.

JD’s recent accelerated moves in Community Group Buying business could leverage its advantages in the e-commerce supply chain. Its fast-growing businesses could bring incremental growth momentum into 2021. Maintain Overweight,” said Eddy Wang, equity analyst at Morgan Stanley.

“We forecast that JD’s total revenue will grow 29% YoY in 4Q20, driven by strong demand for electronics and home appliance consumption during promotion season, as well as sustainable strong demand for online FMCG (i.e., JD’s GMV grew 33% YoY during the Double 11 promotion period). Meanwhile, we expect JD to increase its reinvestment to boost consumption in 4Q20, which could drag on its 4Q margin; as such, we forecast that JD’s 4Q20 non-GAAP net margin will reach 0.97% (vs. 0.5% in 4Q19 and 3.19% in 3Q20).”

ORACLE: Austin, Texas-based computer technology corporation is expected to report a profit of $1.11 in the fiscal third quarter, which represents year-over-year growth of over 14% from $0.97 per share seen in the same quarter a year ago.

In the last four consecutive quarters, on average, the company has delivered an earnings surprise of over 5%. One of the largest vendors in the enterprise IT market would post $10.06 billion in sales for the current fiscal quarter, according to Zacks Investment Research. On average, analysts expect that Oracle will report full-year sales of $40.02 billion for the current year, with estimates ranging from $39.44 billion to $40.33 billion.

Oracle’s current low valuation at 13x CY22e EPS reflects its slower growth rate compared to peers. Despite potential opportunities within existing database customers and cloud-based ERP applications, offsets from waning businesses mean 2021 likely lacks the catalysts for the positive inflection in revenue growth investors would need to see to drive multiples higher,” Keith Weiss, equity analyst at Morgan Stanley.

“We see 15% EPS growth in FY21 and 6% in FY22, driven by an aggressive pace of share buybacks. However, cc revenue growth is 2%, in a software sector filled with strong secular growth stories, and just 2% operating income growth points to Oracle potentially reaching peak margins, leaving us Equal-weight at our $67 price target.”

TAKE A LOOK AT OUR EARNINGS CALENDAR FOR THE FULL RELEASES FOR THE MARCH 11

Ticker Company EPS Forecast
JD JD.com $0.22
ULTA Ulta Salon Cosmetics Fragrance $2.18
MTN Vail Resorts $2.03
DOCU DocuSign Inc. $0.22
WPP WPP ADR $2.75
ORCL Oracle $1.11
CELH Celsius $0.03

 

Friday (March 12)

Ticker Company EPS Forecast
SHCAY Sharp ADR $0.08
EBR Centrais Eletricas Brasileiras $0.24

 

European Equities: A Week in Review – 05/03/21

The Majors

After a bearish final week of the month in February, it was a bullish start to the month in March.

The CAC40 rallied by 1.39%, with the DAX30 and the EuroStoxx600 seeing gains of 0.97% and 0.88% respectively.

Through the early part of the week, better than expected manufacturing PMI figures provided the majors with support.

An easing in U.S Treasury yields from the previous week’s spike, however, was the main driver early in the week.

Later in the week, a combination of weak economic data and pickup in yields saw the majors give up some of their earlier gains.

The Stats

It was a busy week on the economic data front, with February private sector PMIs in focus.

Manufacturing PMI numbers impressed, while the services sector continued to struggle as a result of extended containment measures.

Weighed by service sector woes, the Eurozone’s composite PMI rose modestly from 47.8 to 48.8. The overall picture continued to paint a gloomy picture and reflected the downside risks to the Eurozone economy.

Other stats in the week included German and Eurozone retail sales and unemployment figures and German factory orders.

Retail sales figures were particularly disappointing, while both Germany and the Eurozone’s unemployment rates held steady in January.

At the end of the week, factory orders from Germany impressed, rising by a larger than anticipated 1.4%. More significantly, orders were up by 3.7% when compared with Feb-2020, the month prior to the pandemic.

From the U.S

ISM private sector PMI figures for February also delivered mixed results, For the U.S, manufacturing sector activity picked up, while service sector growth slowed.

The all-important ISM Non-Manufacturing PMI fell from 58.7 to 55.3 in February.

Labor market figures ahead of Friday’s nonfarm payrolls also disappointed.

According to the ADP, nonfarm employment increased by just 117k in February, following a 195k increase in January.

Weekly jobless claims were on the rise in the final week of February, with initial jobless claims increasing from 736k to 745k.

At the end of the week, the government’s official labor market numbers wrapped things up.

Nonfarm payrolls impressed, with a 379K jump in February. The better-than-expected rise took the unemployment rate down from 6.3% to 6.2%.

In January, nonfarm payrolls had risen by a more modest 166k.

On the monetary policy front, FED Chair Powell failed to assure the markets of action to stem the rise in yields on Thursday.

A spike in the Dollar and a sell-off in the U.S equity markets had spilled into the European markets on Friday.

The Market Movers

From the DAX, it was a bullish week for the auto sector. Volkswagen surged by 13.27%, with BMW and Daimler rallying by 6.18% and by 6.52% respectively. Continental ended the week up by a more modest 3.53%.

It was also a bullish week for the banking sector. Deutsche Bank rallied by 4.40%, with Commerzbank gaining 1.47%.

From the CAC, it was yet another particularly bullish week for the banks. Credit Agricole rallied by 5.25%, with BNP Paribas and Soc Gen gaining 4.69% and 3.90% respectively.

