S&P 500 Was Mostly Flat In Quiet Trading

Key Insights

  • Trading was calm amid low trading volume.  
  • NASDAQ Composite declined as Treasury yields moved higher. 
  • S&P 500 remains close to the important 4040 level which could be tested next week. 

Traders Were Not Ready For Big Moves In The Shortened Trading Session

S&P 500 was mostly flat in today’s trading session. Trading activity was low as many traders have preferred to enjoy a long weekend.

Retailers’ stocks have been in focus today as traders tried to evaluate Black Friday activity. Walmart, Costco, Target, Amazon have been mostly flat today as traders failed to find enough catalysts for big moves. That said, Ralph Lauren and PVH Corp. were the biggest gainers in S&P 500.

Activision Blizzard was among the biggest losers today amid worries about the fate of Microsoft‘s acquisition. According to recent reports, the FTC could file an antitrust suit to block the takeover. Microsoft stock was flat in today’s trading.

The recent pullback in the oil markets put some pressure on energy stocks in the last hour of trading. The pullback in WTI oil was caused by reports that indicated that EU delayed talks on the Russian oil price cap until next week. Problems in price cap negotiations are bearish for oil markets as they increase chances that Russian oil exports will not decline after December 5.

Treasury yields and the U.S. dollar have moved higher today. Interestingly, these moves did not put any pressure on the S&P 500. Meanwhile, the tech-heavy NASDAQ Composite declined by 0.5% as tech stocks are more sensitive to changes in yields.

S&P 500 Is Stuck In The 4015 – 4040 Range

S&P 500

From a big picture point of view, nothing has changed in the last two days. S&P 500 managed to settle above the 4015 level and found itself in a range between the support at 4015 and the resistance at 4040.

S&P 500 needs to settle above the resistance at 4040 to continue its rebound. A move below the 4015 level may lead to a sell-off as some traders will rush to take profits after the recent rally.

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

Is Target a Buy After the Recent Dip?

As revenues dropped by almost 50% year over year. Concerns about the “rapidly evolving consumer environment” were raised, since they pose a threat to future growth. The company’s stock price fell as much as 15% on the day of publishing its earnings last week and ended the same week almost 5% down.

Target Daily Chart – Source: ActivTrades online trading platform

In its statement, the CEO said that profits had gone soft, particularly during the last weeks of the third quarter, citing the impacts of inflation, economic uncertainty, and rapidly rising interest rates that are biting into consumers’ purchasing power and changing buying habits.

With a worldwide slow-down on the horizon and its share price crumbling, is the big box chain capable of bouncing back and rewarding patient investors?

Q3 In a Nutshell

Compared to last year, total revenue grew by 3.4% to $26.5 billion. Operating income was $1 billion in the third quarter of 2022, which was 49.2% less than it was in the third quarter of 2021, at around $2 billion. This was mostly due to a drop in the company’s gross margin rate. Earnings per share also came in at $1.54, well below the $2.13 target.

It wasn’t all bad news, as the company did see improvements in areas like beauty, food, and home staples, but persistent weakness in discretionary categories was a drag on the bottom line. Even while Target has made some headway in reducing the surplus of inventory it built up in the first half of the year, analysts still see the store’s wide product offering as a weakness.

Further highlighting Target’s difficulties, last Wednesday, we also learnt that October retail sales in the United States increased by 1.3%. This was the largest growth in retail sales in eight months, and it beat the gain forecast by analysts by 0.2 percentage points.

The Q4 Forecast and Beyond

In view of the deteriorating business climate, the company has reduced its fourth-quarter revenue and profit projections to an operating margin rate of around 3%.

It also has plans to launch a company-wide drive to streamline and improve operations in order to save between $2 and $3 billion over the next three years. Although they didn’t specifically explain how, the extra 40% of growth that took place over the pandemic is part of how they expect to leverage for improvements in how they operate.

Management cautioned that fourth-quarter same-store sales are anticipated to fall, which is one of the most important metrics in the retail business. This equates to the total revenue generated by a company’s locations that have been operating for at least a year.

Target’s share price has already dropped by one-third this year, causing some in the industry to refer to the company as a bit of a bargain.

It’s understandable if prospective investors are hesitant to purchase the company’s stock given the three straight quarters of disappointing profitability and a gloomy prognosis for the Christmas shopping season. However, some feel that Target stock is a good buy-on-the-dip choice. Investors who are patient and willing to wait might benefit from seeing how the current quarter (or two) plays out for the company.

How Are Other Retailers Fairing?

Walmart

In contrast to Target, Walmart surprised investors last Tuesday by reporting quarterly earnings that were higher than anticipated, with particular success at Walmart US, Sam’s Club US, Flipkart, and Walmex. The company in response raised its fourth-quarter forecast and announced a fresh $20 billion share buyback program.

Overall revenue was $152.8 billion, representing an increase of 8.7% (or 9.8% when measured in constant currency).

The impact of currency changes had a negative effect of $1.5 billion on Walmart International’s net sales, which came in at $25.3 billion. This number still represents an increase of $1.7 billion, or a 7.1% increase. Earnings per share came in at $1.50 adjusted, well above the $1.32 forecast.

Walmart’s Christmas expectations were more muted than in previous years. The company forecasted a 3% increase in comparable sales for its US operations, excluding the impact of fuel sales.

The company last week also announced it was agreeing to a multi-billion dollar settlement for lawsuits in regards to its pharmacies and the opioid crisis in the US. The $3.1 billion payment was in response to allegations of improperly filled prescriptions for the highly addictive painkillers. Walmart in its statement denied any liability and strongly disputed all claims.

Walmart Daily Chart – Source: ActivTrades online trading platform

Dollar Tree

As customers continue to downshift to the bargain retail industry in the face of increasing inflation and uncertain economic outlook, Dollar Tree reported Tuesday better-than-expected profitability for the third quarter and increased its full-year sales prediction.

Total net sales rose by 8.1% to $6.94 billion. Same-store sales for Enterprise went up by 6.5%. The company’s same-store sales went up 8.6%, or 8.5% when currency changes were taken into account. This was due to a double-digit increase in the average ticket, which was partially offset by a drop in traffic.

Despite the positive results, however, the group’s prediction that diluted profits would be in the “lower half” of its earlier prediction of between $7.10 and $7.40 per share caused shares to fall sharply after the results were published.

Dollar Tree Daily Chart – Source: ActivTrades online trading platform

Charts provided by ActivTrades online trading platform

Disclaimer

CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. 85% of retail investor accounts lose money when trading CFDs with this provider. You should consider whether you understand how CFDs work and whether you can afford to take the high risk of losing your money.

ActivTrades Corp is authorised and regulated by The Securities Commission of the Bahamas. ActivTrades Corp is an international business company registered in the Commonwealth of the Bahamas, registration number 199667 B.

The information provided does not constitute investment research. The material has not been prepared in accordance with the legal requirements designed to promote the independence of investment research and as such is to be considered to be a marketing communication.

All information has been prepared by ActivTrades (“AT”). The information does not contain a record of AT’s prices, or an offer of or solicitation for a transaction in any financial instrument. No representation or warranty is given as to the accuracy or completeness of this information.

Any material provided does not have regard to the specific investment objective and financial situation of any person who may receive it. Past performance is not a reliable indicator of future performance. AT provides an execution-only service. Consequently, any person acting on the information provided does so at their own risk.

BTC Fear & Greed Index Falls on Genesis News and a NASDAQ Index Slide

Key Insights:

  • On Wednesday, bitcoin (BTC) fell by 1.37%. Marking the eighth loss from eleven sessions, BTC ended the day at $16,654.
  • News of Genesis Trading freezing redemptions and the NASDAQ Composite Index sent BTC and the broader crypto market into the red.
  • The Bitcoin Fear & Greed Index fell from 23/100 to 20/100 as contagion fear resurfaced.

On Wednesday, bitcoin (BTC) fell by 1.37%. Partially reversing a 1.56% gain from Tuesday, BTC ended the day at $16,654. Notably, ended the day at sub-$17,000 for the sixth time since 2020.

A mixed start to the day saw BTC rise to an early high of $17,002. However, coming up short of the First Major Resistance Level (R1) at $17,164, BTC fell to a mid-afternoon low of $16,347. BTC fell through the First Major Support Level (S1) at $16,575 before wrapping up the day at $16,654.

US economic indicators failed to provide support, despite a 1.3% jump in retail sales. News of Genesis suspending redemptions hit the wires ahead of the retail sales numbers, sending the BTC deeper into the red.

Adding to the market angst were updates from Target Corp (TGT) and Micron Tech (MU), which left the US equity markets in negative territory. NASDAQ-listed Micron Tech (MU) announced plans to reduce memory chip supplies and make more cuts to its capital spending plans.

