Daily Gold News: Tuesday, September 1 – Precious Metals Higher Again

The gold futures contract gained 0.19% on Monday, as it remained close to short-term highs. The market bounced off following the recent decline after Thursday’s Fed Chair Powell speech. Gold reversed from its new record high of $2,089.20 on August 7 after much better than expected Nonfarm Payrolls release, among other factors. The following upward correction reached a local high of $2,024.60 on August 18. Since then gold has been fluctuating, as we can see on the daily chart:

Gold is 1.2% higher this morning, as it is extending the short-term advance. What about the other precious metals? Silver gained 2.89% on Monday and today it is 2.6% higher. Platinum lost 0.22% and today it is 2.7 % higher. Palladium gained 2.14% on Monday and today it’s 2.0% higher. So precious metals are gaining again this morning.

Yesterday we didn’t get any important economic data announcements. Today there will be U.S. ISM Manufacturing PMI release at 10:00 a.m. The financial markets will be waiting for Friday’s monthly jobs data release.

Below you will find our Gold, Silver, and Mining Stocks economic news schedule for the next two trading days:

Tuesday, September 1

  • 12:30 a.m. Australia – Cash Rate, RBA Rate Statement
  • 3:55 a.m. Eurozone – German Final Manufacturing PMI, German Unemployment Change
  • 9:30 a.m. Canada – Manufacturing PMI
  • 9:45 a.m. U.S. – Final Manufacturing PMI
  • 10:00 a.m. U.S. – ISM Manufacturing PMI, Construction Spending m/m, ISM Manufacturing Prices
  • 9:30 p.m. Australia – GDP q/q

Wednesday, September 2

  • 8:15 a.m. U.S. – ADP Non-Farm Employment Change
  • 10:00 a.m. U.S. – FOMC Member Williams Speech, Factory Orders m/m
  • 12:00 a.m. U.S. – FOMC Member Mester Speech
  • 2:00 p.m. U.S. – Beige Book
  • 9:45 p.m. China – Caixin Services PMI

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

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

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

* * * * *

Disclaimer

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

 

Zoom Video Shares Stream Higher After Knockout Earnings

Zoom Video Communications, Inc. (ZM) added 22.74% in after-hours trade Monday after the video conferencing company reported blowout quarterly results as people and businesses rushed to the platform to stay connected while staying closer to home during the pandemic.

The firm posted adjusted earnings of 92 cents per share on revenues of $663.52 million. Analysts had expected a profit of 45 cents a share and sales of $500.5 million. Moreover, top- and bottom-line growth increased by 355% and 1050%, respectively, from the year-ago period.

Management cited an accelerated shift to remote working, distance learning, and socializing for the better-than-expected quarter. “Organizations are shifting from addressing their immediate business continuity needs to supporting a future of working anywhere, learning anywhere, and connecting anywhere on Zoom’s video-first platform,” CEO Eric Yuan said in a statement cited by Barron’s.

As of Sept. 1, 2020, Zoom stock has a market capitalization of $91.71 billion and trades a whopping 378% higher on the year. In the past three months alone, the shares are up 80%. However, the stock comes with a lofty valuation, trading at over 200 times projected earnings.

Looking Ahead

The company substantially hiked its guidance for the current quarter, now expecting earnings per share (EPS) of 73- to 74 cents and revenues of $2.37 million to $2.39 million. It had previously forecast EPS of 35 cents on sales of $493 million.

Wall Street Outlook

Analysts remain bullish on Zoom Video stock on the back of more users signing up for paid plans after trialing a free account earlier in the pandemic. Research firms are also impressed with the company’s ability to grow its market share. “Zoom has captured the biggest portion of market share, increasing from 34% of total MAU’s back in March, to over 48% as of July 24th,” JP Morgan analysts wrote in a recent note to clients. The stock currently receives 11 ‘Buy’ ratings, 3 ‘Overweight’ ratings, 13 ‘Hold’ ratings, and 5 ‘Sell’ ratings.

Wall Street Outlook and Trading Tactics

While most stocks plunged to multiyear lows during the coronavirus sell-off, Zoom Video shares flipped previous resistance into support at the $105 level. Since then, the price has continued to trend sharply higher, with only minor pullbacks to the 50-day simple moving average (SMA). Given that the relative strength index (RSI) indicates short-term overbought conditions, traders should look to buy pullbacks to major support areas, namely at $280 and $175, rather than chasing recent gains.

Nestle to Acquire Peanuts Allergic Treatment Maker Aimmune Therapeutics for $2 Billion; Target Price CHF 120

Nestle SA, the world’s largest food & beverage company, said it will completely acquire a biopharmaceutical company Aimmune Therapeutics, which has the first and only FDA-approved treatment to help reduce the frequency and severity of allergic reaction to peanuts, for $2 billion.

Nestle Health Science (NHSc) currently has a total investment in Aimmune of $473 million, an approximate 25.6% equity ownership stake. Around 19.6% is voting common stock and the balance non-voting preferred stock.

NHSc made its initial investment of $145 million in Aimmune in November 2016, followed by further investments of $30 million in February 2018, $98 million in November 2018 and $200 million early this year, the company said in a press release.

Under the terms of the merger agreement, Nestle S.A.’s wholly-owned subsidiary, Société des Produits Nestle S.A. (SPN), will commence a cash tender offer to acquire all outstanding shares of Aimmune common stock that are not already owned by NHSc for $34.50 per share in cash, representing a total enterprise value, including the shares of Aimmune held by NHSc, of about $2.6 billion.

The $34.50 per share acquisition price represents a 174% premium to Aimmune’s closing share price on August 28, 2020 of $12.60.

After this announcement, Aimmune Therapeutics shares closed 172% higher at $34.22 on Monday; the stock is up over 2% so far this year.

Executives’ comments

“This transaction brings together Nestlé’s nutritional science leadership with one of the most innovative companies in food allergy treatment,” said Nestlé Health Science CEO Greg Behar. “Together we will be able to offer a wide range of solutions that can transform the lives of people suffering from food allergies around the world.”

“The agreement with Nestlé Health Science recognizes the value created by years of commitment and dedication to our mission by the team at Aimmune. Delivering Palforzia, the world’s first treatment for food allergy, has been a game-changing proposition in the bio-pharmaceutical industry and is transformative for the lives of millions of people living with potentially life-threatening peanut allergy,” said Jayson Dallas, MD, President and Chief Executive Officer of Aimmune.

“This acquisition ensures a level of support for Palforzia and our pipeline that will further enhance their potential for patients around the world living with food allergies.”

Nestle stock forecast

Morgan Stanley gave a target price of CHF 110 with a high of CHF 125 under a bull-case scenario and CHF 80 under the worst-case scenario. Jefferies increased their stock price forecast to CHF 109 from CHF 94.

Other equity analysts also recently updated their stock outlook. JP Morgan raised their price target to CHF 123 from CHF 116, Barclays increased their price objective to CHF 120 from CHF 112 and UBS raised their target price to CHF 130 from CHF 114.

We think it is good to buy at the current level and target CHF 120 as 50-day Moving Average and 100-200-day MACD Oscillator signals a strong buying opportunity.

Fifteen analysts forecast the average price in 12 months at $125.55 with a high forecast of $143.68 and a low forecast of $104.99. The average price target represents a 4.50% increase from the last price of $120.14. From those 15 analysts, ten rated “Buy”, four rated “Hold” and one rated “Sell”, according to Tipranks.