It was a relatively bullish week for the French auto sector. Renault and Stellantis NV ended the week up by 1.91% and by 3.85% respectively.

Air France-KLM slid by 7.17%, with Airbus ending the week down by 0.51%.

On the VIX Index

It was back into the red for the VIX  in the week ending 5th March. Partially reversing a 26.76% jump from the previous week, the VIX fell by 11.77% to end the week at 24.66.

The VIX had been on track for a 3rd consecutive weekly gain before a Friday rebound from early losses across the U.S equity markets.

For the week, the NASDAQ fell by 2.06%, while the Dow and the S&P500 rose by 1.82% and by 0.81% respectively.

VIX 06321 Weekly Chart

The Week Ahead

It’s a relatively busy week ahead on the economic calendar.

From Germany, industrial production and trade figures for January are due out on Monday and Tuesday.

Expect the industrial production figures to have the greatest impact on the majors.

On Tuesday, finalized 4th quarter GDP numbers for the Eurozone will also draw interest ahead of Eurozone industrial production figures on Friday.

On the inflation front, finalized inflation figures from Germany and Spain are due out at the end of the week. Barring marked upward revisions, however, these should have a muted impact on the majors.

While the stats will provide direction, it will be the ECB press conference on Thursday, however, that will be the main event.

With the markets expecting the ECB to stand past on policy, Lagarde’s view on inflation, yields and the impact on the economy and monetary policy will be key.

From the U.S, the economic calendar is on the lighter side.

On Wednesday, February inflation figures will draw interest ahead of the weekly jobless claim figures on Thursday.

At the end of the week, prelim March consumer sentiment figures will also influence late in the European session.

Following FED Chair Powell’s comments from last week, FOMC member chatter in the week ahead will also need monitoring.

Costco Wholesale Misses Earnings Estimates; Analysts Cut Target Price

Costco Wholesale Corporation, which operates a chain of membership-only big-box retail stores, reported a lower-than-expected profit in the second quarter, prompting several analysts to lower their one-year price targets.

The leading warehouse club reported net income for the quarter of $951 million, or $2.14 per diluted share, which includes $246 million pretax, or $0.41 per diluted share, in costs incurred primarily from COVID-19 premium wages. That was below the market consensus estimates of $2.45.

COST is positioned to comp the comp in the quarters ahead, and we expect will maintain a significant share. Compares getting challenging, but stronger traffic, re-opening driving fuel & other categories should support robust comps. Renewal returned to all-time high of 91.0% as shoppers are satisfied and loyal. We view curbside pickup pilot as a long-term positive,” said Oliver Chen, equity analyst at Cowen and Company.

Net sales for the quarter increased 14.7%, to $43.89 billion, from $38.26 billion last year. Net sales for the first 24 weeks increased 15.8%, to $86.23 billion, from $74.49 billion last year.

Costco Wholesale shares, which surged over 30% in 2020, traded about 3% lower at $311.08 on Friday.

“Our $332 per share valuation of wide-moat Costco should not change much after it announced second-quarter earnings. Its sales growth outpaced our target (12.9% adjusted comparable expansion across the company versus our 12.0% mark), but we expected cost leverage on the heightened revenue that did not materialize (25 basis points of operating margin degradation, to 3.0%, rather than our forecast for 25 basis points of improvement),” said Zain Akbari, equity analyst at Morningstar.

“As the double-digit sales growth is attributable to the pandemic and the margin shortfall to freight and fuel pressures we see as transitory, we continue to expect mid-single-digit percentage sales growth and 3%-4% operating margins over the next 10 years. We suggest investors await a greater margin of safety, as Costco faces an uncertain normalize action of spending habits once the pandemic ebbs.”

Costco Wholesale Stock Price Forecast

Eighteen analysts who offered stock ratings for Costco Wholesale in the last three months forecast the average price in 12 months of $379.44 with a high forecast of $420.00 and a low forecast of $325.00.

The average price target represents a 21.81% increase from the last price of $311.49. Of those 18 analysts, 12 rated “Buy”, six rated “Hold” while none rated “Sell”, according to Tipranks.

Morgan Stanley gave the base target price of $410 with a high of $520 under a bull scenario and $270 under the worst-case scenario. The firm gave an “Overweight” rating on the apparel retail company’s stock.

“Healthy underlying Q2 results, but tough compares are ahead. SG&A leverage (as COVID costs are lapped) should offset gross margin pressure in F’Q3/Q4. We like COST as a longer-term holding – especially as the multiple has come in – but stock may tread water until visibility on COVID laps improves,” said Simeon Gutman, equity analyst at Morgan Stanley.

Several other analysts have also updated their stock outlook. UBS cuts target price to $395 from $415. Oppenheimer cuts target price to $350 from $400. Stifel cuts target price to $370 from $395. BMO cuts target price to $410 from $430. Deutsche bank cuts target price to $344 from $347.

Moreover, Citigroup cuts price target to $360 from $380. Telsey Advisory Group cuts price target to $375 from $430. JP Morgan cuts target price to $369 from $411. D.A. Davidson cuts price target to $325 from $390. Jefferies cuts price target to $405 from $435.

Analyst Comments

COST’s results have consistently been among the best in Retail. Over the past decade, COST has delivered 6% comps and 10% EBIT growth on average. It is rare to find a business with COST’s solid comp/membership growth, while relative e-commerce insulation differentiates its value proposition from other retailers,” Morgan Stanley’s Gutman added.