Later today, US jobless claims and Philly Fed Manufacturing numbers could influence. However, further signs of contagion would overshadow positive stats and a NASDAQ Index recovery of Wednesday’s losses. This morning, the NASDAQ mini was up 39.5 points.

NASDAQ correlation.
NASDAQ – BTCUSD 171122 5 Minute Chart

The Fear & Greed Index Falls Deeper into the Extreme Fear Zone

Today, the Fear & Greed Index fell from 23/100 to 20/100. The news of Genesis Trading freezing redemptions weighed on investor sentiment mid-week. Contagion risk remains a significant risk to the crypto market near term, leaving investors sensitive to news of freezes.

However, the Index avoided sub-20 despite the Genesis news, suggesting investor resilience. The Binance recovery fund and interest in backing the fund likely limited the damage.

Attending a conference in Abu Dhabi, Binance CEO CZ reportedly said,

“There are players that have strong financials and we should band together; we’ve got significant interest so far.”

CZ did not provide names of institutions or exchanges or details of the recovery fund in terms of the mechanism, such as current size and qualification criteria.

However, CZ did say that more details about the fund will be available over the next two weeks.

The Index would need to avoid sub-20/100 to support a return to 40 and a move into the neutral zone. However, a fall to sub-20/100 would see BTC face the risk of sub-$10,000.

Fear & Greed Index avoids sub-20
Fear & Greed 171122

Bitcoin (BTC) Price Action

At the time of writing, BTC was up 0.10% to $16,671. A range-bound start to the day saw BTC fall to an early low of $16,650 before rising to a high of $16,700.

BTC finds early support.
BTCUSD 171122 Daily Chart

Technical Indicators

BTC needs to avoid the $16,668 pivot to target the First Major Resistance Level (R1) at $16,988 and the Wednesday high of $17,002. A return to $17,000 would signal a bullish session. However, the direction will hinge on FTX updates, contagion news, and US stats.

In the case of an extended rally, BTC would likely test the Second Major Resistance Level (R2) at $17,323 and resistance at $17,500.

The Third Major Resistance Level (R3) sits at $17,978.

A fall through the pivot would bring the First Major Support Level (S1) at $16,333 into play. Barring another extended sell-off, BTC should avoid sub-$16,000. The Second Major Support Level (S2) at $16,013 should limit the downside. However, negative FTX-related news could send BTC to sub-$15,000.

The Third Major Support Level (S3) sits at $15,358.

BTC resistance levels in play above the pivot.
BTCUSD 171122 Hourly Chart

Looking at the EMAs and the 4-hourly candlestick chart (below), it was a bearish signal. This morning, bitcoin sat below the 50-day EMA, currently at $17,301. The 50-day EMA eased back from the 200-day EMA, with the 100-day EMA falling back from the 200-day EMA, delivering bearish signals.

A BTC move through R1 ($16,988) would give the bulls a run at the 50-day EMA ($17,301) and R2 ($17,323). However, failure to move through the 50-day EMA would leave BTC under pressure and S1 ($16,333) in view.

BTC EMAs bearish
BTCUSD 171122 4 Hourly Chart

Crypto Market Daily Highlights – MATIC and XRP Fall on Genesis News

Key Insights:

  • It was a bearish Wednesday session for the crypto top ten, with polygon (MATIC) leading the way.
  • News of Genesis Trading freezing redemptions reignited contagion fear, with a bearish NASDAQ Index session adding to the negative mood.
  • The crypto market cap fell by $12.5 billion to end the day at $790.3 billion.

It was a bearish Wednesday session for the crypto top ten. Polygon (MATIC) led the way down. BTC fell for the eighth session in eleven. Notably, BTC ended the day at sub-$17,000 for the sixth time since 2020.

News of Genesis Trading suspending redemptions and new loan originations reignited contagion fear. Genesis follows BlockFi and Liquid, who froze withdrawals due to the collapse of FTX.

However, the market reaction to the news was relatively muted when considering the increased risk of more platforms to follow. On Wednesday, Binance CEO CZ looked to calm market jitters by providing an update on the recovery fund. The Binance CEO said,

“There are players that have strong financials and we should band together; we’ve got significant interest so far.”

However, details remained scarce, with the Binance CEO holding back details of interested parties.

Looking beyond the crypto market, the NASDAQ Composite Index fell by 1.54%, adding further pressure on the crypto market. US retail sales figures failed to provide support, despite an unexpected 1.3% jump in spending.

Micron Tech (MU) weighed on the NASDAQ on chip supply and capital spending updates. Target Corp (TGT) added to the bearish sentiment, forecasting weak sales for the holiday quarter.

NASDAQ correlation.
Total Market Cap – NASDAQ – 171122 5 Minute Chart

Crypto Market Slides on Genesis News and NASDAQ Pullback

It was a bearish Wednesday session. The crypto market rose to an early high of $813.2 billion before sliding to a low of $775.1 billion.

Contagion fear resurfaced to reverse gains from the previous two sessions.

While recovering from sub-$780 billion, the market cap fell by $12.5 billion to end the day at $790.3 billion. The Wednesday slide left the market cap down $179 billion in November.

Crypto market falls back to sub-$800 billion.
Total Market Cap 171122 Daily Chart

The Crypto Market Movers and Shakers from the Top Ten and Beyond

It was a bearish Wednesday session for the crypto top ten.

MATIC led the way down, sliding by 4.20%, with ETH (-2.92%) and XRP (-3.35%) struggling.

ADA (-1.48%), BNB (-1.81%), BTC (-1.37%), and DOGE (-1.72%) also saw red.

From the CoinMarketCap top 100, it was a mixed session.

Trust wallet token (TWT) led the way, rallying by 11.90%. Aptos (APT) and chiliz (CHZ) were also among the front runners, rising by 3.69% and 6.06%, respectively.

However, maker (MKR) led the way down, falling by 6.46%, with kava (KAVA) and cronos (CRO) seeing losses of 4.51% and 4.34%, respectively.

24-Hour Liquidations Hold Steady Despite Bearish Session

Over 24 hours, total liquidations held at below-usual levels despite contagion fear resurfacing. At the time of writing, 24-hour liquidations stood at $62.13 million versus $69.38 million on Wednesday morning.

Liquidated traders over the last 24 hours also held steady. At the time of writing, liquidated traders stood at 28,735 versus 27,924 on Wednesday morning. Liquidations were down over 12 hours while up over four hours and one hour.

Crypto liquidations hold steady.
Total Crypto Liquidations 171122

According to Coinglass, 12-hour liquidations fell from $41.79 million to $38.35 million. However, four-hour liquidations rose from $2.78 million to $5.59 million, with one-hour liquidations up from $0.444 million to $3.02 million.

The chart below shows market conditions throughout the session.

Crypto market finds late support.
Total Market Cap 171122 Hourly Chart

5 Things to Know in Crypto Today – Genesis and the NASDAQ Index Weigh

Key Insights:

  • Genesis announced the suspension of redemptions and new loans.
  • Binance CEO CZ talks of significant interest in the recovery fund.
  • US retail sales beat expectations, while Target (TGT) delivers a grim holiday season forecast.

Genesis Announces Suspension of Crypto Lending and Redemptions

The collapse of FTX took another bite out of the crypto market today. This afternoon, Genesis Trading announced the temporary suspension of redemptions and new loan originations in the lending business.

Genesis blamed the collapse of FTX for the unprecedented market turmoil, leading to irregular withdrawal requests that exceeded the platform’s available liquidity.

Despite the cushion of the Binance recovery fund, investors responded adversely to the news that preceded US retail sales figures for October.

Following the news of BlockFi and FTX-Linked Liquid freezing withdrawals, the latest announcement raises the possibility of more platforms suspending withdrawals.

After enjoying a two-day winning streak, the crypto market was down $17.1 billion to $785.7 billion in response to the news and market reaction to the latest US retail sales figures.

Crypto market slides on Genesis news and NASDAQ fall.
Crypto Market Cap 171122 Daily Chart

US Retail Sales Overshadowed by Target Q4 Sales Forecast

US Retail Sales jumped by 1.3% in October after stalling in September. Economists forecast a 1.0% increase.

However, Target Corp (TGT) weighed on investor sentiment, forecasting slowing demand over the holiday quarter. The unexpected forecast followed a Q3 earnings miss, leaving TGT down 13.06% for the session.

Adding to the bearish mood was news of Micron Tech (MU) reducing memory chip supplies and plans to make more cuts to its capital spending plans. The NASDAQ Composite Index ended the day with a 1.54% loss, which added to the crypto market’s bearish mood.