Analyst view

“We view Nestle as a core holding in European Food, with an attractive portfolio of leading global brands and a defensive growth profile vs. peers. We see continuation of improving returns as Nestle looks to manage its core portfolio and drive growth through margin-accretive categories such as Coffee, Pet Care and Nutrition,” said Richard Taylor, equity analyst at Morgan Stanley.

“Ongoing cost savings should support margin expansion of 40bps over the next 3 years. Strong FCF + ROIC improvement should drive a premium vs EU Food-HPC peers. Nestle currently trades at an 8% premium to large-cap peers on 2021e P/E,” he added.

Upside and Downside risks

Upside: 1) Superior execution and re-rating as growth accelerates. 2) Cost savings and improving mix resulting in better than expected margins – highlighted Morgan Stanley.

Downside: 1) Strengthening of CHF vs Nestle’s major currencies, particularly USD. 2) Higher than expected reinvestment or restructuring. 3) Greater competition in some of Nestle’s core businesses, such as Coffee, Pet Care and Nutrition.

US Stocks: NASDAQ Finishes Higher While S&P 500 Books Biggest August Gain since 1986

It was a funny day on Wall Street on Monday with the major indexes finishing mixed with some posting monthly milestones. Low volume contributed to the lackluster trade as most of the major players took to the sidelines ahead of the end of the summer trading season this week-end.

While the S&P 500 boasted its steepest August percentage gain in more than three decades, it ended Monday’s session slightly lower and the Dow also lost ground as investors took a pause. Nonetheless, the NASDAQ Composite managed to close higher, thanks to high-flying stocks including Apple Inc.

In the cash market on Monday, the benchmark S&P 500 Index settled at 3500.31, down 7.70 or -0.26%. The blue chip Dow Jones Industrial Average finished at 28430.05, down 223.82 or -0.89% and the technology-driven NASDAQ Composite closed at 11775.46, up 79.83 or +0.84%.

August Recap

The Federal Reserve’s commitment to tolerate inflation and keep interest rates low, positive developments in vaccines and treatments for COVID-19 and a rally in tech-focused stocks helped the S&P 500 and NASDAQ hit record highs in August.

For the month the S&P showed a gain of 7.01%, its biggest advance for August since 1986 when it rose 7.1% that month. The three main indexes showed their fifth straight monthly rise following March lows, even as economic data pointed to an uneven recovery from the steep downturn, and the number of COVID-19 cases continued to rise throughout August.

For the S&P, this was its longest winning streak on a monthly basis since a six-month run from April to September 2018. And the benchmark’s 35.6% gain since April marked the strongest five-month run for the S&P 500 since 1938, according to data from Bespoke Investment Group.

The S&P finished the month about 3.8% above its pre-crisis record and the NASDAQ Composite closed almost 20% above its pre-crisis record closing high.

Sectors and Stocks in the News

Technology, then healthcare and utilities stocks were the biggest percentage gainers among the 11 major S&P sectors while energy was the biggest percentage decliner.

Apple ended the day 3.4% higher at $129.04 while Tesla closed up 12.6% at $498.32.

Aimmune Therapeutics Inc’s shares soared 171.6% after Swiss food group Nestle SA offered to pay $2 billion full ownership of the peanut allergy treatment maker.

Shares of Microsoft Corp, Walmart Inc and Oracle Corp – all suitors for TikTok’s U.S. assets – fell as China’s new rules around tech exports meant a deal with TikTok owner Byte Dance could need Beijing’s approval.

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

E-mini NASDAQ-100 Index (NQ) Futures Technical Analysis – No Resistance as Momentum Trade Continues

September E-mini NASDAQ-100 Index futures rallied to another record high on Monday on the back of several high-flying technology stocks. The heavily weighted tech index is now trading more than 20% above its pre-crisis high. Its top two performers were Apple and Tesla Inc, which rallied after their previously announced stock splits.

On Monday, September E-mini NASDAQ-100 Index futures settled at 12114.00, up 122.25 or 1.01%.

The index managed to perform well despite lower closes by Microsoft Corp and Oracle Corp – two stocks tied to the deal for TikTok’s U.S. assets. They fell as China’s new rules around tech exports meant a deal with TikTok owner ByteDance could need Beijing’s approval.

Daily Swing Chart Technical Analysis

The main trend is up according to the daily swing chart. A trade through 12165 will signal a resumption of the uptrend on Tuesday.

The main trend will change to down on a move through the nearest swing bottom at 10845.50. This is highly unlikely, however, due to the prolonged move up in terms of price and time, the market is still vulnerable to a closing price reversal top. This chart pattern won’t change the main trend to down, but it could signal that the selling is greater than the buying at current price levels.

As of Monday’s close, the new minor range is 11221.50 to 12165.00. Its retracement zone at 11693.25 to 11582.00 is the first support zone.

The main range is 10845.50 to 12165.00. Its 50% level at 11505.25 is the second potential downside target.

Short-Term Outlook

We’re in a strong momentum trade so investors shouldn’t be looking for resistance. Besides, there is no resistance because the market is at an all-time high.

In a momentum trade, the best thing a trader can do is protect the downside, the upside will take care of itself. Therefore, start watching for signs of a shift in momentum. They include intraday “M” patterns, taking out the previous day’s low and intraday and daily closing price reversal tops.

Based on this assessment, the key number to watch on Tuesday will be Monday’s close at 12114.00.

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 – Momentum May Have Shifted to Downside

September E-mini Dow Jones Industrial Average futures finished lower on Monday while posting a potentially bearish closing price reversal top in the process. Early in the session, Dow components were mixed with Apple Inc trading about 0.8% higher, and Microsoft and Walmart between 2.0% and 2.5% lower. Despite the lower close, the Dow wrapped up its best August in more than 30 years.

On Monday, September E-mini Dow Jones Industrial Average futures settled at 28416, down 195 or -0.69%.

The price-weighted Dow kicked off the week with three new constituents and with Apple having a much smaller influence on the 30-stock average after its stock split. As of Monday’s opening, Salesforce, Amgen and Honeywell were added to the Dow, replacing outgoing components Exxon Mobil, Pfizer and Raytheon Technologies.

Daily September E-mini Dow Jones Industrial Average

Daily Swing Chart Technical Analysis

The main trend is up according to the daily swing chart. The uptrend was reaffirmed early in the session when buyers took out Friday’s high, but the closing price reversal top suggests that momentum may be getting ready to shift to the downside.

The main trend will change to down on a move through the nearest main bottom at 25881. This is highly unlikely, but there is room for a short-term correction.

The minor trend is also up. A trade through 27392 will change the minor trend to down. This will also shift momentum to the downside.

The minor range is 27392 to 28783. Its 50% level at 28088 is the first downside target.

The main range is 25881 to 28783. If the minor trend changes to down then its retracement zone at 27332 to 26990 will become the next downside target.

Short-Term Outlook

Trader reaction to 28333 could set the tone on Tuesday. A trade through this level will confirm the closing price reversal top. This could trigger the start of a 2 to 3 day correction, but at a minimum, it should lead to a test of the first minor pivot at 28088.

The daily chart indicates that 28088 is a potential trigger point for an acceleration to the downside. This could trigger a further break into 27392 to 27332.

On the upside, taking out 28783 will negate the closing price reversal top and signal a resumption of the uptrend.

