Gold Forecast – Are You Ready for The Bubble in Gold?

Asset bubbles are a repeating theme. In 2017, bitcoin entered a bubble driving prices from $1000 to $19,000. The recent Bubble in Tesla marked a rally from $70 (post-split price) to over $500 in less than 6-months. Our work supports a bubble in gold and precious metals later this decade. This article will explore the various aspects of a bubble and how one could prepare.

Below are the three ingredients often associated with bubbles.

  1. A disruptive force that triggers speculation.
  2. A believable story that gains mass appeal.
  3. Widespread adoption and the fear of missing out.

Disruptive Forces

The internet fueled the 1990s Dot.com bubble. Blockchain technology stoked Bitcoin, and the Electric Vehicle (EV) revolution triggered the recent bubble in Tesla. Next, I believe a global currency crisis could trigger a bubble in gold that sends prices to unthinkable levels.   

Governments around the world have made it clear they will continue to print money. Eventually, they will have no choice but to default and restructure their debt. A new monetary system (likely digital) will emerge, and I believe this will be the driving force behind the bubble in gold.

Velocity of Money

Inflation and supply shortages will only get worse. In the latter phase of the monetary crisis, the velocity of money will increase sharply. Instead of hoarding currency, people will spend their dollars quickly – fearing widespread shortages and higher prices.

Physical Bullion Coins

Finding quality bullion products could become difficult. Partly because of resource shortages but more likely because of a demand shock. What is a demand shock? That is when a rapid influx in demand overwhelms supply for months or even years. Any supply that hits the market is quickly gobbled up – no matter how high the price. We are seeing some of this now.

I prefer government minted coins over bars or rounds. Why? They are recognizable and harder to counterfeit. There will likely be numerous fake coins and bars circulating near the end of the bubble – you will want to have something dealers and individuals recognize and trust.

When to Sell

Timing the exact top of a bubble is difficult. Towards the end, prices will often double in a month or less. People who have never bought gold or silver will be panicking to get some (fear of missing out). You will overhear conversations in the grocery store about a mining stock or a new “gold-backed” cryptocurrency…that is when you know we are getting close. I spotted the final bubble phase in Bitcoin and Tesla about two weeks before they peaked.

How to Prepare

I prefer a long-term accumulation strategy – trying to trade volatile markets is a recipe for disaster. Sure, you may have a good trade here or there, but eventually, you are going to get stung. I learned this the hard way. After adopting my long-term approach, I sleep better at night and have almost zero stress. Our gold cycle indicator was designed for just this.

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Conclusion

I think gold will enter a bubble later this decade – it probably won’t be until after 2024, so you have time to prepare. Consider physical metals and try to reduce stress. You may find our Premium educational metals portfolio helpful.

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

AG Thorson is a registered CMT and expert in technical analysis. He believes we are in the final stages of a global debt super-cycle. For more information visit here.

Tesla Stock Crash Targets $75.00

In my article, Will Tesla Stock Price Crash, I laid out the likelihood for a 50%+ decline. Tesla shares peaked just after the stock split, and the initial breakdown is underway. I don’t foresee a bottom until prices drop below $75.00 in 2021.

TSLA DAILY CHART: Tesla peaked just after the stock split, as I suspected. The initial crash is underway, and prices could test the 200-day MA (currently $182.94) before the next multi-week bounce. Longer-term, we expect prices to remain under pressure into 2021 and 2022 before prices carve out a bottom below $75.00.

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I am very bullish on Tesla longer-term and believe it could become the next Apple. Currently, I do not own the stock.

AG Thorson is a registered CMT and expert in technical analysis. He believes we are in the final stages of a global debt super-cycle. For more information, please visit here.