NASDAQ correlation.
Crypto Market NASDAQ 171122 5 Minute Chart

Binance CEO CZ Tells of Significant Interest in the Recovery Fund

On Wednesday, Binance CEO CZ updated the markets on the recently launched Recovery Fund. Attending a conference in Abu Dhabi, CZ reportedly said,

“There are players that have strong financials and we should band together; we’ve got significant interest so far.”

CZ did not provide names of institutions or exchanges or details of the recovery fund. Details such as the size of the fund and the qualification criteria remain vague.

However, CZ did say that more details about the fund will be available over the next two weeks.

Amidst the current market turmoil, the FIFA 2022 World Cup show must go on.

Today, Binance also announced the November 18 first-ever Christiano Ronaldo NFT drop on Binance.

FTX Fallout Hits Celebrity Endorsers

This week, Plaintiff Edwin Garrison filed a class action lawsuit against former FTX CEO Sam Bankman-Fried and a group of individuals accused of endorsing FTX. The class-action suit lists Tom Brady, Gisele Bundchen, Stephen Curry, Shaquille O’Neal, Naomi Osaka, and Kevin O’Leary as co-defendants.

In October, Kim Kardashian settled with the SEC on charges of touting a crypto asset security by paying $1.26 million in penalties.

Senate Banking Committee Targets Former FTX CEO

According to news reports, the Senate Banking Committee is following in the footsteps of the House Financial Service Committee with plans to hold a hearing on FTX, which will involve Alameda and Bankman-Fried.

According to Reuters, the Financial Services Committee Chair Maxine Waters said,

“The fallout of FTX has posed tremendous harm to over one million users, many of whole were everyday people who invested their hard-earned savings into the FTX cryptocurrency exchange, only to watch it disappear within a matter of seconds.”

 

S&P 500 Retreats Towards 3960 As Traders Focus On Target’s Results

Key Insights

  • Sell-offs in Target and Micron stocks hurt market sentiment today. 
  • Energy stocks moved lower as traders decided to take profits off the table amid a pullback in oil markets. 
  • A successful test of the support at 3960 will push S&P 500 towards the next support level at 3920.

Target And Micron Push The Market Lower

S&P 500 pulled back towards the support at 3960 as traders reacted to the weak report from Target and warning from Micron.

Target missed analyst estimates on earnings and said that it planned to cut up to $3 billion in costs in the next three years.

Micron said that the market outlook for the next year had weakened and adjusted its capex plans accordingly.

Carnival was among the biggest losers in the S&P 500 today after the cruise operator said that it would issue $1 billion of convertible senior notes. At the time of writing, the stock was down by almost 14%. Cruise companies carry significant debt burdens after the pandemic, and their debt levels will likely remain a material problem in the upcoming years.

Energy stocks were under significant pressure today as WTI oil made an attempt to settle below the $85 level. Many stocks in this market segment are trading near yearly highs, so some traders want to take profits off the table.

Tech stocks were hit by Micron’s warning. Micron’s announcement put pressure on shares of other semiconductor stocks, like AMD and NVIDIA.

It should be noted that Treasury yields moved lower today, but this move did not provide any support to the stock market. At this point, it looks that S&P 500 will need additional positive catalysts to settle above the 4000 level.

S&P 500 Tests Support At 3960

S&P 500

S&P 500 has recently made another attempt to settle above the 4000 level but lost momentum and pulled back towards the support level at 3960. If S&P 500 manages to settle below this level, it will gain additional downside momentum and move towards the next support at 3920. A successful test of the support level at 3920 will open the way to the test of the support at 3885.

On the upside, the nearest resistance level for S&P 500 is located at 4000. A move above this level will lead to the test of the next resistance at 4015. In case S&P 500 gets above 4015, it will head towards the resistance level at 4040.

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

Walmart Gains 7% After Raising Full-Year Guidance

Key Insights

  • Walmart stock rallies after the release of the third-quarter report. 
  • Walmart announced a new $20 billion buyback program. 
  • Other discount store stocks are also moving higher. 

Walmart Stock Gains Ground As Traders React To The New Buyback Program

Walmart gained 7% in today’s trading session as traders reacted to the strong quarterly report. The company reported revenue of $152.8 billion and adjusted earnings of $1.50 per share, beating analyst estimates on both earnings and revenue.

Walmart announced a new $20 billion stock buyback program, providing significant support to the stock. This program will replace the existing authorization, which had $1.9 billion remaining at the end of the third quarter.

The strong dollar hurt the results of the company’s international segment. However, Walmart International net sales managed to grow by 7.1% despite the strong dollar.

Walmart has also announced that it has agreed to a $3.1 billion opioid settlement framework design to resolve substantially all opioid lawsuits and potential lawsuits.

Walmart raised its full-year outlook due to the strong performance in the third quarter. The company expects consolidated net sales growth of 5.5%.  Consolidated adjusted operating income is expected to decline by 6.5% – 7.5%, compared to the previous guidance which called for a decline of 9% – 11%.

Traders Rush To Buy Discount Store Stocks

Walmart’s results provided significant support to discount store stocks. Big Lots is up by 6%, while Dollar General is gaining more than 3.5%. Costco, Dollar Tree, and Target are up by 3%.

Most discount stores have outperformed the broader market this year. Recession worries provided some support to defensive sectors, which was bullish for discount store stocks.

It should be noted that Walmart is trading just 8% below its all-time high levels, so demand for the stock remains strong. The strong earnings report and the new buyback program have the potential to push the stock closer to the all-time high levels.

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

Target Stock Retreats After Weak Report

Key Insights

  • Target is under pressure in premarket trading after missing analyst estimates. 
  • Lowe’s stock is gaining some ground despite weak growth expectations. 
  • S&P 500 futures are down by almost 1% in premarket trading as traders focus on rising yields. 

Yesterday, strong reports from Walmart and Home Depot provided some support to S&P 500. Today’s reports from Target and Lowe’s  will not have the same impact as traders will likely remain focused on rising yields.

Target Misses Analyst Estimates

Target reported revenue of $26.04 billion and adjusted earnings of $0.39 per share, missing analyst estimates on both earnings and revenue.

Comparable sales increased by 2.6%, reflecting the 2.7% traffic growth. Target noted that its operating margin rate was just 1.2% due to higher freight and transportation costs, as well as the company’s efforts to reduce inventory.

In the fiscal 2022, the company exports to report full-year revenue growth in the low- to mid-single digits. Operating margin rate is expected to be close to the 6% level in the second half of the year.

Traders did not like the report, and the stock is down by about 3% in premarket trading. The stock performed well in recent weeks, so the weak report may trigger a sell-off due to profit-taking.

Lowe’s Expects No Comparable Sales Growth In 2022

Lowe’s reported revenue of $27.48 billion and GAAP earnings of $4.67 per share, missing analyst estimates on revenue and beating them on earnings.

Comparable sales declined by 0.3%. Lowe’s noted that DIY sales were impacted by the shortened spring and lower demand in certain discretionary categories.

In the full-year 2022, the company expects to report comparable sales in a range from a decline of -1% to an increase of 1%. Interestingly, traders look ready to buy Lowe’s shares despite weak growth, and the stock is up by 1% in premarket trading.

It should be noted that retailers’ earnings should not have a major impact on S&P 500 dynamics today. Traders are focused on rising government bond yields, which present a threat to the stock market rally.

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

Best Undervalued Stocks to Buy Now for August 2022

When this happens, it can pull in even the best stocks. That means the bad, unprofitable stocks and the best-in-breed stocks are sold off. They become undervalued – and that’s bargain time for long-term investors.

Markets and Big Money in the Last Six Months

When trying to make sense of markets, I look to data. So, what does the data say?

Well, my research firm, MAPsignals, follows the Big Money because we believe it moves markets. We created the Big Money Index (BMI), a 25-day moving average of Big Money buys and sells. It recently hit oversold levels twice (below the green line), meaning selling has been driving down markets big time:

Chart, histogram Description automatically generated

Oversold territory doesn’t occur often. But when it has in the past, it’s almost always been a bullish indicator. For a recent example, look at what happened after the BMI hit oversold in early 2020 (the start of the pandemic) – a monster rally:

Chart, histogram Description automatically generated

Going back to 2011, history suggests that oversold BMI instances indicate being at or near market bottoms. Looking at the chart below, we can see that the BMI hitting the green line often corresponds with a market low. We can also see how rallies tend to follow:

Chart, histogram Description automatically generated

While these metrics are not guarantees, history suggests markets rise over time after the BMI hits oversold. So, this puts us on the lookout for quality stocks that will rise as buyers return and markets trend upward again. We want fundamentally sound companies with good histories and discounted prices. Right now, that points to the technology, discretionary, financial, and staples sectors. Here are our best undervalued stocks to buy now for August 2022: TGT, SBUX, LOW, MA, and QCOM.