“We are Overweight even as the stock trades at an elevated valuation given COST’s scarcity value, safety, and scale. In the near-term, we expect incremental sales uplifts from COVID-19 disruption, and earnings power looks stronger despite COVID-19 expenses,” said Morgan Stanley’s Greenberger added.”

Check out FX Empire’s earnings calendar

S&P 500 Price Forecast – The Stock Market Continues to Limp Along

The S&P 500 has initially tried to rally during the course of the trading session on Friday to resource 50 day EMA before pulling back and forming a bit of a negative candlestick. That being said, the market is likely to see the uptrend line underneath showing support, so with that being the case, the market is likely to see a lot of back and forth in this area based upon the interest rate situation in the United States continue to see bond selloff. With those higher rates, that has people freaking out in the stock market, that is exactly what we are seeing here.

S&P 500 Video 08.03.21

The uptrend line that we are testing is one that is more sustainable than the one we broke through on Thursday, so I think we are more than likely going to see a bit of buying pressure. Underneath there, then the market is likely to go looking towards the 3600 level. The 3600 level of course is a large, round, psychologically significant figure that can also offer support in and of itself. The 200 day EMA is sitting above the 3500 level that should go looking towards the 3600 level, so with all this being said I do think that it is only a matter of time before we have value hunters coming back into the marketplace. If we do break down below the 3600 level, then I like buying puts. I will not short this market, it is a good way to lose money in a scenario where the Federal Reserve can step in at any moment and cause havoc.

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

Why Tesla Shares Are Down By 10% Today?

Tesla Video 05.03.21.

Tesla Moves Lower Amid Broad Sell-Off In EV Stocks

We have recently discussed why shares of Tesla are in a bear market but the situation is developing fast, and Tesla stock moved to new lows.

Today, Tesla shares are down by about 10% while S&P 500 is losing some ground in volatile trading. The main reason for the current downside move is the sell-off in the electric vehicle space. Investors are rushing out of their speculative EV investments as they look worried about valuation of high-flying tech stocks.

In my opinion, the recent rise of U.S. Treasury yields has pushed investors to evaluate their portfolios and focus on the current valuation of the companies.

Valuations have been rich for many months. However, the market has recently started to pay attention to them so valuations may ultimately begin to have a notable impact on the trading dynamics of EV stocks.

What’s Next For Tesla?

In Tesla’s case, the stock continues to trade at very high levels on almost every multiple so the company’s market capitalization depends on the market mood.

The stock has already declined by more than 35% from the highs that were reached back in January, so it may soon attract bargain hunters who will be willing to bet on the leading EV company after the major pullback.

At the same time, Tesla cannot count on any support from valuation-oriented investors as it remains very expensive. Thus, the stock will likely need a change of market mood towards riskier stocks in order to find support and get back to the upside mode.

It should be noted that legacy automakers like Ford or General Motors are trading close to their recent highs so the current sell-off in EV stocks highlights investors’ concern about their valuation rather than any doubts about the future of the auto industry.

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

3… 2… 1… Let the Corrective Gold Rally Begin

Folks, it seems that gold has formed an interim bottom, and a short-term corrective upswing is now likely, before the medium-term downtrend resumes.

Any further declines from this point are not likely to be significant for the short-term. The same applies to silver and the miners.

In yesterday’s (Mar. 4) intraday Gold & Silver Trading Alert , I described briefly why I think that the very short-term bottom is already in (or is at hand), and in today’s analysis, I’ll illustrate my points with charts. Let’s start with gold.

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Figure 1 – COMEX Gold Futures (GC.F)

Gold just reached its 61.8% Fibonacci retracement level (based on the entire 2020 rally), and it just bounced off the declining red support line based on the August and November 2020 bottoms.

Gold didn’t reach the previous 2020 lows just yet, but it moved very close to them and the two strong above-mentioned support levels could be enough to trigger a corrective upswing. After all, no market can move up or down in a straight line without periodic corrections.

I previously wrote that when gold moves $1,693 we’ll be closing any remaining short positions, and when gold moves to $1,692, we’ll automatically open long positions in the miners. Since gold moved below $1,690, that’s exactly what happened.

Yesterday (Mar. 4), gold futures were trading below $1,692 for about 10 minutes, so if you acted as I had outlined it in the Gold & Silver Trading Alerts, you made your purchases then. The GDX ETF was trading approximately between $30.80 and $31 (NUGT was approximately between $49.30 and $50) at that time – this seems to have been the exact daily bottom.

One of the bullish confirmations came from the silver market .

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Figure 2 – COMEX Silver Futures

I previously wrote that silver is likely to catch up with the decline at its later stage, while miners are likely to lead the way.

While gold miners showed strength yesterday, silver plunged over 4% before correcting part of the move. Yesterday’s relative action showed that this was most likely the final part of a short-term decline in the precious metals sector, and that we should now expect a corrective rebound, before the medium-term decline resumes. If not, it seems that the short-term bottom is at hand and while silver might still decline somewhat in the very short term, any declines are not likely to be significant in case of the mining stocks. At least not until they correct the recent decline by rallying back up.

Speaking of mining stocks, let’s take a look at the GDX ETF chart.

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Figure 3 – VanEck Vectors Gold Miners ETF (GDX)

Mining stocks showed strength yesterday. Even though gold moved visibly to new yearly lows, the GDX didn’t move to new intraday lows. The GDXJ did move to new intraday lows, but the decline was relatively small compared to what happened in gold and to what happened on the general stock market. The latter declined substantially yesterday and the GDXJ is more correlated with it than GDX – hence GDXJ’s underperformance was normal. Still, compared to both gold’s decline and stocks’ decline, the GDXJ and GDX declined very little.