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

European Equities: Private Sector PMIs and Employment Figures to Drive the Majors

Economic Calendar:

Tuesday, 1st September

Spanish Manufacturing PMI (Aug)

Italian Manufacturing PMI (Aug)

French Manufacturing PMI (Aug) Final

German Manufacturing PMI (Aug) Final

German Unemployment Change (Aug)

German Unemployment Rate (Aug)

Eurozone Manufacturing PMI (Aug) Final

Eurozone Core CPI (YoY) (Aug) Prelim

Eurozone CPI m/m (Aug) Prelim

Eurozone CPI y/y (Aug) Prelim

Eurozone Unemployment Rate (Jul)

Wednesday, 2nd September

German Retail Sales (MoM) (Jul)

Spanish Unemployment Change

Thursday, 3rd September

Spanish Services PMI (Aug)

Italian Services PMI (Aug)

French Services PMI (Aug) Final

German Services PMI (Aug) Final

Eurozone Markit Composite PMI (Aug) Final

Eurozone Services PMI (Aug) Final

Eurozone Retail Sales (MoM) (Jul)

Friday, 4th September

German Factory Orders (MoM) (Jul)

German IHS Markit Construction PMI (Aug)

The Majors

It was a bearish start to the week and end to the month for the European majors on Monday, which saw a 3rd consecutive day in the red.

The DAX30 and EuroStoxx600 fell by 0.67% and by 0.62% respectively, with CAC40 declining by 1.11% to lead the way down.

Economic data from the Eurozone weighed on the majors on the day. GDP numbers from Italy and inflation figures from member states left the majors on the defensive.

The Stats

It was a busy day on the Eurozone economic calendar. Key stats included prelim August inflation figures for Germany, Italy, and Spain. 2nd quarter GDP numbers for Italy were also of interest on the day.

On the inflation front, deflationary pressures picked up in August.

Germany’s harmonised index of consumer price fell by 0.2% in August and was down by 0.1% year-on-year. Month-on-month, the harmonised index of consumer prices fell by 0.2%.

Things were not much better from Italy. Consumer prices were down by 0.5% year-on-year, with the harmonised index for consumer prices down by 0.5%. More concerning, however, was the 1.3% tumble in the harmonised index for consumer prices in August.

Italy’s GDP numbers were also of little comfort, with finalized numbers being in line with prelim figures. Economists had forecast upward revisions. Quarter-on-quarter, the Italian economy contracted by 12.8%, while contracting by 17.7% year-on-year.

From the U.S

It was a quiet day on the economic data front, with no material stats to influence later in the day.

The Market Movers

For the DAX: It was yet another mixed day for the auto sector on Monday. BMW rallied by 1.73% to buck the trend on the day. Continental and Daimler fell by 0.44% and by 0.40%, with Volkswagen ending the day down by 0.20%.

It was also a bearish day for the banks. Deutsche Bank and Commerzbank saw losses of 3.83% and 2.17% respectively.

From the CAC, it was a bearish day for the banks. BNP Paribas and Credit Agricole fell by 3.28% and by 3.46% respectively, with Soc Gen sliding by 4.04%.

It was another bearish day for the French auto sector. Peugeot and Renault saw relatively modest losses of 1.61% and 1.26% respectively.

Air France-KLM slid by 4.11%, with Airbus SE ending the day down by 3.64%.

On the VIX Index

It was back into the green for the VIX on Monday. Reversing a 6.17% fall from Friday, the VIX jumped by 15.03 to end the day at 26.41.

The S&P500 and Dow fell by 0.22% and by 0.78% respectively, while the NASDAQ ended the day up by 0.68%.

VIX 01/09/20 Daily Chart

The Day Ahead

It’s a particularly busy day ahead on the Eurozone economic calendar. Key stats include August manufacturing PMIs for Italy and Spain, German unemployment numbers, and inflation figures for the Eurozone.

Finalized manufacturing PMIs for France, Germany, and the Eurozone and the Eurozone’s unemployment rate will also draw attention.

From the early part of the day, the market’s preferred Caixin manufacturing PMI for China will set the tone.

Later in the session, the ISM Manufacturing PMI will also provide direction, as the markets look for a continued v-shaped economic recovery.

Away from the economic calendar, geopolitics and COVID-19 news will also need monitoring on the day.

The Futures

In the futures markets, at the time of writing, the Dow was down by 219 points.

European Equities: A Month in Review – August 2020

The Majors

It was a bullish month for the European majors in August, though a bearish end of the month cut the gains from earlier on the month.

4 days in the red out of the last 5 left the majors with relatively modest gains for August.

The DAX30 gained 5.13%, following a 0.02% gain from July, with the CAC40 and EuroStoxx600 rising by 3.42% and by 2.86% respectively. The pair had fallen by 3.49% and by 2.98% respectively in the month prior.

There was plenty of action in the month, which ultimately provided the European majors with support.

While economic data influenced, geopolitics and fiscal and monetary policy were the key drivers in the month.

The German government announced extended fiscal support to combat the impact of the COVID-19 pandemic supporting the DAX30.

From France, the French government wasn’t far behind promising new measures in September to also support the economic recovery.

The measures from the respective governments muted the impact of fresh spikes in new COVID-19 cases across EU member states.

From the U.S, FED monetary policy pressured the European majors. Positive updates from the U.S and China trade talks added further support, however. China announced its willingness to stick to the terms of the phase 1 agreement, which eased tensions.

Tech was in the spotlight in the month once more, as Trump continued to target Chinese tech companies in the interest of national security.

All in all, however, the promise of more monetary support, unwavering fiscal support from member states, and talk of progress towards a COVID-19 vaccine were good enough.

The Stats

It was a busy month on the Eurozone economic calendar. Looking at the private sector PMIs, it was a mixed bag for the month.

While July numbers impressed at the start of the month, with finalized PMIs revised upwards, August numbers were less impressive.

Private sector activity waned in August, according to the prelim numbers. The Eurozone’s composite slipped from 54.7 to 51.6.

Significantly, France saw its manufacturing sector contract in August. From an economic outlook perspective, the figures certainly questioned the market’s outlook on the v-shaped economic recovery.

Other stats were also mixed in the month.

While German business sentiment improved in August, consumer sentiment took a hit, delivering yet more uncertainty.

From France, consumer spending was also lackluster as consumer confidence held steady in August.

The stats supported the ECB’s uncertainty over what lies ahead from an economic recovery perspective.

Consumer confidence and spending remain key. While fiscal stimulus will support, consumers will need to go about their business to support the economy.

From the U.S

Weekly jobless claims were a test for the markets in the month. While claims were in decline early in the month, claims moved northwards in the 2nd half of the month. The figures suggested that the labor market recovery stalled mid-way through the 3rd quarter.

On the positive, was a further pickup in service sector activity and continued rise in nonfarm payrolls.

Of concern late in the month would have been an unexpected slide in consumer confidence in August, however.

Ultimately, it was yet another mixed set of numbers from the U.S, adding uncertainty to plague the markets at current levels.

Monetary Policy

On the monetary policy front, the FED was in action. A gloomy set of FOMC minutes weighed on riskier assets. The FED Chair and the FED’s revised monetary policy also weighed late in the month.

The promise of support for longer delivered monetary policy divergence favoring the EUR. A pickup in the EUR was an added negative for the European majors.

The Market Movers

For the DAX: It was a bullish month for the auto sector. Daimler led the way, rallying by 14.48%. BMW (+10.97%), Continental (+11.32%), and Volkswagen (+11.87%) also saw solid gains in the month.

It was also a bullish month for the banks. Deutsche Bank rose by 5.94%, with Commerzbank ended the month up by 11.82%.

From the CAC, it was a bullish month for the banking sector. BNP Paribas led the way, rising by 7.15%. Credit Agricole and Soc Gen saw more modest gains of 5.66% and 4.62% respectively.