Target Corporation (TGT) Analysis

Up first is Target, which is one of the biggest retail chains around.

Even though great companies’ stocks can be volatile, like TGT over the past year, they’re worthy of attention, especially on pullbacks. Check out Target:

  • Year-to-date performance (-31.0%)
  • Recent Big Money sell signals

To show you what our Big Money signals look like on a stock, have a look at all the buys and sells in TGT over the past year:

Chart, histogram Description automatically generated

Looking more broadly, Target has been a high-quality stock for years, and it pays a current dividend of more than 2.8%. The blue bars in the chart below show when TGT was a high-ranking Top 20 stock likely being bought by a Big Money player, according to MAPsignals. When you see a lot of blue, it can be very bullish:

Chart Description automatically generated

Source: www.MAPsignals.com

Those blue signals indicate Big Money buying and solid fundamentals. As you can see, Target’s sales growth has been strong and the expected earnings outlook is solid, making it worthy of attention:

  • 3-year sales growth rate (+12.2%)
  • 2-year vs. 1-year EPS growth estimate (+41.3%)

Starbucks Corporation (SBUX) Analysis

Next up is Starbucks, the coffee giant.

Check out these technicals for SBUX:

  • Year-to-date performance (-29.0%)
  • Recent Big Money sell signals

It’s been getting sold heavily, creating a big downtrend:

Chart, histogram Description automatically generated

Now let’s look long-term. Below are the Top 20 buy signals for Starbucks since 2004. The Big Money has been on SBUX for a while and loves its dividend (currently near 2.4%):

Chart, histogram Description automatically generated

Source: www.MAPsignals.com

Let’s look under the hood. As you can see, Starbucks has grown sales well and the outlook for future earnings looks good:

  • 1-year sales growth rate (+23.6%)
  • 2-year vs. 1-year EPS growth estimate (+19.8%)

Lowe’s Companies, Inc. (LOW) Analysis

Another potential growth name is Lowe’s, the enormous home improvement retailer.

Strong candidates for growth usually have Big Money buying the shares. Lowe’s has historically had that. Until December 2021, it was a gem. But it’s seen big selling since, which could be an opportunity:

  • Year-to-date performance (-27.0%)
  • Historical Big Money signals

Chart, histogram Description automatically generated

Below are the blue Top 20 Big Money buy signals LOW has made since 1990. It’s clearly a Big Money favorite. That’s the JUICE!

Chart, histogram Description automatically generated

Source: www.MAPsignals.com

Now let’s dig deeper. Sales growth for Lowe’s has been impressive. I expect more of the same in the coming years. Its earnings estimate and profit margin bode well for the future too. LOW also pays a current dividend of more than 2.2%.

  • 1-year sales growth rate (+7.4%)
  • 2-year vs. 1-year EPS growth estimate (+8.8%)
  • Profit margin (+8.7%)

Mastercard Corporation (MA) Analysis

Number four on the list is Mastercard, the huge credit card company.

Here are the technicals important to me:

  • Year-to-date performance (-5.0%)
  • Historical Big Money signals

MA has chopped along over the past year, with lots of Big Money selling and buying:

Chart Description automatically generated

But Mastercard is a Big Money favorite, and it pays a current dividend of almost 0.6%. Below are the Big Money Top 20 buy signals for MA since 2006:

Chart, histogram Description automatically generated

Source: www.MAPsignals.com

Let’s look under the hood. Despite the price slide, Mastercard’s sales and earnings have jumped quite a bit:

  • 1-year sales growth rate (+23.4%)
  • 3-year EPS growth rate (+19.8%)

QUALCOMM, Inc. (QCOM) Analysis

Our last growth candidate is  QUALCOMM, which is a large semiconductor company.

Last winter it was being bought up. But since then there’s been lots of Big Money selling as technology stocks have been slammed:

Chart, histogram Description automatically generated

Check out these technicals:

  • Year-to-date performance (-19.0%)
  • Historical Big Money signals

But QCOM is a high-quality stock since it’s made the MAPsignals Top 20 report. Right now, it pays a current dividend of more than 2.0% and it’s on a pullback. So, QCOM could be an opportunity. As you can see, it’s been a Big Money favorite for years:

Chart Description automatically generated

Source: www.MAPsignals.com

Now let’s look below the surface a bit. Sales have been growing and the profit margin is solid:

  • 1-year sales growth rate (+42.6%)
  • Profit margin (+26.9%)

Bottom Line and Explanatory Video

 

TGT, SBUX, LOW, MA, and QCOM represent the top undervalued stocks for August 2022. They’ve been sold a lot lately…perhaps too much. Strong, fundamentally-sound stocks seeing near-term sell signals are worthy of extra attention because of their long-term potential.

To learn more about MAPsignals’ Big Money process please visit: www.mapsignals.com

Disclosure: the author holds long positions SBUX and QCOM in personal and managed accounts, and LOW in managed accounts.

Contact

https://mapsignals.com/contact/

Target Falls After Cutting Guidance

Key Insights

  • Target released an updated 2022 plan and cut its guidance. 
  • Second-quarter results will look bleak, and the company’s operating margin rate will drop to just 2%. 
  • The stock is trading at 11 forward P/E, but it is not too cheap as analyst estimates will decline in the upcoming weeks. 

Target Cuts Guidance Again

Shares of Target found themselves under pressure after the company cut its guidance just a few weeks after the release of a disappointing earnings report.

Target announced that it planned to “right-size its inventory for the balance of the year and create additional flexibility to focus on serving guests in a rapidly changing environment.”

As a result, Target expects that its second-quarter operating margin rate will be in a range around 2%. Previously, Target expected that its operating marging rate would be in a wide range centered around 5.3%. In the second half of the year, operating margin rate is expected to grow to 6%.

Put simply, Target’s second-quarter results will look bleak. In addition, the market is worried that the economic situation is worse than previously expected due to inflation.

What’s Next For Target Stock?

Analyst estimates have moved lower after the disappointing first-quarter report. Target is expected to report earnings of $10.6 per share in the current fiscal year and $13.3 per share in the next fiscal year, so the stock is trading at 11 forward P/E.

While current valuation levels are not expensive, traders should keep in mind that analyst estimates will continue to move lower after another gudiance cut.

More, recent news from various firms, including Tesla, signal that the economy may face problems in the second half of this year. In this light, it remains to be seen whether the market will believe that Target’s problems will be limited to the second quarter and that the company would get back to planned operating margin levels in the second half of the year.

To keep up with the latest earnings updates, visit our earnings calendar.

Best Buy Is Down By 3%, Here Is Why

Key Insights

  • Barclays downgrades Best Buy after analysing its recent earnings report. 
  • Retailers’ stocks remain under pressure after disappointing reports from Walmart and Target. 
  • Best Buy is trading at just 7 forward P/E, so the stock could be attractive for speculative traders who are willing to bet that the recent sell-off was not justified. 

Best Buy Falls After Analyst Downgrade

Shares of Best Buy found themselves under pressure after Barclays cut its rating for the stock after the first-quarter report, which was released on May 24.

Best Buy reported revenue of $10.65 billion and adjusted earnings of $1.57 per share, beating analyst estimates on both earnings and revenue. Comparable sales declined by 8.0%, but the report did not put additional pressure on the stock as it has already declined by about 25% in several weeks.

The recent weeks have been challenging for retail stocks. Leaders like Walmart and Target suffered heavy losses, creating significant pressure on the whole segment. The analyst downgrade served as an additional bearish catalyst for Best Buy stock and pushed it closer to yearly lows.

What’s Next For Best Buy Stock?

Analyst estimates for Best Buy have been moving lower in recent months. Currently, the company is expected to report earnings of $8.86 per share in the current year and earnings of $10.35 per share in the next year, so the stock is trading at just 7 forward P/E.

While current valuation levels look cheap, analyst estimates may remain under pressure if analysts see signs of economic problems. The recent reports from retailers highlighted current challenges, and it remains to be seen whether the second-quarter reports will be better.

At the same time, it should be noted that current valuation could be attractive for speculative traders who are ready to bet that Best Buy stock can rebound after losing more than 25% of its value since the start of this year.

To keep up with the latest earnings updates, visit our earnings calendar.

Can Fed Help the Economy to Avoid Recession?

FED in the spotlight

The Fed’s “minutes” are due out at 1 p.m. CST today and most expect they will indicate additional 50-basis point rate hikes coming up in both the June and July meetings. The minutes could also offer more details on the Fed’s balance sheet reduction plan. There are some worries about liquidity in the bond markets later down the road as the Fed’s monthly reductions increase, so insiders will be looking for clues as to how they might accommodate that.