 

Tesla Under Pressure After SP-500 Snub

Tesla Inc. (TSLA) fell 130 points, or about 26%, after posting an all-time high at 502.49 on Tuesday, battered by a broad-based tech selloff and bull trap following the stock’s 5-for 1 split on Monday morning. CEO Elon Musk’s controversial electric vehicle manufacturer sold off another 6% in Friday’s post-market after an SP-500 committee defied popular opinion, choosing not to add the $390 billion company to the venerable index.

Tesla Share Games

The stock topped out and reversed on Tuesday after Musk tried to capitalize on historic gains with a secondary offering of up to $5 billion. Public offerings typically yield lower prices because they attract less experienced investors while diluting share value, encouraging smart money to step in and trade against them. Along with the recent split, market watchers are shaking their collective heads, recalling similar games in the heyday of the Internet bubble in the 1990s.

The decision will have an immediate impact on buying power because SP-500 membership would have forced tracking funds to buy more than 120 million shares of Tesla stock. Index components must have a market cap of more than $8.2 billion and report four profitable quarters in a row, according to standard accounting principles. The company has come under persistent criticism from skeptics who insist that profits rely on accounting tricks and these alleged practices may have been factored into the exclusion.

Wall Street And Technical Outlook

Wall Street consensus highlights major caution about the long-term outlook, with a ‘Hold’ rating based upon 5 ‘Buy’ and 15 ‘Hold’ recommendations. Ten analysts, or one-third of the total, recommend that shareholders take profits and move to the sidelines at this time. Price targets currently range from a low of just $17.40 to a ‘street-high’ $566 while the stock closed Friday’s U.S. session $126 above the median $292 target.

Tesla may have completed an Elliott 5-wave pattern off the June 2019 low, raising odds for an intermediate correction or bearish change in trend. However, it could be weeks or months before the technical outlook becomes more transparent because, despite last week’s downside, the stock has not broken short-term support levels. That could change if the SP-500 exclusion drops price through Friday’s low at 372 when U.S. markets reopen following the Labor Day holiday.

Telsa Stock Price Crash Update

A week ago, I penned an article titled, Will Tesla Stock Price Crash? I felt prices were in a bubble that could pop any day, probably around the time of the coveted stock-split.

I have often compared Tesla to the chart of Apple during the late 1990s. Studying the final parabolic advance in APPL reveals a potential price target for TSLA, if price crash as I suspect.

AAPL CHART (1984 – 2004)

The late 1990s parabolic run in Apple to new all-time highs unfolded in a power 3-wave (ABC) 10x advance. Prices peaked at C and then crashed below the terminal parabolic starting point of B. I expect something similar in Tesla.

TSLA (2012 – NOW)

Expecting a repeat of Apple’s post-bubble crash – Tesla could collapse below $75.00 before starting the next major advance. In my opinion, that could present the buying opportunity of a lifetime…if you want to own Tesla.

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Here is what happened to Apple’s chart once prices bottomed in “D.”

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AG Thorson is a registered CMT and expert in technical analysis. He believes we are in the final stages of a global debt super-cycle. For more information, please visit here.

Tesla Announces its Biggest Capital Raise of $5 Billion Amid Sharp Rally

Tesla Inc, an American electric vehicle and clean energy company based in California, announced to raise $5 billion capital in new share sales to ease some future debt burden, taking advantage of its recent rally in stocks and soaring investors’ interest.

The largest company in the U.S. by revenue said in a filing with the Securities and Exchange Commission that the extra shares will be sold “from time to time” and “at-the-market” prices.

“We intend to use the net proceeds, if any, from this offering to further strengthen our balance sheet, as well as for general corporate purposes,” Tesla said, reported by CNBC.

This move comes just a day after a stock split of five-for-one brought into play. In February, Tesla had announced plans to raise $2 billion in a stock offering.

Tesla shares have gained more than 500% so far this year; it rose over 7% in pre-market trading on Tuesday.

Tesla stock forecast

Thirty analysts forecast the average price in 12 months at $278.84 with a high forecast of $566.00 and a low forecast of $17.40. The average price target represents a -41.54% decrease from the last price of $477.00. From those 30 analysts, four rated “Buy”, 15 rated “Hold” and 11 rated “Sell”, according to Tipranks.