It was also a bullish month for the auto sector. Peugeot rose by 5.35%, with Renault jumping by 18.84%.

Air France-KLM and Airbus SE also saw green, with the pair ending the month up by 8.23% and 11.01% respectively.

On the VIX Index

The VIX rose by 7.97% in August, delivering just a 2nd monthly gain in 5-months. Partially reversing a 19.62% slide from July, the VIX ended the month at 26.41.

The VIX had seen 4 consecutive months in the green before the downward trend began in April.

Across the U.S equity markets, it was yet another impressive run. The S&P500 and NASDAQ hit fresh record highs in the month, with the Dow also finding strong support.

For the month of August, the NASDAQ rallied by 9.59%, with the S&P500 and Dow seeing gains of 7.01% and 7.57% respectively.

VIX 01/09/20 Monthly Chart

The Month Ahead

It’s another busy month ahead on the Eurozone economic calendar.

After some mixed private-sector numbers for August, the markets will need some convincing in the month ahead.

An uptick in private sector activity, consumer and business confidence, and spending will be a must. Labor market conditions will also need to improve considerably to support any hope of a consumption-driven recovery.

A stronger EUR and any pick up in inflationary pressures would test consumption, however, putting pressure on the ECB. Prelim figures from the end of the month, however, point to a buildup of deflationary pressures suggesting the need of more support from the ECB.

Additionally, any failure by the ECB to pin back the EUR could make things a little testier in the month ahead.

From elsewhere, economic data from the U.S and China will also need to provide support.

On the geopolitical front, Brexit, U.S and China relations, and U.S politics will also influence.

We’re moving into the choppy time of the year and there are enough downside risks to test majors at current levels.

S&P 500 Price Forecast – Stock Markets Continue to Grind Near Big Figure

The S&P 500 initially shot higher during the trading session on Monday, as Asian and European futures traders bought into the E-mini contract. That being said though, the market did pull back a bit to show signs of exhaustion in this area, as the big figure will of course attract a certain amount of attention. Nonetheless, even if we do pull back from here, I am more than willing to start buying on a dip, especially if we can pull back closer to the 3400 level. That is an area that was a major breakout, so think at this point it is likely that you will be able to find value underneath and would probably see a lot of traders willing to get involved at that point.

S&P 500 Video 01.09.20

Ultimately, if we do break out above the top of the candlestick for the trading session on Monday, then it opens up the door to the 3600 level which I do think is the target eventually. That being said, I do believe that it is only a matter of time before we find plenty of reasons to go long in the S&P 500, not the least of which will be the Federal Reserve flooding the markets with liquidity. After all, that has been the main driver of stocks for the last 12 years, and at this point I do not see that changing anytime soon. Selling is a great way to lose money, as I continue to see on Twitter.

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 – Trader Reaction to 3504.50 Sets the Tone

September E-mini S&P 500 Index futures are trading lower shortly after the cash market opening on Monday. Earlier in the session, the index hit a record high for the sixth straight session, as bets on an economic revival due to prolonged central bank support put it on course for its best August in decades.

At 13:30 GMT, September E-mini S&P 500 Index futures are trading 3502.75, down 1.75 or -0.05%.

The Federal Reserve’s commitment to tolerate and keep interest rates low, positive developments in vaccines and treatments for COVID-19 and a momentum-driven rally in tech-focused stocks have helped the S&P 500 hit consecutive all-time highs recently.

During the pre-market session, Apple Inc and Tesla Inc rose about 0.8% each, as their stocks became less costly after their pre-announced stock splits took effect.

Meanwhile, suitors for TikTok’s U.S. assets, Microsoft, Walmart Inc and Oracle Corp, dropped between 2.0% and 2.5% as China’s new rules around tech exports meant a deal with ByteDance could need Beijing’s approval.

Daily September E-mini S&P 500 Index

Daily Swing Chart Technical Analysis

The main trend is up according to the daily swing chart. The uptrend was reaffirmed earlier in the session when buyers took out Friday’s high on its way to a new all-time high.

The main trend will change to down on a move through the nearest main bottom at 3195.00. This is highly unlikely, but due to the prolonged move up in terms of price and time, the index is inside the window of time for a potentially bearish closing price reversal top chart pattern.

The minor trend is also up. A trade through 3344.75 will change the minor trend to down. This will shift momentum to the downside.

The minor range is 3344.75 to 3524.50. If the selling pressure continues then its retracement zone at 3434.50 to 3413.50 will become the primary downside target.

Daily Swing Chart Technical Forecast

Based on the early price action and the current 7 day rally, the direction of the September E-mini S&P 500 Index session today is likely to be determined by trader reaction to Friday’s close at 3504.50.

Bullish Scenario

A sustained move over 3504.50 will indicate the presence of buyers. Taking out the intraday high at 3524.50 will indicate the buying is getting stronger. This could trigger an acceleration to the upside.

Bearish Scenario

A sustained move under 3504.50 will signal the presence of sellers. A close under this level will form a closing price reversal top. If confirmed, this could trigger the start of a 2 to 3 day correction, but no necessarily a change in trend.

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

General Electric Under Pressure After Morgan Downgrade

General Electric Co. (GE) fell to a 2-month low in late July after reporting a Q2 2020 loss of $0.15 per-share, $0.06 worse than expectations, while revenue fell a stomach-churning 38.4% year-over-year to $17.75 billion. The release offered no forward guidance, leading many market watchers to theorize the financial outlook is worse-than-expected at the troubled conglomerate, which has been stuck in an historic downtrend since 2016.

General Electric Historic Downtrend

Years of mismanagement at General Electric came home to roost that year, with uncontrolled debt forcing institutional and retail investors to walk away, following a modest 7-year uptrend that failed to mount the 2000 or 2007 rally highs. Selling pressure accelerated into the end of 2018, dropping the stock to the lowest low since 2009 while 2020’s pandemic-driven downdraft sliced through support into an 18-year low.

The stock is under pressure on Monday after JPMorgan analyst Stephen Tusa withdrew their price target, stating “we are more negative on GE as we turn the corner into 2H20. The company continues to have no official guidance, which in our view implies difficulty seeing 3 to 6 months out, while debt maturities and options resets suggest GE does not see normal until 2024.” He ended with a warning that “the collapse of this forward estimate curve is coming soon.”

Wall Street And Technical Outlook

Wall Street is surprisingly upbeat on General Electric, hanging their hats on a well-documented reorganization plan that’s yet to produce positive results. It’s currently rated as a ‘Moderate Buy’, based upon 6 ‘Buy’ and 5 ‘Hold’ recommendations. Oddly, today’s bearish call marks the first ‘Sell’ recommendation, despite the long-term threat of bankruptcy. Price targets range from a low of $6.30 to a street-high $11 while GE opened the session just 20 cents above the low target.

General Electric bounced in May after undercutting the 2009 low by 3 cents, initiating a critical support test that’s still in progress. Buying pressure has been non-existent since that time, raising odds for an eventual breakdown that could signal the next phase in the iconic company’s demise. Unfortunately, a well-heeled suitor is unlikely to come to the rescue because few profitable companies would be willing to take over the enormous debt load.

KKR to Sell its Epicor Software to Clayton, Dubilier & Rice for $4.7 Billion; Target Price $40

KKR & Co Inc, an American global investment company that manages multiple alternative asset classes, said it will sell its software business Epicor Software Corporation to Clayton, Dubilier & Rice in a $4.7 billion deal announced on Monday.