The price level at which miners showed strength matters greatly too. Miners stopped their decline practically right in my target area, which I based on the 50% Fibonacci retracement and the 2020 highs and lows. Moreover, the proximity of the $31 level corresponds to the 2019 high and the 2016 high. Since so many support levels coincide at the same price (approximately), the latter is likely to be a very strong support.

Moreover, the RSI was just close to 30, which corresponded to short-term buying opportunities quite a few times in the past.

How high are miners likely to rally from here before turning south once again? The nearest strong resistance is provided by the neck level of the previously broken head and shoulders pattern, which is slightly above $34.

Also, let’s keep in mind the mirror similarity in case of the price action that preceded the H&S pattern and the one that followed it. To be precise, we know that the second half of the pattern was similar to its first half (including the shape of pattern’s shoulders), but it’s not yet very clear if the follow-up action after the pattern is going to be similar to the preceding price action. It seems quite likely, though. If this is indeed the case, then the price moves that I marked using green and purple lines are likely to be at least somewhat similar.

This means that just as the late-April 2020 rally was preceded by a counter-trend decline, the recent decline would likely be followed by a counter-trend rally. Based on the size of the April counter-trend move, it seems that we could indeed see a counter-trend rally to about $34 this time.

There’s also an additional clue that might help you time the next short-term top, and it’s the simple observation that it was relatively safe to exit one’s long positions five trading days after the bottom.

That rule marked the exact bottom in November 2020, but it was also quite useful in early February 2021. In early December 2020, it would take one out of the market only after the very first part of the upswing, but still, let’s keep in mind that it was the “easy” part of the rally. The same with the October 2020 rally. And now, since miners are after a confirmed breakdown below the broad head and shoulders pattern, it’s particularly important not to miss the moment to get back on the short side of the market, as the next move lower is likely to be substantial. Therefore, aiming to catch the “easy” part of the corrective rally seems appropriate.

So, if the bottom was formed yesterday, then we can expect to take profits from the current long position off the table close to the end of next week.

Finally, let’s take a look at the USD Index.

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Figure 4 – USD Index

While the medium-term breakout continues to be the most important technical development visible on the above chart (with important bullish implications for the following months), there is one factor that could make the USD Index decline on a temporary basis.

This factor is the similarity to the mid-2020 price pattern. I previously commented on the head and shoulders pattern that had formed (necklines are marked with dashed lines), but that I didn’t trust. Indeed, this formation was invalidated, but a bigger pattern, of which this formation was part, wasn’t invalidated.

The patterns start with a broad bottom and an initial rally. Then it turns out that the initial rally is the head of a head-and-shoulders pattern that is then completed and invalidated. This is followed by a sharp rally, and then a reversal with a sizable daily decline.

So far, the situations are similar.

Last year, this pattern was followed by a decline to new lows. Now, based on the breakout above the rising medium-term support line, such a bearish outcome doesn’t seem likely, but we might see the pattern continue for several more days, before they disconnect. After all, this time, the USD Index is likely to really rally – similarly to how it soared in 2018 – and not move to new lows.

What happens before the patterns disconnect? The USD Index could decline temporarily.

Back in November 2020, the second top was below the initial one, and we just saw the USD Index move to new yearly high. Did the self-similar pattern break yet? In a way yes, but it doesn’t mean that the bearish implications are completely gone.

In mid-2020, the USD Index topped after moving to the previous important intraday low – I marked it with a horizontal line on the above chart.

Right now, the analogous resistance is provided by the September 2020 bottom and at the moment of writing these words, the USD Index moved right to this level.

Consequently, it could be the case that we see a decline partially based on the above-mentioned resistance and partially based on the remaining self-similar pattern. The latter would be likely to lose its meaning over the next several days and would be decisively broken once the USD Index rallies later in March. The above would create a perfect opportunity for the precious metals sector to correct the recent decline – and for miners (GDX ETF) to rally to $34 or so.

Please note that if gold rallies here – and it’s likely to – then this will be the “perfect” time for the gold and stock market permabulls to “claim victory” and state that the decline is over and that they were right about the rally all along. Please be careful when reading such analyses in the following days, especially if they come from people that have always been bullish. If someone is always bullish, the odds are that they won’t tell you when the next top is going to be (after all, this would imply that they stop being bullish for a while).

Just because anyone can publish an article online, doesn’t mean that they should, or that others should follow their analyses. The internet is now replete people who claim to have expertise in the markets, and we all saw what happened to the profits of those who bought GameStop at $300. It’s the same thing that happened to the profits of those who were told since the beginning of this year that gold is going to rally – they turned into losses. What we see as well are internet echo chambers, where you are more likely to only read articles that express what you already agree with, instead of being exposed to differing viewpoints that shed light on other critical factors.

Gold is likely to rally from here, but it’s highly unlikely that this was the final bottom, and that gold can now soar to new highs. No. The rally in the USD Index has only begun and while it could pull back, it’s likely to soar once again, similarly to how it rallied in 2018. And gold is likely to respond with another substantial wave lower. This doesn’t mean we’re permabears either or that we want to see gold fail. On the contrary, gold has a bright future ahead, but not before it goes through a medium-term decline after this corrective rally is over.