Morgan Stanley gave a target price of $272 with a high of $527 under a bull-case scenario and $102 under the worst-case scenario. Independent Research lowered their target price to $109.00 from $540.00.

Other equity analysts also recently updated their stock outlook. Canaccord Genuity raised the target price to $442 from $325, Jefferies upped their price target to $2500 from $1200 and Wedbush increased their stock price forecast to $1900 from $1800.

Analyst view

“We are positive on Tesla’s leadership across: EVs, Batteries & FSD and see an opportunity for TSLA to further penetrate these key TAMs. Why not OW? At its current valuation, we believe the market has already discounted a large part of Tesla’s growth potential. Further, competition in the EV market continues to intensify from traditional OEMs, startups & mega-tech firms,” said Adam Jonas, equity analyst at Morgan Stanley.

“We also continue to harbour concerns over the long-term efficacy of an auto business commercializing advanced tech that is economically sensitive within China. As Tesla expands production, they will likely need to raise more capital. While there is a strong appetite in the short-term, it will dilute shareholders in the long-run,” he added.

Upside and Downside risks

Upside: 1) Tesla China profitability surprises to the upside. 2) Europe Giga success Model Y margin accretion. 3)  Software margin accretion. 4) Tesla the Supplier? 5) Cybertruck – highlighted Morgan Stanley.

Downside: 1) May never make the leap to a shared mobility model, limiting itself to niche OEM status. 2) Execution risk / COVID-19. 3) The openness of capital markets to funding Tesla’s strategic ambitions. 4) Large & better capitalized technology firms emerging as competitors.

Blame it on The Nasdaq

US data announced this week showed a significant recovery in building permits and housing, building permits (MoM) for July surged to 18.8% compared to the previous 3.5%, Housing Starts data revealed 22.6% which is 5.1% higher than the previous month, existing-home sales data were as well positive reported beyond expectations.

Despite the negative Jobless claims and Philadelphia Fed Manufacturing PMI reported on August 20, Manufacturing PMI and Services PMI demonstrated a significant improvement, which led major US Indices to surge whereas S&P500 and Nasdaq100 reached the all-time high.

US stocks continue hitting records, Tesla surged by 24.19% breaking the significant $2000 per share value, and is now worth more than $382 billion surpassing Walmart by nearly $10B. Nasdaq’s top company by market cap – Apple gained 8.23% hitting the $2127B in capitalization. Tesla and Apple remain the top popular shares last week based on Robinhood data.

S&P500 closed above the all-time high, some might think that there is a possible double top pattern, economic recovery of the US indicates that the index may continue the run towards $3500.

Nasdaq owes its gains not only to Tesla and Apple, but there are also other tech companies that surged last week and during the pandemic, such as NVIDIA, AMD, Qualcomm, Microchip Tech, Texas Instruments.

An hourly chart demonstrates that the correction is most likely will happen as the price touched the dynamic resistance and the fifth wave of an ending diagonal is about to complete at 11600. Ending diagonal is a trend reversal pattern, which usually demonstrates exhaustion of bulls, note the evening star doji, though the closing is above the previous close, it still shows uncertainty and exhaustion.

NDX chart by TradingView

How is it related to cryptocurrencies and Bitcoin?

Bitcoin and Ethereum price actions are considered as cryptocurrency market movers. Since Bitcoin is nowadays considered as the digital Gold and Ethereum as a digital Silver, their price action now is correlated to US data which effect Gold. Gold was ever since used as a safe-haven to hedge funds during the uncertain times and inflation, so is Bitcoin now.

An hourly chart of Bitcoin indicates that the price could decline further to towards $11200 – $11160 to complete the Head and Shoulders pattern, another pattern to watch is an ending diagonal which is yet to be completed as well. Bitcoin remains below the major resistance level of $11700 an in order to show another bull run it must break the dynamic resistance (ending diagonals upper edge) and close above the 11700, however testing 11200 might bring another stimulus for bulls.