CD&R Operating Partner Jeff Hawn will serve as Chairman of the Epicor Board upon close of the transaction, expected later this year, the company said.

UBS Investment Bank is acting as financial advisor and Debevoise & Plimpton LLP as legal advisor to CD&R. Barclays is acting as lead financial advisor, BofA Securities and Jefferies LLC as financial advisors, and Simpson Thacher & Bartlett LLP as legal advisor to KKR and Epicor.

KKR shares closed 0.32% higher at $34.93 on Friday, the stock is up about 20% so far this year.

Executive comments

“Four years ago, we embarked on an ambitious product modernization journey together with Epicor and are incredibly proud of the successes that the company has achieved to date, particularly with its recent cloud releases,” remarked John Park, Chairman of the Epicor Board and Head of Americas Technology Private Equity at KKR.

“We are confident that CD&R will provide valuable support as the company continues these product- and customer- centric investments to accelerate growth in the cloud.”

KKR stock forecast

Twelve analysts forecast the average price in 12 months at $39.96 with a high forecast of $47.50 and a low forecast of $36.00. The average price target represents a 14.40% increase from the last price of $34.93. From those 12 analysts, nine rated “Buy”, three rated “Hold” and none rated “Sell”, according to Tipranks.

Morgan Stanley gave a target price of $37 with a high of $63 under a bull-case scenario and $16 under the worst-case scenario. KKR & Co Inc had its price objective boosted by stock analysts at Credit Suisse Group to $38 from $34. The firm currently has a “neutral” rating on the asset manager’s stock.

Other equity analysts also recently updated their stock outlook. Oppenheimer lowered the price target to $39 from $40, BMO raised their price objective to $46 from $44, Citigroup upped their price forecast to $47.5 from $40, Wells Fargo increased their stock price target to $43 from $40 and KBW raised it to $43 from $41. Bank of America upped their target price to $40 from $36 and gave the stock a “buy” rating. At last, Keefe, Bruyette & Woods upped their target price to $41 from $34.

We think it is good to buy at the current level and target $40 as 50-day Moving Average and 100-200-day MACD Oscillator signals a strong buying opportunity.

Analyst view

“While we see an attractive organic asset growth trajectory, we also see a recessionary backdrop that raises the risk to KKR’s fee-related earnings growth story if fundraising slows, transaction fees stall, and costs don’t flex as performance fees and investment income decline,” said Michael Cyprys, equity analyst at Morgan Stanley.

“Recessionary backdrop raises the risk of balance sheet marks and limited book value growth that could dampen prior ROE generation of mid-teens to 20%+. C-corp structure (as of July 1, 2018 ) with no K-1s should help expand the investor base over time,” he added.

Upside and Downside risks

Upside: 1) Faster deployment with greater opportunity set. 2) Accelerated portfolio exit activity. 3) Stronger fundraising boosted by seeding of new strategies. 4) Better balance sheet marks than feared – highlighted Morgan Stanley.

Downside: 1) Deeper recession that leads to weaker investment returns, balance sheet markdowns and delays harvesting of investments pressuring earnings. 2) Increased political and regulatory scrutiny of PE business model.

U.S. Stocks Mixed As Traders Wait For Additional Catalysts

A Busy Week Ahead

S&P 500 futures are little changed in premarket trading as traders prepare for a busy week that will be full of important economic reports.

On Tuesday, traders will digest Manufacturing PMI data for August. Manufacturing PMI is expected to increase from 50.9 to 53.6. On Wednesday, market participants will focus on ADP Employment Change report which is projected to show that 900,000 jobs were created in the private sector.

The end of the week will bring the most important employment reports, including Initial Jobless Claims on Thursday and Non Farm Payrolls on Friday.

Initial Jobless Claims are expected to stay near the 1 million mark while Non Farm Payrolls are projected to decline to 1.4 million.

The upcoming U.S. employment reports will test the recent market upside which is based on the assumption that the current economic recovery is robust.

Oil Moves Higher As Abu Dhabi National Oil Company Cuts Supplies In October

Hurricane Laura did not deal significant damage to oil infrastructure but oil received another bullish catalyst. Abu Dhabi National Oil Company has notified its clients that October supplies will be reduced by as much as 30%.

The main reason for this reduction is the necessity to stay in line with the OPEC+ production cut agreement.

While United Arab Emirates were not seen as a major laggard among the participants of the deal, OPEC+ leadership continues to push for full compliance from all countries which is bullish for the oil market.

Additional oil price upside may help big oil stocks like Exxon Mobil or Chevron which have recently found themselves under material pressure.

U.S. Government Bond Yields Continue To Rise

U.S. government bond yields continue their upside move which was triggered by Fed’s decision to target an average inflation of 2%. Not surprisingly, the 30-year bonds are especially sensitive to inflation threat.

This move has already prompted speculation that Fed will start buying 30-year bonds to keep yields under control. Additional asset purchases are typically bullish for the stock market.

However, it remains to be seen whether the bond market has already reached the point when the Fed is ready to intervene.

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

Daily Gold News: Monday, August 31 – Silver Extending Advance, Gold Unchanged

The gold futures contract gained 2.19% on Friday, as it got back to last week’s short-term local high. Thursday’s Fed Chair Powell speech led to an increased intraday volatility, as gold spiked higher before the decline. Gold reversed from its new record high of $2,089.20 on August 7 after much better than expected Nonfarm Payrolls release, among other factors. The following upward correction reached a local high of $2,024.60 on August 18.

Gold is 0.1% higher this morning, as it is trading along Friday’s closing price. What about the other precious metals? Silver gained 2.83% on Friday and today it is 1.6% higher. Platinum gained 1.28% and today it is 0.7 % higher. Palladium gained 1.87% on Friday and today it’s 0.9% higher. So precious metals are gaining this morning.

Friday’s Personal Income, Personal Spending, Chicago PMI and Consumer Sentiment releases have been better than expected.

Today we won’t get any important economic data announcements. The markets will be waiting for Friday’s monthly jobs data release.

Below you will find our Gold, Silver, and Mining Stocks economic news schedule for the next two trading days:

Monday, August 31

  • 9:00 a.m. U.S. – FOMC Member Clarida Speech
  • 9:45 p.m. China – Caixin Manufacturing PMI

Tuesday, September 1

  • 12:30 a.m. Australia – Cash Rate, RBA Rate Statement
  • 3:55 a.m. Eurozone – German Final Manufacturing PMI, German Unemployment Change
  • 9:30 a.m. Canada – Manufacturing PMI
  • 9:45 a.m. U.S. – Final Manufacturing PMI
  • 10:00 a.m. U.S. – ISM Manufacturing PMI, Construction Spending m/m, ISM Manufacturing Prices
  • 9:30 p.m. Australia – GDP q/q

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

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

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

* * * * *

Disclaimer

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

 

Gold Is Flagging Out – Breakout Rally Targeting $1,950 Or Higher Is Next

RESEARCH HIGHLIGHTS:

  • Gold Found Support Near $1,945- Right Where We Expected
  • Gold Setting Up A Pennant/Flag And Is Nearing The Apex
  • Another Measured Move Is Setting Up – Targeting $2250 Or Higher
  • Silver Should Rally To $36 Or Higher When Gold Breaks

Nearly every Precious Metals/Gold enthusiast that follows our work has been emailing or messaging us asking about the next rally phase for Gold.  Thank you for all of your messages and supportive comments.  If you have not been following along, please review our recent research on gold and silver price moves, the rally in platinum, and detailed 2020/2021 price forecasts for gold and silver.