U.S. Fed Chair Jerome Powell yesterday noted that high inflation and economic weakness overseas could derail the central bank’s efforts to avoid a recession.

Powell has been promising that the Fed will be able to tighten financial conditions enough to cool inflation without significantly denting growth or causing unemployment to go up, aka deliver a “soft landing.” In an interview yesterday, however, Powell said economic woes in the EU and China in particular will make it much more difficult to deliver that result. Powell also said that if inflation fails to ease in coming months, “we’re prepared to do more,” which some Wall Street insiders take to mean that a 75-basis point hike is a possibility.

Economic data

Investors are extremely anxious to see the PCE Prices Index on Friday. The Core PCE, one of the Fed’s favorite inflation gauges, dropped back to an annual rate of 5.2% in March versus 5.3% previously .

Stock bulls overall are having a tough time finding a major upside catalyst especially as the multiple headwinds have begun to inflict damage on corporate earnings.

Weaker retailer outlooks the last couple of weeks have also been underpinning concerns that the U.S. economy is headed toward a recession. Most retailers are walking back forward guidance as they struggle against hire costs for wages and transportation, ongoing supply chain fallout, and changes in spending habits as consumers adjust to inflation.

Even some of the biggest names like Walmart and Target are struggling. In fact, there are report circulating that Amazon is talking about sub-leasing +10 million sqft. of its retail space. Keep in mind, Amazon stock has given back all of its pandemic gains. While the US consumer has seen -$9 Trillion of US household wealth vanish in the past few months. At the same time we are starting to see new home sales fall off a cliff.

Data released yesterday showed the sales of new US homes plummeted last month by the most in nearly nine years, dented by the combination of high prices and a steep climb in mortgage rates. Purchases of new single-family homes decreased -16.6% to an annualized 591,000 pace, the weakest since April 2020, basically the height of the covid scare. The median new home price soared nearly +20% from a year ago to a record $450,600. There were 444,000 new homes for sale as of the end of the month, the most since 2008. However, very few of those had yet to be completed. Of the total 444,000 new homes on the market in April, just 38,000 were finished.

Houses under construction made up +65% of the inventory, with homes yet to be built accounting for about 27%. The backlog of homes waiting to begin construction is at an all-time high thanks to material shortages and higher input costs. Bottom line, new home sales declined in all four US regions, including by double digits in three.

I should note, new-home purchases account for about 10% of the overall market and are calculated when contracts are signed. They are considered a timelier barometer than purchases of previously owned homes, which are calculated when contracts close.

As for today’s corporate earnings, Dick’s Sporting Goods, NVIDIA, Snowflake, Stellantis, and Williams Sonoma are scheduled to report.

Let Price Action Show You What To Do In An Approaching Bear Market

At the end of the day, the price determines our loss or profit. Therefore, we should focus our research on price action rather than time lagging indicators or market fundamentals.

Following and trading price simply means that the market tells the trader what to do and not the other way around. Being one with price deposits money into a trader’s account. Whereas fighting price withdraws money out of a trader’s account. The price action is “Always” right as it does not care what a trader’s opinion or bias is.

Bull markets can go on for many years, but bear markets happen unexpectedly and can quickly destroy a trader’s profits or even their account. Bear markets move with a greater velocity than bull markets and they are accompanied by high volatility due to investor emotions (Fear, Greed, & Hope).

The simple definition of a bear market is a drop in price of -20% or greater from its recent maximum peak. Therefore, once a market drops -by 20% or greater, it is a bear market.

SUDDEN BIG price action UP DAYS CAUSE “FOMO”

Bear markets behave differently than bull markets in that bear markets are known for having sharp rallies. These rallies may last from 1-2 days to a few weeks. When these rallies occur, they tend to be an irresistible trap for many investors who are experiencing the fear of missing out “FOMO” syndrome. Institutions and professionals use “FOMO” to liquidate existing holdings and/or short the market.

History has shown that some of the greatest stock market percentage gain days have occurred during bear market periods. The following table is from Wikipedia and shows us that most if not all the extreme daily percentage gains or losses occurred within bear market time periods.

LIST OF LARGEST DAILY CHANGES IN THE S&P 500 INDEX

Source: Wikipedia

“SUCCESSFUL INVESTING IS A BATTLE FOR FINANCIAL SURVIVAL” – G.M. LOEB

Volatility generally has ruined many investors and traders. It’s one thing to trade a stock that experiences a 1-3% daily move. Trading in a stock, however, that is swinging 5-10% or has a sudden earnings surprise gap down of -20% is dangerous as it has the potential and high probability of eventually bankrupting most trading accounts.

Gerald Martin Loeb (July 24, 1899 – April 13, 1974) was a founding partner of the E.F. Hutton & Co. brokerage firm, acquired by Shearson Lehman Brothers in 1987 for almost $1 billion. He was a renowned wall street trader and the author of “The Battle for Investment Survival”.

Loeb stated: “When I started investing about 1921, it seemed a peaceful enough occupation. By 1943, I started calling it a “Battle”, though a lot of people might have used the term much earlier from 1929 to 1932. But now in 1957, it seems to be a “War”.

Here are some relevant quotes for our current market environment from Loeb’s book:

  • “I favor doing one’s major forecasting from the tape or, to put it another way, from the price movement.” “This to me is elemental and necessary to success.”
  • “The preservation of capital should be looked upon as something that normally costs a price.”
  • “It is far better to let cash lie idle than to buy just to “keep invested” or for “income”.”
  • “Losses must always be cut. They must be cut quickly, long before they become of any financial consequence.”
  • “The lessons of the 1923 stock market break taught me what I had to know to not get caught in the crash of 1929 to 1932.”
  • “There have been at least 8 periods since the turn of the century (1000) when the stock market, as measured by the Dow Jones Industrial Average, has dropped as much as 40%.” “It has happened before and of course will happen again.”

Let’s review and study some current markets that are now in a bear market.

SPY S&P 500 -20.58%

SPY S&P 500 ETF – The SPY has experienced a sharp -18.04% sell-off during the last 51-days. Even though the SPY has not closed below the dreaded -20% peak-to-trough level, price action has violated this level intraday.

If or when we are fortunate enough to get a sharp multi-day rally back up, we should be looking to liquidate any stocks that we are still holding. Depending upon the rally magnitude a trader may want to consider buying an inverse ETF of the SPY such as SH ProShares Short S&P 500 Inverse ETF (-1x).

Market volatility remains high, and history has shown it may expand considerably. For most traders, the best advice is to go to cash and ride out this storm from the sideline. In case you think this statement seems extreme please review the accompanying stock charts.

SPDR S&P 500 ETF TRUST • SPY • ARCA • 4-HOUR

SPY S&P 500 price action

DEERE & COMPANY -29.01%

Deere (NYSE: DE), is a major American multinational manufacturer of farm machinery and industrial equipment.

Deere’s price action, after taking out a 10-month triple top and making a new all-time high, plunged by -29.19% in just 30+ days. This is the worst drop in 14-years as Deere cited supply chain snags, rising inflation, and unfavorable currency translation headwinds.

DEERE & COMPANY • DE • NYSE • 4-HOUR

Deere & Company price action

TARGET CORPORATION -43.42%

Target (NYSE: TGT), is an American department store chain and the eighth largest retailer in the United States.

Target’s price action has dropped about -40% in the last 30-days including a whopping -25% a single day. Target had missed its earnings forecast by -$1.50 citing inflation, and supply chain factors. This was the biggest loss in Target’s stock price since 1987.

TARGET CORPORATION • TGT • NYSE • 4-HOUR

Target Corporation price action

ROSS STORES INC -47.23%

Ross (NYSE: ROST), is an American chain of discount department stores.

Ross price action has dropped more than -35% in the last 30-days including an opening price plunge of just shy of -25%. Ross’s massive opening price drop was precipitated by the company’s first-quarter 2022 earnings update where they reported comparable-store sales declined -by 7% due to inflation pressures impacting the retail consumer.

ROSS STORES INC • ROST • NASDAQ • 4-HOUR

Ross Stores price action

TESLA INC -48.95%

Tesla (NASDAQ: TSLA), is an American automotive and clean energy company that designs and manufactures electric vehicles, battery energy storage from home to grid-scale, solar panels and solar roof tiles, related products, and services.

Tesla’s price action has dropped more than -44% in the last 45-days.  Only a few months ago Tesla’s market cap was over $1 trillion. At its current level, Tesla’s market cap is now $687 billion which represents approximately a $400 billion loss in value from its early January 2022 high.