BTCUSD price on Overbit

Ethereum plummeted to $380 after reaching the year’s maximum at $446.67, loosing 9.7% this week only. Digital Silver price is following a similar ending diagonal pattern, and if the upper dynamic resistance and a static resistance of 397 is not overpassed, ETH might continue the drop towards a major support at $380, and if that support is broken, towards $370 – 369.

ETHUSD price on Overbit

Unlike Bitcoin, Gold lost only 0.20% in price for the week. A significant drop was on Wednesday August 19 ahead of US data announcements, where the precious metal lost 3.67% after gaining 2.97% on Monday and Tuesday.

Head and shoulders pattern is identified on an hourly chart of Gold and the price might continue the drop down to $1881.60 – 1880, where if the support laid on those level withheld the price might retrace towards 2014 and if above towards 2046, where the bearish pattern will be completed.

Gold price on Overbit

Since Gold and Silver prices demonstrate similarities in their price action, the same Head and Shoulders is visible on an hourly chart of XAGUSD. The price is below the dynamic support of August 12 which might signal to a further decline down to $25.30.

Silver price on Overbit

The price continues the short-term downtrend move inside a descending channel, which in other had forms another controversial to the H&S pattern of Bullish Flag.

Silver price on Overbit

If bulls are able to push the price above the dynamic support and if the dynamic resistance is overtaken at $27, the bullish run might proceed towards $28 – 28.50.

Key takeaways for the upcoming week would be announcements from Eurozone, Great Britain, China and the US.

Important announcements to watch:

Tuesday, August 25, 2020

German GDP (YoY) as per Second quarter data is expected to be -11.7%, 9.8% lower than the previous -1.9%

German GDP (QoQ) as per Second quarter data is expected to be -10.1%, 7.9% lower than the previous -2.2

US CB Consumer Confidence (August) is expected to be 93, 0.4 points higher than the previous 92.6

US New Home Sales (July) is expected to be 786K, 10K higher than the previous 776K

Wednesday, August 26, 2020

US Core Durable Orders is expected to be 2.1%, 1.5% lower than the previous 3.6%

Thursday, August 27, 2020

US GDP (QoQ) as per 2nd Quarter is expected to be -32.6%, 0.3% higher than the previous -32.9%

US Initial Jobless Claims is expected to be 1,000K, 106K lower than the previous 1,106K

US Pending Home Sales (MoM) as per July is expected to be 4.5%, 12.1% points higher than the previous 16.6%

Asides from the data to be announced, there are other important events to trace.

Republican National Convention, which will be held on Monday, in which delegates will determine the nominees for the upcoming presidential elections. Markets will be watching this event closely as during the current campaign Democrats are having an edge over republicans.

Source: Yahoo Finance

Another major event would be an annual Jackson Hole conference this Thursday, August 27, where FED Chairman Jerome Powell will speak about current economic situation, inflation targets and possibly share preliminary focus on interest rate change.

The economic state and inflation in the US once again are an important constituent of the Global economy and global markets, all these events will be decisive for the mid-term price movements for the US Indices, commodities and cryptocurrencies.

Will Tesla Stock Price Crash?

Just today, Tesla surpassed Walmart’s market cap – how is that possible? Walmart has 534.66 billion in sales versus just 25.71 billion for Tesla.

TESLA DAILY CHART

The trend in TSLA is overbought. The MACD and the RSI (14) are diverging negatively, suggesting waning momentum. The stock is behaving like a commodity – not a business. I see the potential for a “buy the rumor sell the news” event after the stock splits. I think prices will correct at least 50%, and that is extremely conservative.