After watching the VIX start to move higher last week while the S&P and Dow Jones pushed to new all-time highs, our research team has been actively studying the Pennant/Flag formation in Gold that has been setting up. Our “Measured Move” article suggests support near $1,945 will act as a launchpad for an upward price advance to levels near $2,150 or higher.  As the momentum of this upside price move continues to build, as we’ve recently seen with the last upside price leg, we believe the $2,200~$2,250 could be the next real upside price target for Gold.

Over the past few weeks, Gold has confirmed our projected $1,945 support level by closing out near this level for multiple weeks (8/10: $1.949.80, 8/17: $1,947).  We believe the ability of price to close above the $1,945 level, even though price traded below this level, shows how strong this support level really is.  Now that Gold has started to rally near the Apex of the Pennant/Flag pattern, we believe the next upside leg could be starting.

This Daily Gold Futures chart, above, highlights the extended upward price trend and the recent downward FLAG/Pennant setup – flagging out near $1945.  We believe the next upside price move could prompt a move to levels well above $2,200 to $2,250 as the momentum behind this move continues to build.

Once Gold clears $2,200 on an upside price advance, we’ll clearly be in “new high price” territory and it  will shock many investors that Gold continues to rally  in the face of the US stock market rally.  Something does not settle when one considers Gold suggesting massive fear underlies US stock market price levels near all-time highs. You may want to review our Dow Theory article to attempt to better understand what we believe is driving fear.

The Weekly Gold Futures chart below helps to pinpoint the upper price target range assuming momentum continues to build as the next breakout move takes place.  Our research team believes this next leg may push up to levels just below $2,400 before stalling out again, then likely retrace to levels near $2,250~$2,275 where another sideways/flag pattern may setup. This time, the sideways/flag setup may be very quick in terms of completing, possibly only visible on intra-day charts.

We believe the next upside price rally will have begun once Gold closes above $1,985~$1,990 (near the Flag Apex).  Get ready, this should be a very solid upside price move targeting $2,250 or higher.

Please pay attention to our research and how accurately our research team has deployed technical analysis over the past 3+ years tracking this move in Gold.  Isn’t it time you learned how I and my research team can help you find and execute better trades?  Our incredible technical analysis tools have just shown you what to expect 6+ months into the future.  Do you want to learn how to profit from these huge moves?  Sign up for my Active ETF Swing Trade Signals today!

Stay healthy, safe and strong!

Chris Vermeulen
Chief Market Strategist
Founder of Technical Traders Ltd.

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.

 

BlackRock Wins Regulatory Approval to Start a Mutual-Fund Business in China; Target Price $630

BlackRock, the world’s largest investment management firm, received an approval to set up a wholly-owned mutual fund unit in the world’s second-largest economy, making it the one of the first global asset management firm to win regulatory approval from the China Securities Regulatory Commission.

BlackRock got the green light late this month to start a wholly-owned subsidiary in Shanghai, the China Securities Regulatory Commission said on Friday.

The approval would extend the investment management firm’s spectra in the Chinese asset management market, where it already operates as a mutual fund venture with Bank of China and is in the process of setting up a management venture with China Construction Bank and Temasek, Reuters reported.

Last month, BlackRock reported a 20% surge in profit in Q2, largely driven by a boost in fixed income and continued momentum in cash management.

BlackRock shares closed 1.02% higher at $601 on Friday, the stock is up about 19% so far this year.

BlackRock stock forecast

Twelve analysts forecast the average price in 12 months at $632.27 with a high forecast of $685.00 and a low forecast of $566.00. The average price target represents a 5.19% increase from the last price of $601.06. From those 12 analysts, ten rated “Buy”, two rated “Hold” and none rated “Sell”, according to Tipranks.

Morgan Stanley gave a target price of $652 with a high of $985 under a bull-case scenario and $320 under the worst-case scenario. The brokerage currently has an “overweight” rating on the asset manager’s stock. Deutsche Bank also raised their target price to $568 from $566.

Other equity analysts also recently updated their stock outlook. BMO Capital Markets raised their target price on BlackRock to $620 from $560.00 and gave the company a “market perform” rating. Wells Fargo & Co raised their target price to $615 from $605 and gave the company an “overweight” rating. At last, Argus increased their price objective to $640 from $530 and gave the company a “buy” rating.

We think it is good to buy at the current level and target $630 as 50-day Moving Average and 100-200-day MACD Oscillator signals a strong buying opportunity.

Analyst view

“BlackRock seems well-poised to capitalize on opportunistic acquisitions to enhance financial performance. Also, its efforts to gain market share in the active equity business will aid profitability,” noted equity analysts at Zacks Research.

“(But) Mounting expenses (mainly owing to higher general and administration costs) are likely to hurt BlackRock’s bottom line to an extent. High dependence on overseas revenues makes us apprehensive.”

Upside and Downside risks

Upside: 1) Growth in highly scalable iShares franchise driving margin expansion and strong EPS growth. 2) Further growth in tech & high fee products such as alts, active equities, and multi-asset – highlighted by Morgan Stanley.

Downside: 1) Market share loss in ETFs; lack of positive op leverage in declining markets. 2) Worse than expected base fee pressure through pricing initiatives or mix shift. 3) Greater regulatory scrutiny; liquidity challenges in products.

European Equities: China PMIs, COVID-19, and Geopolitics in Focus

Economic Calendar:

Monday, 31st August

Spanish HICP (YoY) (Aug) Prelim

Italian CPI (MoM) (Aug) Prelim

German CPI (MoM) (Aug) Prelim

Tuesday, 1st September

Spanish Manufacturing PMI (Aug)

Italian Manufacturing PMI (Aug)

French Manufacturing PMI (Aug) Final

German Manufacturing PMI (Aug) Final

German Unemployment Change (Aug)

German Unemployment Rate (Aug)

Eurozone Manufacturing PMI (Aug) Final

Eurozone Core CPI (YoY) (Aug) Prelim

Eurozone CPI m/m (Aug) Prelim

Eurozone CPI y/y (Aug) Prelim

Eurozone Unemployment Rate (Jul)

Wednesday, 2nd September

German Retail Sales (MoM) (Jul)

Spanish Unemployment Change

Thursday, 3rd September

Spanish Services PMI (Aug)

Italian Services PMI (Aug)

French Services PMI (Aug) Final

German Services PMI (Aug) Final

Eurozone Markit Composite PMI (Aug) Final

Eurozone Services PMI (Aug) Final

Eurozone Retail Sales (MoM) (Jul)

Friday, 4th September

German Factory Orders (MoM) (Jul)

German IHS Markit Construction PMI (Aug)

The Majors

It was a bearish end to the week for the European majors on Friday, delivering a 2nd consecutive day in the red. The EuroStoxx600 fell by 0.52%, with DAX30 and CAC40 declining by 0.48 and by 0.26% respectively.

Reports of rising new COVID-19 cases across the EU weighed on the European majors on Friday. The impact of the fresh spike in new cases has been limited, however. News of progress towards a COVID-19 vaccine has limited the damage thus far.

With uncertainty over the economic outlook lingering, economic data also weighed on the majors on the day.

The Stats

It was a busy day on the Eurozone economic calendar. Key stats included German consumer sentiment and French consumer spending and 2nd quarter GDP numbers.

Prelim August inflation figures for France were also in focus on the day.