TESLA INC • TSLA • NASDAQ • 4-HOUR

Tesla price action

LEARN more about price action FROM OUR TEAM OF SEASONED Traders

In today’s market environment, it’s imperative to assess your trading plan, portfolio holdings, and cash reserves. Experienced traders know what their downside risk is and adapt as necessary. Successful traders manage risk by utilizing stop-loss orders, rebalancing existing positions, reducing portfolio holdings, liquidating investments, and moving into cash.

Managing risk and expectations for both investments in real estate and the stock market is the key for long-term success. Do this, and you can avoid the rollercoaster ride of doing nothing to protect your investments.

Successfully managing our drawdowns ensures our trading success. The larger the loss, the more difficult it will be to make up. Consider the following:

  • A loss of 10% requires an 11% gain to recover
  • A 50% loss requires a 100% gain to recover
  • A 60% loss requires an even more daunting 150% gain to simply return to break even.

Recovery time also varies significantly depending upon the magnitude of the drawdown. A 10% drawdown can typically be recovered in weeks or months, while a 50% drawdown may take years to recover.

Depending on a trader’s age, they may not have the time to wait on the recovery or the patience. Therefore, successful traders know it’s critical to keep their drawdowns within reason. Most of them learned this principle the hard way.

HOW WE CAN HELP YOU LEARN TO INVEST CONSERVATIVELY?

At TheTechnicalTraders, my team and I can do these things:

  • Reduce your FOMO and manage your emotions.
  • Have proven trading strategies for bull and bear markets.
  • Provide quality trades for investing conservatively.
  • Tell you when to take profits and exit trades.
  • Save you time with our research.
  • Provide above-average returns/growth over the long run.
  • Have consistent growth with low volatility/risks.
  • Make trading and investing safer, more profitable, and educational.

Sign up for my free trading newsletter so you don’t miss the next opportunity!

We invite you to join our group of active traders who invest conservatively together. They learn and profit from our three ETF Technical Trading Strategies which include a real estate ETF. We can help you protect and grow your wealth in any type of market condition. Click the following link to learn more: www.TheTechnicalTraders.com

Chris Vermeulen
Chief Market Strategist
Founder of TheTechnicalTraders.com

Stocks Sink in a Vicious Sea of Red; Oil Bulls Are Blindsided by Stagflation Fear, Rates Down Trigger Demand for JPY, Leaving Gold in No Man’s Land

Global Macro and Stock Markets Analysis

US equities fell sharply Wednesday, S&P down 4%, the most significant daily decline since June 2020. The weakness came as Target’s quarterly earnings added fuel to the recession risk narrative, while the drop of US10 year yields down 10bps to 2.88% offered little support. And Oil settled at 2.3% lower on the day.

Equities continue to be at the mercy of broader macro themes, with more hawkish comments from Fed Chair Jay Powell leading to a further move higher in front-end rates, which continues to prove problematic for risk.

Medium-term, the Fed is likely to respond to any easing in financial conditions by ratcheting up the hawkish noises and, in effect, acting as a lid on the markets. And this should keep active money on the sidelines.

The relief rally trap door sprung when the S& P 500 4000 pins snapped after Target‘s earnings results exacerbated some recession fears that continued the theme of rising inventories detailed by Walmart on Tuesday. And the broad-based sell-off absolutely hammered tech.

Indeed, contagion from bellwether consumer earnings prints is sending stagflationary shockwaves through the market, and equities suffered another massive bout of indigestion after yesterday’s Alka Seltzer moment.

While rising inventories and higher inventory/sales ratios are not new, the big boxes now confirm recessionary worries and catalyze the severity of the sum of all stagflationary fears.

Oil Fundamental Analysis

The China reopening trade got blindsided by intense global recessionary impulses.

It is a very volatile market, but there are enough reasons to suggest why traders are looking to sell in the current environment.

An actual recession is likely one of the few antagonists that can contain oil prices with a supply deficit. And as the procession to recession shortens, oil prices could continue to fall due to demand concerns.

In addition to Venezuela barrels possibly coming to market offsetting the ongoing political fractious Libyan supply disruption, the EU sanctions package currently under discussion would likely legalize Russian supplies’ status quo at least through the year and take pressure off the prompt contract.

FOREX Fundamental Analysis

It was another busy day in G-10 FX with broad-based dollar demand across the spectrum, driven by a hawkish FED and safe-haven demand, which are two primary supportive channels for King Dollar.

Investors continue to evaluate the diverging approaches taken by central banks amid an inflation crisis. Federal Reserve Chair Jay Powell issued some hawkish comments on Tuesday about the possibility of raising the Fed Funds above neutral. At the same time, the Bank of England seems to have fallen behind the curve with its dovish approach, despite rampant inflation data emerging earlier Tuesday.

But folks that trade for a living, not analyze currencies as a job, are looking to buy JPY, which suggests the worm is turning on USDJPY.

Japanyese Yen

Local investor interest in buying USDJPY in the Asian session saw the pair touch a high in the 129.50/60 zone, coinciding with highs in various JPY crosses.

Since then, the pair has been heavy on rallies and opened the North America session near 129.00/10. This morning we open the Asia session at 128.30 as safe-haven demand is kicking in.

The JPY looks attractive with the global economy on the precipice of recession. JPY is interesting as the rise in USDJPY YTD has opened an enormous value gap for what is typically perceived as a safe-haven currency. Historically FX hedges for massive risk-off scenarios suggest that the YEN provides an excellent firebreak to the recessionary flames, especially against a “stock down rates down” seismic shock or a market backdrop consistent with recessionary pricing.

British Pound

Besides the Brexit risk and the BoE as a reluctant rate hiker, domestic political risk never seems to leave the GBP spectrum. “Red Wall” Conservative members of parliament are planning to ask Chancellor Rishi Sunak to remove Andrew Bailey as governor of the Bank of England. It seems nigh on impossible this would succeed, but it reflects the political pressure being heaped on the BoE.

Bailey is just two years into an eight-year term. Bailey has not helped himself, with comments such as predicting an “apocalyptic” rise in food prices earning him opprobrium from all corners.

Questioning the ability of your top central banker cannot be suitable for the currency.

Swiss Franc

USDCHF and CHF crosses continue to trade heavily, with little bounces, after SNB Chairman Jordan said the central bank is “ready to act if inflation strengthens.”

There is no relief in the crosses after disappointing quarterly results from major retailers weighed on the broader markets.

Gold Fundamentals

Gold is caught in the tug of war between recessionary safe-haven demand and do not fight the fed mode.

It is a tough market for gold investors, with stocks tanking and the street moving into a capitulatory sell-all frame of mind. And even lower bond yields are offering little support leaving bullion investors adrift in no man’s land.

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

Target Is Down By 24%, Here Is Why

Key Insights

  • Target stock declined below the $165 level after Q1 report indicated that the company failed to pass higher costs to consumers. 
  • Yesterday, Walmart released a weak quarterly report, and the whole segment is under pressure during today’s trading session. 
  • Target stock is trading at just 10 forward P/E, but analyst estimates will likely decline in the upcoming weeks. 

Target Falls After Weak Quarterly Report

Shares of Target  gained strong downside momentum after the company released its first-quarter report. The company reported revenue of $25.17 billion and adjusted earnings of $2.19 per share, beating analyst estimates on revenue and missing them on earnings.

According to the report, comparable sales increased by 3.3%, reflecting traffic growth of 3.9%. Operating margin rate was just 5.3%, “driven primarily by gross margin pressure reflecting actions to reduce excess inventory as well as higher freight and transportation costs.” In the second quarter, Target expects that operating income margin rate will be in a wide range centered around 5.3%.

Traders were shocked that Target failed to pass higher costs to consumers, and the stock lost 25% of its value. Yesterday, Walmart also presented a weak report, and it looks that retailers are not as safe as many investors expected.

What’s Next For Target Stock?

Target is expected to report earnings of $14.64 per share in the current year and earnings of $15.95 per share in the next year, so the stock is trading at just 10 forward P/E, which is cheap for the current market environment.

However, the company has just released a weak quarterly report, so analyst estimates will likely decline in the upcoming weeks. In addition, the whole segment is under pressure after disappointing reports from leading companies like Walmart and Target, so retail stocks will likely need additional upside catalysts to break the current downside trend.

The key question is whether Target’s inability to pass higher costs to consumers is a one-time event or a beginning of the new trend, which would hurt its profitability in the upcoming quarters. The company’s Q2 margin forecast is not inspiring, and it remains to be seen whether speculative traders will rush to buy Target stock despite the major pullback.

To keep up with the latest earnings updates, visit our earnings calendar.