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Another way to measure Tesla’s ludicrous valuation is through total revenue – let me explain. Hypothetically speaking, let’s say a company paid 100% of its annual revenue to shareholders as a dividend. Of course, this is not possible, but it helps make my point. In the example below, we will measure how many calendar days it would take to recover your initial investment if each company paid 100% of their profits to shareholders at today’s stock price.

Time to recover initial investments:

Ford Motor Company (F) $6.66

Revenue 130.4 billion

Revenue Per Share $32.87

Time to recover initial investment 74-days

General Motors (GM) $28.56

Revenue 115.79 billion

Revenue Per Share $80.94

Time to recover initial investment 128-days

Walmart (WMT) $131.65

Revenue 534.66 billion

Revenue Per Share $188.23

Time to recover initial investment 255-days

Tesla (TSLA) $2042.41

Revenue 25.72 billion

Revenue Per Share $141.64

Time to recover initial investment 5263-days or over 14-years.

Lastly, the combined market cap of Ford, GM, and Fiat Chrysler (the big three) is 90-billion, and in 2019 they produced 7,470,370 vehicles. Tesla’s market cap is 300% greater than all three (307 billion), and they delivered only 195,000 vehicles – ASTONISHING.

What goes up – must come down. Will Tesla prices crash soon? Maybe – it is hard to say. Whatever the case, I think we will get a generational buying opportunity in TSLA next year or early 2022.

AG Thorson is a registered CMT and expert in technical analysis. He believes we are in the final stages of a global debt super-cycle. For more information, please visit here.

Tesla Surges Higher After Split Announcement

Tesla Inc. (TSLA) is trading higher by more than 8% in Wednesday’s U.S. session after announcing a 5-for-1 stock split, effective for shareholders of record at the close on August 28. The news follows Apple Inc.’s (AAPL) 4-for-1 split announcement on July 31, with both actions intended to attract a greater share of young market participants who opened commission-free broker accounts with U.S. stimulus checks earlier this year.

Tesla Announces 5-For-1 Stock Split

Splits don’t change valuation but they can be effective tools to improve sentiment after a stock has posted out-sized gains. The practice was shunned after the Internet bubble broke in 2000, with public corporations seeking institutional ownership by letting stock prices grow to triple and quadruple digits, making shares less attractive to under-capitalized traders. The introduction of speculative capital this year has shifted the paradigm once again, suggesting many high tech companies will follow suit in coming months.

Tesla CEO Elon Musk discussed the future of electric vehicles in a July 26 interview, noting “There’s two billion cars and trucks on the road in the fleet, and there’s a hundred million made per year, roughly. So this is something I often have to remind people of – even if all cars tomorrow were electric and autonomous, it would take 20 years to replace the fleet. So you’ll have this strange situation, kind of like when they had horses and automobiles going down Main Street at the same time for a few decades.”

Wall Street And Technical Outlook

Wall Street has grown more cautious on Tesla after the 4-month 1,400+ point rally, with a ‘Hold’ rating based upon 4 ‘Buy’, 13 ‘Hold’, and a gut-wrenching 11 ‘Sell’ recommendations. Price targets currently range from a low of just $87 to a street-high $2,400, illustrating broad-based conflict about the company’s long-term outlook. The stock is trading around $1,500 after the news, or more than $250 above the median $1,242 target.

Tesla is extremely overbought, to say the least, following an historic rally that’s driven valuation into nosebleed levels. Theoretically speaking, the company will need to post aggressive quarterly growth to support these lofty prices but, as we learned last night, Musk is willing to do what it takes to keep the faithful picking up shares. As a result, it isn’t wise to bet against the EV manufacturer, who has been crushing wave after wave of short sellers in the last 14 months.

Nio Posts More Than Double Revenue in Q2 Despite COVID-19 Crisis; Target Price $17

Nio Inc, a pioneer in China’s premium electric vehicle market, said its revenue more than doubled in the second quarter as vehicle deliveries surge despite the disruption caused by COVID-19 pandemic, sending its shares up about 10% in pre-market trading on Tuesday.