Thank you for reading our free analysis today. Please note that the above is just a small fraction of today’s all-encompassing Gold & Silver Trading Alert. The latter includes multiple premium details such as the targets for gold and mining stocks that could be reached in the next few weeks. If you’d like to read those premium details, we have good news for you. As soon as you sign up for our free gold newsletter, you’ll get a free 7-day no-obligation trial access to our premium Gold & Silver Trading Alerts. It’s really free – sign up today.

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

Przemyslaw Radomski, CFA
Founder, Editor-in-chief
Sunshine Profits: Effective Investment through Diligence & Care

* * * * *

All essays, research and information found above represent analyses and opinions of Przemyslaw Radomski, CFA and Sunshine Profits’ associates only. As such, it may prove wrong and be subject to change without notice. Opinions and analyses are 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 deemed to be accurate, Przemyslaw Radomski, 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. Radomski is not a Registered Securities Advisor. By reading Przemyslaw Radomski’s, CFA 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. Przemyslaw Radomski, 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.

 

Correction for Nasdaq- More Indices to Follow?

Well, I was right to doubt him. The market didn’t like his change in tone Thursday (Mar. 5).

You see, when bond yields are rising as fast as they have, and Powell is maintaining that Fed policy won’t change while admitting that inflation may ” return temporarily ,” how are investors supposed to react? On the surface, this may not sound like a big deal. But there are six things to consider here:

  1. It’s a significant backtrack from saying that inflation isn’t a concern. By admitting that inflation “could” return temporarily, that’s giving credence to the fact that it’s inevitable.
  2. The Fed can’t expect to let the GDP scorch without hiking rates. If inflation “temporarily returns,” who is to say that rates won’t hike sooner than anyone imagines?
  3. Fool me once, shame on me, fool me twice…you know the rest. If Powell changed his tune now about inflation, what will he do a few weeks or months from now when it really becomes an issue?
  4. Does Jay Powell know what he’s doing, and does he have control of the bond market?
  5. A reopening economy is a blessing and a curse. It’s a blessing for value plays and cyclicals that were crushed during COVID and a curse for high-flying tech names who benefitted from “stay-at-home” and low-interest rates.
  6. The Senate will be debating President Biden’s $1.9 trillion stimulus plan. If this passes, as I assume it will, could it actually be worse for the economy than better? Could markets sell-off rather than surge? Once this passes, inflation is all but a formality.

Look, it’s not the fact that bond yields are rising that are freaking out investors. Bond yields are still at a historically low level, and the Fed Funds Rate remains 0%. But it’s the speed at which they’ve risen that are terrifying people.

According to Bloomberg , the price of gas and food already appear to be getting a head start on inflation. For January, Consumer Price Index data also found that the cost of food eaten at home rose 3.7 percent from a year ago — more than double the 1.4 percent year-over-year increase in all goods included in the CPI.

The month of January. Can you imagine what this was like for February? Can you imagine what it will be like for March?

I’m not trying to sound the alarm- but be very aware. These are just the early warning signs.

So, where do we go from here? Time will tell. While I still do not foresee a crash like we saw last March and feel that the wheels remain in motion for a healthy 2021, that correction that I’ve been calling for has already started for the Nasdaq. Other indices could potentially follow.

Finally.

Corrections are healthy and normal market behavior, and we have been long overdue for one. Only twice in the last 38 years have we had years WITHOUT a correction (1995 and 2017).

Most importantly, this correction could be an excellent buying opportunity.

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

There’s always a bull market somewhere, and valuations, while still somewhat frothy, are at much more buyable levels now.

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

With that said, to sum it up:

There is optimism but signs of concern. A further downturn by the end of the month is very possible, but I don’t think that a decline above ~20%, leading to a bear market, will happen.

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

Nasdaq– From Overbought to Oversold in 3 Weeks?

Figure 1- Nasdaq Composite Index $COMP

The Nasdaq is finally in correction territory! I have been waiting for this. It’s been long overdue and valuations, while still frothy, are much more buyable. While more pain could be on the horizon until we get some clarity on this bond market and inflation, its drop below 13000 is certainly buyable.

The Nasdaq has also given up its gains for 2021, its RSI is nearly oversold at about 35, and we’re almost at a 2-month low.

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

Plus, it’s safe to say that Cathie Wood, the guru of the ARK ETFs, is the best growth stock picker of our generation. Bloomberg News ’ editor-in-chief emeritus Matthew A. Winkler seems to think so too. Her ETFs, which have continuously outperformed, focus on the most innovative and disruptive tech companies out there. Not to put a lot of stock in one person. But it’s safe to say she knows a thing or two about tech stocks and when to initiate positions- and she did a lot of buying the last few weeks.

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

I also think it’s an outstanding buying opportunity for big tech companies with proven businesses and solid balance sheets. Take Apple (AAPL), for example. It’s about 30% off its all-time highs. That is what I call discount shopping.

What’s also crazy is the Nasdaq went from overbought 3 weeks ago to nearly oversold this week. The Nasdaq has been trading in a clear RSI-based pattern, and we’re at a very buyable level right now.

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

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

For more of my thoughts on the market, such as the streaky S&P, inflation, and emerging market opportunities, sign up for my premium analysis today.

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

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

* * * * *

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

 

E-mini S&P 500 Index (ES) Futures Technical Analysis – Weakens Under 3777.50, Strengthens Over 3808.00

March E-mini S&P 500 Index futures are trading higher shortly before the cash market opening on Friday after government data showed larger-than-expected jobs growth in February, reinforcing bets on an economic rebound driven by massive fiscal stimulus and vaccination drives, according to Reuters.