Stock Bulls Remain Optimistic As Data Indicates a Slowdown in Manufacturing Inflation

Stock bulls remain extremely cautious but a bit more optimistic as data indicates a slowdown in manufacturing inflation. The Producer Price Index rose +11% year-over-year in April, higher than expected but a meaningful pullback from March’s +11.5%. Producer prices lead consumer prices, so the report is a good sign overall, though investors, as well as the Fed, will need to see a couple more months of declines before declaring that inflation is indeed cooling.

Inflation

Economists also warn that goods inflation may be coming down because consumer demand is shifting more to services, meaning high prices could simply be moving from one part of the economy to another. The latest data shows services prices are rising at the fastest rate in three decades with airfare leading the way. Even if inflation has peaked, the question now is, how long will it remain elevated?

Federal Reserve Chair Jerome Powell cautioned yesterday that he can’t guarantee the central bank can deliver a so-called “soft landing” for the economy, pointing to the tight labor market and ongoing supply chain dislocations. Powell also stressed that other “huge events” are playing important roles right now, including Russia’s war in Ukraine, that are beyond the Fed’s control. Powell made the comments after being confirmed by the Senate for a second 4-year term.

The central bank’s target inflation rate is still a “flexible +2%” but several officials have indicated that the new normal might be more in the +2.5% to +3% range. One of the main gauges (but not the only one) the Fed uses to determine the rate of inflation is the Core PCE Prices Index, which for March was running at +5.2%. The April read is due out on May 27, which is a couple weeks ahead of the Fed’s next meeting on June 14-15.

Data to watch

Consumer data recently has been sending mixed signals that are hard to interpret. Sentiment has been mostly falling since the start of the year but consumer spending has not shown any signs of pullback.

Next week, investors get an update on how spending is holding up via April Retail Sales on Tuesday. A slew of fresh housing data next week will provide a deeper look at how substantially higher mortgage rates might be impacting the market. The NAHB Housing Market Index for May is out on Tuesday, followed by April Housing Starts on Wednesday, and April Existing Home Sales on Thursday.

Several key earnings are on the calendar next week as well, including Home Depot and Walmart on Tuesday; Cisco, Lowe’s, Target, and TJX Companies on Wednesday; Applied Materials, Palo Alto Networks, and Ross Stores on Thursday; and Deere & Co. on Friday.

Target Shares Soar After Q4 Earnings Blow Past Estimates

Target Corp. shares soared over 12% on Tuesday after the Minneapolis, Minnesota-based company reported better-than-expected earnings in the holiday quarter and forecast solid sales this year despite ongoing supply chain disruption.

The company, which is one of the largest North American retailers offering customers both everyday essentials and fashionables, reported quarterly adjusted earnings of $3.19​​ per share, beating the Wall Street consensus estimates of $2.85 per share.

The retailer said its revenue climbed over 9.0% to $31 billion in the fiscal fourth quarter ended Jan from a year earlier. That missed the market expectations of $31.39 billion. Target’s total comparable sales grew 8.9% in the fourth quarter, reflecting comparable stores sales growth of 8.9% and digital sales growth of 9.2%.

“Our strong fourth-quarter performance capped off a year of record growth in 2021, reinforcing the durability of our business model and our confidence in long-term profitable growth,” said Brian Cornell, chairman and CEO of Target.

For the fiscal year 2022, Target forecasts low- to mid-single-digit revenue growth, an operating margin rate of 8% or higher, low-single-digit growth in operating margin dollars, and high-single-digit growth in Adjusted Earnings per Share.

The company expects quarterly, year-over-year profit performance will be variable during the year and generally improve as the year progresses. The company expects its first-quarter 2022 operating margin rate will be favourable in relation to historical performance, but well below its first-quarter 2021 rate of 9.8%.

On Tuesday, Target stock surged over 12% to $227.10. The stock fell over 4% so far this year after surging more than 30% in 2021.

Analyst Comments

Target beat 4Q21 consensus estimates with better-than-expected margins. But, the highlight of the release is the 2022 guidance, where Target is endorsing a continuation of 8% or higher operating margins. Many expected an outlook that included more of a give-back relative to the 8%+ outlook for 2021 (this yr ended up being 8.4%),” noted Michael Baker, Senior Research Analyst at D.A. Davidson.

“In the five years prior to the pandemic, operating margins averaged 6.3% and ranged from 5.9%-7.1%. The pre-pandemic all-time high was 7.8% in 2010. This shows that the operational improvements, which were taking hold prior to the pandemic, along with the share gains over the last 2 yrs, are proving to be sustainable.”

Target Stock Price Forecast

Thirteen analysts who offered stock ratings for Target in the last three months forecast the average price in 12 months of $266.17 with a high forecast of $305.00 and a low forecast of $230.00.

The average price target represents a 19.66% change from the last price of $222.44. Of those 13 analysts, eight rated “Buy”, five rated “Hold”, while none rated “Sell”, according to Tipranks.

Morgan Stanley gave the base target price of $255 with a high of $315 under a bull scenario and $165 under the worst-case scenario. The investment bank gave an “Equal-weight” rating on the big-box retailer’s stock.

“Estimates going higher as business expected to compound post-COVID-19. Guide much better than feared. Traffic driven comps impressive, an anomaly across Retail. 8% EBIT margin now the new water level,” noted Simeon Gutman, equity analyst at Morgan Stanley.

Target (TGT) has firmly established itself as a winner in Retail and deserves a premium multiple vs. historical valuations. Target (TGT) is gaining market share on top of 2020’s wallet share gains, we think Target (TGT) is one of the more attractive ways to play the upside to GDP. We see a positive risk/reward skew in the N-T but results could moderate and the stock path may be uneven, keeping us Equal-weight.”

Several analysts have also updated their stock outlook. Deutsche Bank lowered the target price to $305 from $312. Cowen and company cut the target price to $265 from $300. Goldman Sachs slashed the price target to $271 from $310.

Technical analysis suggests it is good to sell as 100-day Moving Average and 100-200-day MACD Oscillator gives a strong selling opportunity.

Check out FX Empire’s earnings calendar

What Is Next for the Russian Economy?

The first round of peace talks between Russia and Ukraine failed to make any progress but the two sides agreed to meet again in coming days.

I’m not really sure if that means anything as Russia now has a 40 mile convoy of military equipment and troops headed directly for the Ukraine border. At the same time, most reports indicate that fighting on the ground is intensifying and that Belarus is now preparing to deploy troops to help Russia. It’s still not clear what impact the array of sanctions the West has slapped on Russia might have on global financial markets and trade flows but the Russian economy is already being wrecked.

Russian central bank

The Russian central bank more than doubled its benchmark interest rate to 20% as it attempted to curb a run on banks and stop the fallout in the Russian ruble. At least one major Russian bank is said to be on the brink of collapse.

Meanwhile, the Russian central bank faces being cut off from a large portion of its foreign financial reserves under new restrictions from the West which will make it tougher for Russia to defend its currency. Keep in mind, the Russian ruble fell -30% against the US dollar, making it now worth less than one cent.

Some economists predict the country could face a total economic collapse if the extreme measures are kept in place for very long. Russia is now said to be preparing countermeasures against countries supporting sanctions imposed by the U.S. and its European allies. Most experts think it’s unlikely that Russia will curb its oil or gas supplies as they account for a sizable portion of the country’s GDP. However, most Russia experts also agree that it’s hard to predict what Putin might do if he feels like he’s been backed into a corner and humiliated over his miscalculation that Ukraine would be an easy land grab.

Inflation in USA

The most immediate threat to the U.S. at the current moment is that the conflict will push inflation even higher and the Federal Reserve will eventually have to get more aggressive in its efforts to bring prices down, possibly pushing the economy into a recession.

A lot of bulls believe that the U.S. consumer is actually strong enough to weather a period of both elevated inflation and higher borrowing costs thanks to healthy savings and the strong increase in asset prices witnessed over the past year and a half. I question that perspective, as I’ve seen some recent data that shows the US consumers savings level is getting back to pre-Covid levels and the higher costs of energy and housing might soon start taking a bigger bite. In fact, many bears warn that inflation is already eroding savings as well as spending power with double-digit price gains for consumer goods adding an estimated $250 in expenses for the average American household.

Investors will be scrutinizing the ISM Manufacturing Index today for signs that factory level prices might be starting to ease. The gauge climbed in January after easing for two months in a row at the end of 2021. Construction Spending is also due today. On the earnings front, highlights include AutoZone, Dominos Pizza, Hewlett Packard, Hormel Foods, J.M. Smucker, Kohl’s, Ross Stores, Salesforce, and Target.