China’s electric vehicle maker said its quarterly revenue increased to at 3.72 billion yuan in the second quarter, representing an increase of 146.5% from the second quarter of 2019 and an increase of 171.1% from the first quarter of 2020. Excluding items, Nio reported a loss of 1.08 yuan per American depository share, experts had forecast a loss of 1.84 yuan per ADS.

Auto industry in the world’s second-largest economy recovered from the COVID-19 outbreak as demand picked after lockdown restrictions were eased after the country reported fewer coronavirus cases. China was also the world’s first country to register economic growth.

Nio said it delivered 10,331 in the second quarter of 2020, including 8,068 ES6s and 2,263 ES8s, compared with 3,553 vehicles delivered in the second quarter of 2019 and 3,838 vehicles delivered in the first quarter of 2020.

China’s electric vehicle maker expects total revenues to be between 4,047.5 million yuan and 4,212.3 million yuan, representing an increase of approximately 120.4% to 129.3% from the same quarter of 2019, and an increase of approximately 8.8% to 13.3% from the second quarter of 2020.

U.S.-listed shares of the company shares gained about 10% to $15.58 in pre-market trading on Tuesday. The stock surged over 250% so far this year.

Executive comment

“The current constraints on the productions will be lifted in the near future and we are confident that our production capacity can meet the accelerated demand of our models,” Chief Executive Officer William Bin Li said in a press release.

“We achieved a record-high quarterly delivery of 10,331 ES8 and ES6 vehicles in total in the second quarter of 2020 and expect to deliver 11,000 to 11,500 vehicles in the third quarter as the momentum continues.”

Nio stock forecast

Six analysts forecast the average price in 12 months at $7.26 with a high forecast of $13.50 and a low forecast of $2.50. The average price target represents a -48.91% decrease from the last price of $14.21. From those six, two analysts rated ‘Buy’, two analysts rated ‘Hold’ and two rated ‘Sell’, according to Tipranks.

Morgan Stanley target price is $12 with a high of $17 under a bull scenario and $7 under the worst-case scenario. On June 24, Goldman Sachs cuts to neutral from buy, raising the target price to $7 from $6.4.

However, we think it is good to buy at the current level and target $17 as 100-day Moving Average and 100-200-day MACD Oscillator signal a strong buying opportunity.

Analyst comment

“We believe the recent rally reflects the smooth funding process from Hefei investors. Tesla‘s success in China has also attracted fund flows for EV makers, that we think has helped to drive NIO stock performance rally,” said Tim Hsiao, equity analyst at Morgan Stanley.

“We remain EW given the long-term uncertainties around scalability. Our price target hike reflects a more meaningful sales volume upgrade in the forecast period. We lower our WACC assumption to 12% from 14% (vs. 10.9% for major OEMs), given lower equity and debt costs due to rate cuts and NIO’s proven operation,” the analyst added.

Upside and Downside Risks

1) Progress in planned A-share listing. 2) Stronger-than-expected sales volume. 3) Better-than-expected improvements in operating efficiency, Morgan Stanley highlighted as major upside risks to Nio.

1) Weaker-than-expected sales volume. 2) Lack of signs of efficiency improvement, were the major two downside risks.

General Motors Trading Higher Despite Horrific Quarter

General Motors Co. (GM) is trading higher ahead of Wednesday’s U.S. opening bell after posting a loss of $0.50 per-share, beating estimates by an impressive $1.26. Revenues matched expectations at $16.8 billion, which marked a stomach-churning 53.4% year-over-year decline.  U.S. sales fell 34% compared to the same quarter in 2019 but improved sequentially between April and June, rising from a 35% to 20% decline at quarter’s end.

General Motors Cyclical Downturn

Traditional auto manufacturers were under pressure prior to the COVID-19 pandemic, with slumping comparative sales raising fears of a cyclical downturn. The outbreak has confirmed those suspicions, with most automakers reporting steep declines. Tesla Inc. (TSLA) has been a notable exception in this equation, but the EV upstart could face similar headwinds when mass production ramps up in coming years.