From Germany, the GfK Consumer Climate Index fell from -0.20 to -1.80 for September. According to the latest survey,

  • Income expectations saw a sharp decline, with the propensity to save on the rise suggesting a gloomy outlook on consumption.
  • The income expectations indicator slid by 5.8 points to 12.8, leaving it down by 37 points from the previous year.
  • The propensity to save indicator gained 5.5 points.
  • Economic expectations and the propensity to buy did see marginal increases, however.
  • The recent rise in new COVID-19 cases and the fear of a tightening of restrictions delivered uncertainty over what lies ahead.

From France, the economy contracted by 13.8% in the 2nd quarter, which was in line with prelim figures. Inflation figures also disappointed, with consumer prices falling by 0.1% in August.

In July, consumer spending rose by 0.5%, following a 10.3% jump in June. While continuing to rise, spending fell well short of a forecasted 2.0% rise.

From the U.S

It was a busy day on the economic calendar. Key stats included July inflation, trade, and personal spending figures. August PMI and consumer sentiment figures were also in focus.

Inflationary pressures picked up in July, with the Core PCE Price Index rising by 1.3% year-on-year. In June, the index had risen by 1.1%. Personal spending rose by 1.9%, following a 6.2% jump in June.

In contrast to the upbeat July numbers, August figures were mixed.

While the Chicago PMI fell from 51.9 to 51.2, the finalized Michigan Consumer Sentiment index was revised up from 72.8 to 74.1. In July, the index had stood at 72.5.

The stats had a limited impact on the European majors, however, which saw red whilst the NASDAQ and S&P500 hit new highs.

The Market Movers

For the DAX: It was another mixed day for the auto sector on Friday. BMW, Continental, and Volkswagen rose by 0.07%, by 0.66%, and by 0.40% respectively. Daimler slipped by 0.01% on the day.

It was a bullish day for the banks. Deutsche Bank and Commerzbank saw gains of 0.81% and 2.73% respectively.

From the CAC, it was a bullish day for the banks. BNP Paribas and Credit Agricole rallied by 3.60% and by 3.25% respectively, with Soc Gen ending the day up by 3.09%.

It was another bearish day for the French auto sector, however. Peugeot and Renault fell by 0.27% and by 0.52% respectively.

Air France-KLM rose by 0.56%, following on from Thursday’s 2.41% gain, while Airbus SE fell by 0.93%.

On the VIX Index

It was back into the red for the VIX on Friday, ending a run of 2 consecutive days in the green. Reversing a 5.16% gain from Thursday, the VIX fell by 6.17% to end the day at 22.96.

The S&P500 and Dow rose by 0.67% and by 0.57% respectively, with the NASDAQ ended the day up by 0.60%.

VIX 30/08/20 Daily Chart

The Day Ahead

It’s a relatively busy day ahead on the Eurozone economic calendar. Key stats include August prelim inflation figures for Germany, Italy, and for Spain.

We would expect the stats to have a muted impact on the majors, however.

From the early part of the day, NBS private sector PMI numbers for China will set the tone ahead of the European open.

With no material stats from the U.S to influence, COVID-19 news and geopolitics will also need monitoring on the day.

The Futures

In the futures markets, at the time of writing, the Dow was up by 84 points.

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

Veeva Systems’ Price Target Raised to $323 with Overweight Rating, $435 in Best-Case Scenario: Morgan Stanley

Veeva Systems’, an American cloud-computing company focused on pharmaceutical and life sciences industry applications, price target was raised to $323 from $253 with Overweight stock rating, according to Morgan Stanley equity analyst Stan Zlotsky, who also said with consistent growth, profitability, and defensibility, Veeva is a unique software asset.

Late last month, Veeva reported total revenue of $353.7 million in the second quarter, up from $266.9 million one year ago, an increase of 33% year-over-year. Subscription services revenue for the second quarter were $283.5 million, up from $217.3 million one year ago, an increase of 30% year-over-year.

Veeva forecasts fiscal year ending January 31, 2021 total revenues between $1,415 and $1,420 million and fiscal third-quarter Total revenues between $360 and $362 million.

“In our new model, we raise our FY21 revenue estimates to $1,419 million (vs $1,387 million prior), within management’s updated guidance range of $1,415-1,420 million. Our FY21 revenue estimates imply YoY subscription/total revenue growth of +28.9%/+28.5% compared to +26.6%/+25.6% previously and includes ~$92.5 million of inorganic revenue from Crossix and Physician’s World (unchanged). We raise our FY21 operating margin estimates to 38.3%, versus 36.5% previously and similarly lift our FY22/FY23 margin estimates to 39.5%/40.8% from 37.6%/39.0% previously,” said Stan Zlotsky, equity analyst at Morgan Stanley.

“Our FY21/FY22 OCF estimates also increase to $544.1 million /$682.1 million from $505.8 million /$642.3 million previously. On the back of our raised estimates and improving confidence in Veeva’s FCF durability, we increase our price target to $323 from $253 previously. To arrive at our new price target, we apply a 53x multiple (vs 43x prior) or 2.5x EV/FCF/G (vs 2.2x prior) to our CY25 FCF estimate of $1,504 million ($1,357 million previously) and discount back at a 7.6% WACC (unchanged),” Zlotsky added.

Morgan Stanley target price under a bull-case scenario is $435 and $214 under the worst-case scenario. Veeva Systems had its price objective raised by equities research analysts at Truist to $320 from $222.

Several other equity analysts have also updated their stock outlook. Piper Sandler lifted their price target on Veeva Systems to $310 from $220 and gave the company an “overweight” rating. Stephens boosted their target price on Veeva Systems to $325 from $290 and gave the stock an “overweight” rating.

Twenty analysts forecast the average price in 12 months at $293.79 with a high forecast of $325.00 and a low forecast of $228.00. The average price target represents a 7.20% increase from the last price of $274.07. From those 20, 15 analysts rated ‘Buy’, five analysts rated ‘Hold’ and none rated ‘Sell’, according to Tipranks.

“Veeva’s core products provide SaaS solutions for the Life Sciences industry, targeting $10 billion+ of spend today with potential overtime to address more of the $44 billion Life Sciences spend on IT, leveraging the company’s strong brand recognition and expanding its TAM into other regulated industries and use cases. As Veeva penetrates this large TAM, we see a sustainable 18% revenue CAGR over the next 5 years,” Morgan Stanley’s Zlotsky added.

Upside risks: 1) Veeva penetrates its TAM faster than expected as it gains traction outside life sciences. 2) Traction within newer products and add-ons accelerates -highlighted by Morgan Stanley.

Downside risks: 1) 70%+ seat penetration in CRM could limit growth while declining sales headcount in Life Sciences may be a headwind. 2) TAM may be more limited due to vertical-specific focus. 3) Increased competition on CRM by competitors such as Iqvia.

Spotify On The Defensive After Mixed Quarter

Luxembourg’s Spotify Technology S.A. (SPOT) posted a fiscal Q3 2020 loss of €1.91 in July, much worse than €1.45 estimates. Revenue at the digital entertainment upstart increased 13% year-over-year to €1.89 billion, which also missed consensus expectations. Monthly Average User (MAU) statistics offered a bright spot in an otherwise bearish quarter, growing  29% year-over-year, but inline Q4 guidance gave sidelined investors no reason to jump on board.

Spotify Posts Three Quarterly Losses in 2020

The streaming service has posted losses in the last three quarters even though revenues have booked double-digit growth. In turn, this is raising doubts on Wall Street about long-term profitability. This is especially true after a pandemic wave that, theoretically at least, should have underpinned earnings-per-share expansion, due to quarantine and stay-at-home orders that gave potential customers more time to access all sorts of entertainment offerings.