Wall Street Week Ahead Earnings: Zoom, Salesforce, Domino’s, Dollar Tree and Broadcom in Focus

Traders have been rattled by geopolitical tensions over the Russia-Ukraine crisis, which has caused the global stock market to suffer. The S&P 500 plunged into correction territory. If tensions continue for long, analysts fear that it will be harder for the U.S. Federal Reserve to raise rates after next month’s hike. Due to this, investors sought safe-haven assets and U.S. Treasury yields fell as tensions between Ukraine and Russia increased. In addition, investors will focus on December quarter earnings for stocks that are economically sensitive, which should show better profits than technology stocks amid surging inflation.

Earnings Calendar For The Week Of February 28

Monday (February 28)

IN THE SPOTLIGHT: ZOOM

The San Jose, California-based communications technology company Zoom is expected to report its fiscal fourth-quarter earnings of $0.67 per share, which represents a year-over-year decline of nearly 24% from $0.88 per share seen in the same period a year ago.

The company, which provides video telephony and online chat services through a cloud-based peer-to-peer software platform, would post revenue growth of 19% to $1.05 billion.

“We have seen a reluctance of investors around Zoom given recent performance of WFH winners. Look to FY23 guide as opportunity to reset Street expectations, giving investors a cleaner path to getting involved. Remain OW on early days company at upselling large installed base with ancillary products,” noted Meta Marshall, equity analyst at Morgan Stanley.

Zoom has established its position as the leader in video conferencing, now a growth market. Company has meaningful competitive moat built on more than just architecture. Position within customers makes an attractive opportunity to expand into broader UC market. Early wins encouraging. Opportunities to expand platform remain. Manageable churn post-COVID as move to hybrid work setups continues.”

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

TICKER COMPANY EPS FORECAST
AMBA Ambarella $-0.04
HPQ HP $1.04
NVAX Novavax $0.36
SBAC SBA Communications $2.62
SDC SmileDirectClub $-0.28
WDAY Workday $-0.19

 

Tuesday (March 1)

IN THE SPOTLIGHT: SALESFORCE.COM, DOMINO’S PIZZA

SALESFORCE.COM: The San Francisco, California-based software company is expected to report its fourth-quarter earnings of $0.75 per share, which represents a year-over-year decline of over 27% from $1.04 per share seen in the same period a year ago.

However, the leading provider of enterprise cloud computing solutions would post revenue growth of nearly 25% to $7.24 billion up from $5.82 billion a year earlier. The company has beaten consensus earnings estimates in most of the quarters in the last two years, at least.

Salesforce.com (CRM) is down 35% since reporting F3Q vs. IGV down 25% due to software selloff, investor fears around demand-pull forward and MuleSoft, and tougher compares in 1HF23. Our survey indicated 88% expect their pipelines to grow with 37% expecting growth of 20%+ in F23. Despite a tough set-up heading into the Q, expectations are low. CRM offers attractive risk-reward as it trades close to trough levels at 5x ’23 rev. vs. comps at 9x (40% discount). Maintain Buy,” noted Brent Thill, equity analyst at Jefferies.

DOMINO’S PIZZA: The world’s largest pizza restaurant by sales is expected to report its fourth-quarter earnings of $4.30 per share, which represents year-over-year growth of about 12% from $3.85 per share seen in the same period a year ago.

The Ann Arbor Michigan-based company has beaten consensus earnings estimates in most of the quarters in the last two years, at least. The largest pizza chain in the world would post revenue growth of 2% to around $1.38 billion from $1.36 billion a year earlier.

TAKE A LOOK AT OUR EARNINGS CALENDAR FOR THE FULL RELEASES FOR THE MARCH 1

TICKER COMPANY EPS FORECAST
AZO AutoZone $16.42
AVID Avid Technology $0.33
BIDU Baidu $1.49
DPZ Domino’s Pizza $4.30
JAZZ Jazz Pharmaceuticals $2.96
JWN Nordstrom $1.05
ROST Ross Stores $0.97
TGT Target $2.85

 

Wednesday (March 2)

IN THE SPOTLIGHT: DOLLAR TREE

The Chesapeake, Virginia-based company Dollar Tree is expected to report earnings of $1.78 per share in the fourth quarter, down over 16% from $2.13 per share seen in the same period a year ago. But the discount variety stores that sells items for $1 or less would post revenue growth of more than 5% to $7.13 billion.

“While supply chain disruptions and associated costs are top of mind given the unexpected magnitude of these costs in 2Q and ongoing impact in 3Q, we believe that Dollar Tree’s price-increase initiative will likely be a focal point for investors. More specifically, we think investors will look to better understand customer receptivity to these price increases, the degree to which these price increases can mitigate the aforementioned supply chain costs, and to what extent the company is utilizing higher price point items to diversify merchandising and sourcing,” noted Randal J. Konik, equity analyst at Jefferies.

TAKE A LOOK AT OUR EARNINGS CALENDAR FOR THE FULL RELEASES FOR THE MARCH 2

TICKER COMPANY EPS FORECAST
ANF Abercrombie & Fitch $1.59
BOX Box Inc. $-0.06
PDCO Patterson Cos. $0.50
SGFY Signify Health $0.02
SPLK Splunk $-1.08
VEEV Veeva Systems $0.59

 

Thursday (March 3)

IN THE SPOTLIGHT: BROADCOM

Chipmaker and software infrastructure supplier Broadcom is expected to report earnings per share of $8.08 in the fiscal first quarter, which represents year-over-year growth of over 22% from $6.61 per share seen in the same period a year ago.

The San Jose, California-based semiconductor manufacturer would post revenue growth of nearly 14% to $7.6 billion. The company has beaten consensus earnings estimates in most of the quarters in the last two years, at least.

Broadcom (AVGO) is a compelling franchise in semis with diversified end-market exposure, product cycle momentum in wireless and networking, and market leadership. Furthermore, we take a more constructive view than investors on the company’s software strategy, particularly its purchase of Symantec,” noted Joseph Moore, equity analyst at Morgan Stanley.

“While sentiment has gradually improved, AVGO is still trading below the SOX on a P/E basis despite superior margins and FCF. We see an increase in 5G $ content, a rebound in enterprise, and reacceleration of cloud as tailwinds through 2021; and with the company’s net leverage reduced meaningfully it should be in the position to continue to execute on tuck-in deals in software.”

TAKE A LOOK AT OUR EARNINGS CALENDAR FOR THE FULL RELEASES FOR THE MARCH 3

TICKER COMPANY EPS FORECAST
BBY Best Buy $2.81
BIG Big Lots $2.19
COST Costco Wholesale $2.54
GPS Gap $-0.12
KR Kroger $0.70
WB Weibo $0.75

 

Friday (March 4)

No major earnings are scheduled for release.

Costco Fully Valued Ahead of Earnings

Costco Wholesale Corp. (COST) reports fiscal Q1 2022 earnings after Thursday’s closing bell, with analysts looking for a profit of $2.65 per-share on $49.75 billion in revenue. If met, earnings-per-share (EPS) will mark a 16% profit increase compared to the same quarter last year. The stock rose 3.3% in September after the company exceeded Q4 EPS guidance with a 17.5% revenue increase, but fell 7% in the next six sessions.

Black Friday Bummer

The big box retailer reported November comparative sales of 9.2%, with net sales rising 15.7% year-over-year. E-commerce growth slowed to 11.7%, held back by tough comparisons after 2020’s pandemic sales surge. Despite those results, investor sentiment is mixed after U.S. Black Friday store sales dropped $100 million compared to last year’s record of $9 billion. In addition, it was the first time the annual event generated no online spending growth.

The stock has defied gravity throughout 2021 and is now boasting an impressive 41% year-to-date return. However, rivals Walmart Inc. (WMT) and Target Corp. (TGT) have struggled in the last four months, suffering through active distribution that increases risk heading into Thursday’s report. In addition, the weekly Stochastic indicator has now flipped into a sell cycle, predicting rangebound action or lower prices into the first quarter of 2022.

Wall Street and Technical Outlook

Wall Street consensus stands at a ‘Moderate Buy’ rating based upon 17 ‘Buy’, 6 ‘Hold’, and no ‘Sell’ recommendations. Price targets currently range from a low of $423 to a Street-high $600 while the stock is set to open Thursday’s session right on top of the median $532 target. This mid-range placement indicates that Costco is fully valued at this time and will need to post blow-out quarterly results to book higher prices.

Costco cleared February 2020 resistance around 325 in August and stalled near the 400 level in November. A secondary breakout in June 2021 attracted intense buying interest, lifting the stock nearly 180 points into November’s all-time high at 560.78. A distribution wave into December has reversed bullish signals, with price action likely to carve an extended trading range, with resistance at the high and support at the 50-day moving average near 500.

Catch up on the latest price action with our new ETF performance breakdown.

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