Chief Financial Officer Dhivya Suryadevara pointed out strong demand for trucks in a post-release interview, noting tight inventories in this successful product line. He stated the automaker should be able to repay some debt in the second half of the year, lowering anxiety about liquidity that’s taken a hit in the crisis. The CFO also pointed out the sequential improvement but wrapped up his comments by warning the ‘situation with COVID-19 is very fluid”.

Wall Street And Technical Outlook

Wall Street consensus rates the stock as a ‘Moderate Buy’, based upon 8 ‘Buy’, 3 ‘Hold’, and 1 ‘Sell’ recommendations. Price targets currently range from a low of $15 to a street-high $39 while the stock will open this morning’s session about $3 below the median $30 target. Upside appears limited despite the ‘buy-the-news’ reaction because short covering is probably driving this uptick, rather than investors coming off the sidelines in reaction to a more bullish outlook.

General Motors has underperformed broad benchmarks since posting an all-time high in the 40s in October 2017, caught in a decline that broke 2015 support in the first quarter downdraft. The stock remounted that level in May and stalled out, entering a testing process that’s still in progress, despite this morning’s uptick. It will now take about 5 upside points to confirm support and set the stage for another rally wave.  That seems unlikely without much stronger quarterly revenues.

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

Overview and trends

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

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

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

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

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

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

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

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

Trading ideas

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

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

AT&T (T)

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

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

Vladimir Rojankovski, Grand Capital Chief Analyst

US Stock Market: Investors Dumping Overpriced Tech Stocks, Rotating into Undervalued Cyclical Stocks

The major U.S. stock indexes plunged on Thursday as investors continued to shed high-flying tech shares due to mixed earnings reports and growing signs of a worsening coronavirus pandemic, which could drive the economy into a deep recession. The price action also suggests that investors continued to dump overpriced tech stocks, while rotating into undervalued cyclical stocks.

In the cash market on Thursday, the benchmark S&P 500 Index settled at 3235.66, down 40.36 or -1.34%. The blue chip Dow Jones Industrial Average finished at 26652.33, down 353.51 or -1.41% and the technology-based NASDAQ Composite closed at 10461.42, down 244.71 or -2.58%.

Stock Index Recap

The bellwether S&P 500 snapped a four-day winning streak with its biggest daily percentage drop in nearly four weeks. All three major U.S. stock averages lost ground. The S&P 500 Index, the Dow and the NASDAQ Composite were mostly dragged down by shared components Apple and Microsoft Corp. Heavyweight Amazon.com was also a major drag on the tech-driven NASDAQ.

The Russell 2000 and the S&P Smallcap 600, both small cap indexes, outperformed the broader market.

Earnings Update

Second-quarter reporting season is in full-stride, with 113 S&P 500 constituents having reported. Refinitiv data shows that 77% of those have beaten expectations that were extraordinarily low. Analysts now see aggregate second-quarter S&P earnings plummeting by 40.8%, year-on-year, per Refinitiv, Reuters reported.

Microsoft Corp shares fell after reporting its cloud computing business Azure reported its first-ever quarterly growth under 50%.

Tesla Inc reported a profit for the fourth straight quarter, setting the company up for inclusion in the S&P 500. But the stock slid as analysts questioned whether the electric automaker’s stock price matched its performance.

Twitter Inc advanced after reporting its highest-ever annual growth of daily users.

American Airlines Group Inc jumped after announcing it would rethink the number of flights to add in August and September. Also, it reported an adjusted loss per share of $7.82.

Southwest Airlines said Thursday it lost $915 million in the second quarter compared with $741 million in net income a year earlier and warned that travel demand will likely remain depressed until there’s a vaccine or treatment for the coronavirus.