Spotify filed an anti-competitive complaint against Apple Inc. (AAPL) in 2019, alleging the 30% fee demanded by the tech giant to display the app “tilted the playing field”’ by “placing unfair restrictions on marketing and promotions that benefit consumers.” Messaging app Telegram joined the complaint last month, at the same time that popular video game Fortnite was removed from the Apple Store after parent Epic Games attempted to bypass the fee. Apple Music just added global offerings that appear, at first glance, designed to punish the company for the filing.

Wall Street And Technical Outlook

Wall Street consensus rates the stock as a ‘Moderate Buy’ based upon 12 ‘Buy’, 7 ‘Hold’, and an awkward 4 ‘Sell’ recommendations. A wide range of price targets highlights broad disagreement among analysts about Spotify’s long-term outlook, with a low of $172 and a street-high $357. The stock is currently trading about $13 above the median $266 target in a placement that will make it harder to add to gains in the third quarter.

Spotify posted an all-time high at 299.67 on July 22 and sold off into the 240s in mid-August. Those extremes now mark the edges of a broad trading range that may contain price action into the fourth quarter, when investors will get another look at the company’s balance sheet. Accumulation-distribution readings haven’t budged since topping out at a new high a few days after price, reinforcing a holding pattern that reflects growing caution.

Dow Jones Utilities Breaking Trend

RESEARCH HIGHLIGHTS:

  • Dow Theory suggests indices must confirm each other and volume must confirm the trend.
  • The new downward trend in the Dow Utilities Index suggests indices are starting to break apart in terms of trending in unison.
  • Volume recently has been trailing lower, which suggests the momentum behind these new all-time highs is weakening.
  • If the Utilities Index continues to move lower and we see increased volume in the selling trend, we will consider the Dow Theory Trend component “broken” and expect a major peak/top soon after.

We know some of you are Dow Theory enthusiasts and followers.  We follow the Transportation Index as a leading indicator for potential major market trends almost exclusively because of what we have learned from Dow Theory. You can  learn more about the primary indicator in Dow Theory here. The two most important aspects of Dow Theory that we are researching today are two components:

  1. Indices Must Confirm Each Other
  2. Volume Must Confirm The Trend

My researchers and I have identified that the Dow Jones Utility Index has started to break downward in trend, breaking the recent upside price trend.  This breakdown in the Utilities Index suggests the Indices are starting to break apart in terms of trending in unison.  We have not seen increased volume in the downward trending of the Utility Index yet and we are waiting for this technical trigger to confirm the Breakdown in Dow Theory Trending by watching for the Utility Index to potentially begin a broader downside price move with increased volume.

IS DOW THEORY SIGNALING A BREAKDOWN IN TREND

Our research team is focusing on the Dow Jones Industrial Average, the Dow Jones Transportation Index, and the Dow Jones Utility Index for this article.  These three charts are key to understand the broader components of Dow Theory and how the technical and trending aspects of Dow Theory work.  We’re focusing on the Utilities Index because it is diverging from the Industrials and Transports in a big way.  We just need to see some Volume support this new downtrend in the Utilities Index to begin to raise some big RED FLAGS about a major market top setting up.

Let’s start by investigating the Dow Jones Industrial Weekly Chart, below.  We’ve highlighted the broader Head-and-Shoulders pattern in MAGENTA as well as drawn a YELLOW LINE across the UPPER GAP range from the February COVID-19 market collapse.  We believe these levels will be critical in understanding how the markets are poised to test and potentially break above these broader market resistance levels.  Additionally, we’ve drawn an upward sloping CYAN trend line that shows you how diligently price has continued to move higher since the bottom setup in March 2020.  There has been very little recent weakness in the advance of price as new highs continue to be reached.

Volume recently has been trailing lower, which suggests the momentum behind these new all-time highs is weakening.  It appears many traders are sitting on the sidelines and not participating in this upside price rally out of fear or concern that it may not be sustainable.

PRIMARY TRENDS HAVE THREE PHASES

A primary trend will pass through three phases, according to the Dow theory. In a bull market, these are the accumulation phase, the public participation (or big move) phase, and the excess phase. In a bear market, they are called the distribution phase, the public participation phase, and the panic (or despair) phase. It is quite possible that we have moved past the accumulation and public participation phases and are now firmly within the “excess phase” ..  Or what we call the “speculative phase”.

Now we will look at the Dow Jones Transportation Index, below, which is set up somewhat similar to the Industrials.  We see an extended Head-and-Shoulders pattern setup with a high price level from the Right-Shoulder acting as current resistance.  We also see a very solid upward price trend which has accelerated higher over the past 5+ weeks on diminishing volume. At this point, we should consider the Industrials and the Transports “in alignment” with one another.  The only real concern related to a weakening trend is the diminishing volume on both of these charts.

Now, we add the Dow Jones Utilities Index, below again, which sets up the entire Peaking/Topping Dow Theory technical pattern.  The first thing we see in this Dow Jones Utilities Weekly chart is that the recent price trend is moving lower. This contradicts the trends of the Industrials and Transports. Next, we see a much clearer Head-and-Shoulders pattern set up in the Utilities Index – which suggests resistance near 850 may play a big role in future price activity.  Lastly, we see diminishing volume in this recent downtrend of price – which suggests “capitulation” has yet to enter this downward price trend.

Our researchers believe the only thing missing from the Utilities breakdown, which would indicate a broader market peak is setting up, is increased  volume while the Utilities continue to trend lower.  Once this technical pattern sets up, we believe we would have enough technical confirmation of a breakdown of the Dow Theory Trend Alignment component to warn that a major market peak/top is very near (or already happened).

What this means for skilled technical traders is that you should start “hedging” against risk and considering how to protect your open long positions.  If you have not already considered how to accomplish this, we would suggest Precious Metals, Miners, Bonds and possibly small positions in Inverse ETF (such as SDS or QID).  Hedging is a very valuable tool for skilled technical traders when trends weaken or risks become more evident in the markets.  Moving capital into positions that can help protect against loss can help to balance your portfolio and reduce exposure to risk factors.

In closing, we do not have confirmation of this Dow Theory technical pattern yet. All we need to see is for the Utilities Index to continue to move lower and to see increased volume in the selling trend.  Once we see this, we’ll consider the Dow Theory Trend component “broken” and we believe a major peak/top won’t be too far away.  We suggest all of you pay close attention to these three indexes and watch for a breakdown of the primary trends in the future.  This is a great way for you to understand basic Dow Theory and the how broad market trends tend to work in “alignment” or “unison”.

Hedge accordingly.  We could be in for a wild ride in this breakdown confirms with increased volume. If you want to survive the trading over a long period of time, then you learn fairly quickly how important it is to protect against risk and to properly size your trades.  Subscribers of my Active ETF Swing Trading Newsletter can ride my coattails as I navigate these financial markets and build wealth. My research and trading team are here to help you find better trades and navigate these incredibly crazy market trends.

While most of us have active trading accounts, what is even more important are our long-term investment and retirement accounts. Why? Because they are, in most cases, our largest store of wealth other than our homes, and if they are not protected during the next bear market, you could lose 25-50% or more of your net worth. The good news is we can preserve and even grow our long term capital when things get ugly (likely soon) and I will show you how. We’ve recently issued a Long-term Investment Signal for subscribers of my Passive Long-Term ETF Investing Signals.

Stay safe and have a great weekend!

Chris Vermeulen
Chief Market Strategies
Founder of Technical Traders Ltd.

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.