The rally is taking place despite another rise in U.S. Treasury yields, which is causing a little divergence in the market, but on the other hand, may be signaling the start of a counter-trend recovery in the benchmark index. That’s a fancy way of saying the market was oversold and ripe for a recovery.

At 14:39 GMT, March E-mini S&P 500 Index futures are trading 3810.25, up 44.75 or +1.19%.

The price action could be suggesting the market may be moving into a consolidation phase ahead of the March 17 Federal Reserve monetary policy decisions. Powell told the market how he felt on Thursday so investors really have nothing to fear from the Fed, in my opinion, until the FOMC meeting.

Daily March E-mini S&P 500 Index

Daily Swing Chart Technical Analysis

The main trend is down according to the daily swing chart. A trade through 3720.50 will signal resumption of the downtrend with 3656.50 the next major target.

The main trend will change to up on a move through 3934.50, followed by the record high at 3959.25.

The main range is 3216.25 to 3959.25. Its retracement zone is the major support controlling the longer-term direction of the index.

The intermediate range is 3596.00 to 3959.25. Traders are trying to turn its 50% level at 3777.50 into support.

The short-term range is 3656.50 to 3959.25. The index is currently testing its 50% level at 3808.00.

The minor range is 3959.25 to 3720.50. Its 50% level at 3840.00 is potential resistance and a trigger point to the upside.

Daily Swing Chart Technical Forecast

The direction of the E-mini S&P 500 Index on Friday will be determined by trader reaction to 3777.50 and 3808.00.

Bearish Scenario

A sustained move under 3777.50 will indicate the presence of sellers. This could trigger a move into yesterday’s low at 3720.50. Taking out this level will indicate the selling is getting stronger with 3656.50 the next major target.

If 3656.50 fails as support then look for the selling to extend into 3587.75 to 3500.00.

Bullish Scenario

A sustained move over 3808.00 will signal the presence of buyers. The first upside target is 3840.00. This is the last potential support before the 3934.50 and 3959.25 main tops.

Side Notes

Be careful trading inside 3777.50 to 3808.00. You could get chopped up.

If March 10-year U.S. Treasury notes turn positive, the index could surge to the upside.

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

Stocks Retreat Despite Strong Non Farm Payrolls Report

Treasury Yields Continue To Move Higher After Powell Fails To Calm Markets

Yesterday, S&P 500 found itself under pressure while Treasury yields moved higher after Fed Chair Jerome Powell did not signal that the Fed would do anything specific about the recent sell-off in the bond market.

Powell stated that the Fed was monitoring the current situation and that it had tools to support markets if necessary. However, investors clearly wanted to hear more about potential measures to stop the upside trend in Treasury yields.

Meanwhile, rising yields provided additional support to the U.S. dollar which rallied against a broad basket of currencies. Not surprisingly, precious metals were under pressure in such environment. Currently, gold is trying to settle below the $1700 level. If this attempt is successful, shares of gold miners will have a challenging start of today’s trading session.

Oil Tries To Settle Above The $65 Level As OPEC+ Maintains Current Production Cuts

OPEC+ surprised the market as it decided to maintain current production cuts, including Saudi Arabia’s voluntary cut of 1 million barrels per day (bpd). Other OPEC+ members will also keep current production cuts in place although Russia was allowed to increase its production due to seasonal needs.

Most analysts expected that at least 1 million bpd will return to the market in April so OPEC+ decision was not priced in by the market. As a result, WTI oil rallied and is currently trying to settle above the psychologically important $65 level.

I’d note that the recent EIA Weekly Petroleum Status Report indicated that U.S. domestic oil production did not fully recover after the recent blow dealt by cold weather so the current market situation remains bullish.

Unemployment Rate Declines To 6.2%

The U.S. has just provided Non Farm Payrolls and Unemployment Rate reports for February.

Non Farm Payrolls report indicated that the U.S. economy added 379,000 jobs in February compared to analyst consensus of 182,000. Meanwhile, Unemployment Rate declined from 6.3% to 6.2% while analysts expected that it would remain unchanged at 6.3%.

Interestingly, S&P 500 futures are losing ground after the release of the better-than-expected employment reports. Perhaps, the market is worried that the economy will get overheated after the new round of stimulus.

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

Apparel Retailer Gap Tops Q4 Earnings Estimates; Forecasts Sales Growth in 2021

San Francisco, California-based apparel retailer Gap Inc reported better-than-expected earnings in the fourth quarter and said it expects this year’s sales to reflect mid-to high-teens growth versus last year, sending its shares up over 4% in extended trading on Thursday.

The U.S. specialty apparel retailer said its comparable sales were flat in the quarter, including a 49% increase in online sales and total net sales fell 5% due to store closures and COVID-19 impacts. Store sales declined by 28% in the quarter, with impacts from the pandemic and strategic closures noted above.

Gap reported earnings per share of 28 cents, 9 cents more than Wall Street’s expectations. For the fiscal year 2021, the company expects diluted earnings per share to be in the range of $1.20 to $1.35.

Following this optimism, Gap shares, which surged over 14% in 2020, rose over 4% to $25.42 in after-trading hours on Thursday.

“4Q was mixed – with signs of the company’s Power Plan taking hold in the form of significant occupancy leverage, lower markdowns, and a better trend at the core Gap brand, offset by a moderating trend at Old Navy.  Margin enhancing initiatives are encouraging, but we look for greater clarity around Old Navy, which remains the key profit driver for GPS. Reiterate Hold,” said Janine Stichter, equity analyst at Jefferies.

Gap Stock Price Forecast

Five analysts who offered stock ratings for Gap in the last three months forecast the average price in 12 months of $25.40 with a high forecast of $28.00 and a low forecast of $22.00.

The average price target represents a 0.08% increase from the last price of $25.38. From those five analysts, one rated “Buy”, four rated “Hold” while none rated “Sell”, according to Tipranks.

Morgan Stanley gave the base target price of $29 with a high of $42 under a bull scenario and $14 under the worst-case scenario. The firm gave an “Equal-weight” rating on the apparel retail company’s stock.

“4Q GM expansion & controlled SG&A spend bring the 10% EBIT margin target back into view. But management must deliver sales acceleration for positive EPS revisions, the key unlock to further stock price appreciation given high valuation. Raise price target to $29; stay Equal-weight as we await signs of revenue acceleration,” said Kimberly C Greenberger, equity analyst at Morgan Stanley.

Several other analysts have also updated their stock outlook. JP Morgan raised the target price to $32 from $30. RBC upped the price objective to $30 from $28. B Riley increased the stock price forecast to $27 from $22. Jefferies raised the price target to $25 from $24. UBS upped the target price to $25 from $22.

Analyst Comments

GPS is in need of significant transformation. However, we are more positive on the LT forecast given new management’s commitment to fleet and corporate downsizing. The separation work and COVID-19 were the catalysts GPS needed to downsize its business, as reflected by management’s comprehensive plan for the business outlined at its 2020 Investor Day,” said Morgan Stanley’s Greenberger added.

“Our fundamental concerns remain (falling store traffic, eComm disintermediation, declining brand health, apparel price deflation, falling margins), but are exacerbated in the NT due to COVID-19. A portion of GPS‘ portfolio value proposition is less competitive, as Gap brand and BR require significant transformation; ON and Athleta are bright spots.”

Check out FX Empire’s earnings calendar

E-mini NASDAQ-100 Index (NQ) Futures Technical Analysis – Strengthens Over 12418.50, Weakens Under 12068.50

March E-mini NASDAQ-100 Index futures are trading lower shortly before the release of the February U.S. Non-Farm Payrolls report and the cash market opening.

The government will release its February Non-Farm Payrolls report at 13:30 GMT. The headline number is expected to show the economy added 210,000 new jobs, compared to just 49,000 in January, according to Dow Jones. Average Hourly Earnings are expected to increase 0.2% and the Unemployment Rate is expected to hold steady at 6.3%.

At 10:27 GMT, March E-mini NASDAQ-100 Index futures are trading 12401.50, down 53.50 or -0.43%.

On Thursday, the technology index finished sharply lower, leaving the NASDAQ Composite down around 10% from its February high, after markets from Federal Reserve Chair Jerome Powell disappointed investors worried about rising longer-term U.S. bond yields.

Trading Tip:  Don’t trade off of the headline jobs number. Use the June 10-year Treasury note for guidance. There are just too many Non-Farm guesses out there. You won’t be able to tell if it’s bullish or bearish. You also may want the T-notes to settle before making your move. Sometimes there is a reaction to the headline number and a different reaction to the unemployment rate. This causes whipsaw price action. Don’t force a trade either. Sometimes there is little reaction to this report.

If T-notes are moving lower, rates are rising. This tends to be bearish for stocks.  If T-notes are moving higher, rates are falling. This tends to be bullish for stocks.

Daily March E-mini NASDAQ-100 Index

Daily Swing Chart Technical Analysis

The main trend is down according to the daily swing chart. A trade through 12217.00 will reaffirm the downtrend. The main trend will change to up on a move through 13328.25. This is not likely, but there is room for a minor reversal to the upside.

The main range is 10936.25 to 13900.50. The index is currently testing its retracement zone at 12418.50 to 12068.50. Trader reaction to this zone will determine the longer-term direction of the index.

Daily Swing Chart Technical Forecast

The direction of the March E-mini NASDAQ-100 Index futures contract on Friday is likely to be determined by trader reaction to the main 50% level at 12418.50.

Bullish Scenario

A sustained move over 12418.50 will indicate the presence of buyers. Turning higher for the session will indicate the shorts are covering or counter-trend traders are buying. This could trigger a rally into perhaps 12816.50. This is a minor 50% level so it will move down as the market moves lower.

Bearish Scenario

A sustained move under 12418.25 will signal the presence of sellers. If this creates enough downside momentum then look for the selling to possibly extend into the main Fibonacci level at 12068.50. We could see a technical bounce on the first test of this level, but taking it out could trigger an acceleration to the downside.

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

E-mini Dow Jones Industrial Average (YM) Futures Technical Analysis – Stronger Over 30793, Weaker Under 30355

March E-mini Dow Jones Industrial Average futures are edging slightly lower during the pre-market session on Friday following a steep break the previous session amid another sharp rise in U.S. Treasury yields.

The overnight volume is relatively light and the trading range tight as investors eye the February jobs report, which is set to be released at 13:30 GMT. Economists expect to see that 210,000 payrolls were added in February, compared to just 49,000 in January, according to Dow Jones.

At 06:55 GMT, March E-mini Dow Jones Industrial Average futures are trading 30856, down 22 or -0.07%.

Thursday’s sell-off was triggered by Federal Reserve Chair Jerome Powell’s remarks on rising bond yields. He said the recent run-up caught his attention but he didn’t give any indication of how the central bank would rein it in. Some investors had expected the Fed chair to signal his willingness to adjust the Fed’s asset purchase program.

Daily March E-mini Dow Jones Industrial Average

Daily Swing Chart Technical Analysis

The main trend is down according to the daily swing chart. A trade through 30512 will signal a resumption of the downtrend. The main trend will change to up on a move through 32033. This is highly unlikely but six days down from this top means we should start watching for a closing price reversal bottom.

The minor trend is also down. A trade through 31637 will change the minor trend to up. This will shift momentum to the upside.

The short-term range is 29552 to 32033. The Dow is currently trading its 50% level at 30793.

The main range is 23918 to 32033. On Thursday, the Dow found support inside its retracement zone at 30676 to 30355. This zone is controlling the near-term direction of the Dow.

The minor range is 32033 to 30512. Its 50% level at 31273 is the primary upside target. Since the main trend is down, sellers are likely to come in on the first test of this level.

Daily Swing Chart Technical Forecast

The early price action suggests the direction of the March E-mini Dow Jones Industrial Average on Friday will be determined by trader reaction to the 50% level at 30793.

Bullish Scenario

A sustained move over 30793 will indicate the presence of buyers. If this move generates enough upside momentum then look for a potential rally into the minor pivot at 31273. Sellers could come in on the first test of this level. Overcoming this level with conviction will be bullish.

Bearish Scenario

A sustained move under 30793 will signal the presence of sellers. This could lead to a labored sell-off with the main 50% level at 30676 the first target, followed by last year’s close at 30497 and the main Fibonacci level at 30355.

The Fibonacci level at 30355 is a potential trigger point for an acceleration to the downside with the February 1 main bottom at 29552 the next potential downside target price.

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

European Equities: German Factory Orders and U.S Nonfarm Payrolls in Focus

Economic Calendar:

Friday, 5th March

German Factory Orders (MoM) (Jan)

The Majors

It was a mixed day for the European majors on Thursday.

Mixed economic data from the Eurozone and the U.S provided little support for the European boerses.

The lingering fear of the impact of reinflation on monetary policy continued to weigh on the majors late in the week.

On Thursday, the DAX30 the EuroStoxx600 fell by 0.17% and by 0.38% respectively, while the CAC40 rose by 0.01%.

The European majors came under further pressure as the markets responded to a pickup in U.S Treasury yields on the day.

The Stats

It was a relatively busy day on the economic calendar on Thursday.  Key stats from the Eurozone included Eurozone retail sales figures along with January’s unemployment rate.

Retail sales slid by 5.9% in January, reversing a downwardly revised 1.8% increased from December. Economists had forecast a more modest 1.1% fall.

Year-on-year, retail sales fell by 6.4% across the Eurozone in January, which was worse than a forecasted 1.2% decline. In December, retail sales had risen by an upwardly revised 0.9%.

According to Eurostat,

  • Month-on-month, non-food product sales slid by 12.0%, with automotive fuel sales by 1.1%.
  • There was a 1.1% increase in the sales of food, drinks, and tobacco.
  • By member state, Austria (-16.6%), Ireland (-15.7%), and Slovakia (-11.1%) registered the largest falls.
  • Estonia registered the largest increase, rising by a relatively modest 1.7%.

While retail sales figures disappointed, the Eurozone’s unemployment rate held steady at 8.1% in January. December’s unemployment rate was revised down from 8.3% to 8.1%.

According to Eurostat,

  • While stable at 8.1%, this was up from January 2020’s 7.4%.

Ahead of today’s key stats, construction PMI figures from Germany failed to impress. In February, the IHS Markit Construction PMI slid from 46.6 to 41.0.

From the U.S

Weekly jobless claim figures were in focus along with January factory orders late in the European session.

In the week ending 26th February, initial jobless claims increased from 736k to 745k. Economists had forecast a rise to 750k.

Factory orders were positive for riskier assets. In January, factory orders increased by 2.6%, following a 1.6% rise in December. Economists had forecast a 2.1% increase.

The Market Movers

For the DAX: It was a mixed day for the auto sector on Thursday. Volkswagen rallied by 2.02%, with Continental and Daimler rising by 0.16% and by 1.15% respectively. BMW bucked the trend, however, falling by 0.32%.

It was a bearish day for the banks. Deutsche Bank slid by 3.16%, with Commerzbank falling by 1.34%.

From the CAC, it was a bearish day for the banks. BNP Paribas fell by 0.14%, with Credit Agricole and Soc Gen seeing heavier losses of 1.30% and 1.23% respectively.

The French auto sector also struggled. Stellantis NV and Renault fell by 0.25% and by 0.50% respectively.

Air France-KLM and Airbus SE ended the day down by 1.08% and by 0.16% respectively.

On the VIX Index

It was a 3rd consecutive day in the green for the VIX on Thursday. Following a 10.66% gain on Wednesday, the VIX rose by 7.12% to end the day at 28.57.

The NASDAQ slid by 2.11%, with the Dow and S&P500 falling by 1.11% and by 1.34% respectively.

VIX 05321 Daily Chart

The Day Ahead

It’s quieter day ahead on the European economic calendar. German factory order numbers for January are due out later this morning.

Expect any heavy fall in orders to raise questions over the recent uptrend in German survey-based figures.

Back in January, Germany’s Manufacturing PMI survey had reported a continued rise in new orders, albeit at a slower pace than in December.

From the U.S, nonfarm payrolls and February’s unemployment rate will also garner plenty of interest later in the day.

Ahead of the European open, China Premier Li Keqiang’s National People’s Congress speech will draw interest.

The Futures

In the futures markets, at the time of writing, the Dow Mini was down by 12 points.

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