Economic Data and Fiscal Stimulus Bill Update

The number of Americans who filed for unemployment benefits rose more than expected last week as the coronavirus pandemic inflicted more damage to the U.S. economy.

The Labor Department said Thursday initial jobless claims came in at 1.416 million for the week-ending July 18. Economists polled by Dow Jones expected 1.3 million.

It was the 18th straight week in which initial claims totaled more than 1 million, and it snapped a 15-week streak of declining initial claims.

The number excludes recipients of Pandemic Unemployment Assistance, set to expire on July 31.

Meanwhile, Congress kept working to pass new stimulus before that deadline continued, with Senate Republicans announcing they could present their version of the bill to Democrats as early as this week.

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

U.S. Stocks Mixed As Initial Jobless Claims Suddenly Increase

Continuing Jobless Claims Decline To 16.2 Million

The U.S. has just provided Initial Jobless Claims and Continuing Jobless Claims reports.

Initial Jobless Claims increased to 1.4 million compared to analyst consensus of 1.3 million. This is a negative surprise which highlights the challenging situation in the job market.

Meanwhile, Continuing Jobless Claims declined to 16.2 million compared to analyst consensus of 17.1 million. The material decline in Continuing Jobless Claims may offset the negative suprise from the Initial Jobless Claims report.

S&P 500 futures are mixed in premarket trading after the release of employment reports.

Tesla Beats Earnings Estimates

Shares of Tesla are gaining ground in premarket trading after the company reported a second-quarter profit which put it on path to be included in S&P 500.

In order to get into S&P 500, a company must be profitable for the last four quarters, among other requirements. In case Tesla gets into S&P 500, index funds will be forced to buy its shares, sending them higher.

During the earnings call, Tesla confirmed that it would build the next Gigafactory in Austin, Texas. Elon Musk also urged miners to get more nickel out of the ground since it is needed for batteries used in Tesla cars.

The dynamics of Tesla shares, which were up 280% year-to-date before the release of the second-quarter report, have a significant impact on market mood. Together with other encouraging earnings reports, Tesla’s performance may help the market ignore the continued problems on the coronavirus front and deterioration in U.S. – China relations.

U.S. President Donald Trump Suggests That More Chinese Consulates May Be Closed If Necessary

U.S. – China relations are getting worse day by day, hurting the upside momentum of stocks and putting pressure on oil prices which have recently managed to get above the key resistance level.

Donald Trump stated that it was always possible to close more Chinese consulates in the U.S. while FBI suggested that a Chinese researcher who was accused of visa fraud was hiding in the Chinese consulate in San Francisco.

Previously, China promised to introduce counter-measures but did not reveal any such measures. While the stock market has mostly ignored increasing tensions, oil may find it hard to ignore the feud between the two biggest economies of the world.

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

U.S. Stocks Mixed As U.S. – China Tensions Increase

U.S. Decides To Close Chinese Consulate In Houston

U.S. – China tensions continued to increase as the U.S. decided to close Chinese consulate in Houston. China has already promised to introduce counter-measures. According to a Reuters report, China is evaluating the option of closing U.S. consulate in Wuhan.

The continued increase in U.S. – China tensions signals that a Phase 2 trade deal between the two biggest economies of the world will not be negotiated anytime soon.

This is a worrisome development for the world economy which tries to recover from the unprecedented crisis caused by the coronavirus pandemic.

Not suprisingly, the news put some pressure on the global markets. However, S&P 500 futures managed to deal with the pressure and are mostly flat in premarket trading.

Most likely, traders are anticipating a good second-quarter report from  Tesla, which will publish its earnings today after the market close. Tesla has reached a market capitalization of almost $300 billion, and its stock price dynamics have a significant impact on market mood.

U.S. President Donald Trump Warns That Coronavirus Situation May Get Worse

The world has registered more than 15 million coronavirus cases since the beginning of the pandemic, and the World Health Organization has reported more than 200,000 daily cases for six days in a row.

Meanwhile, the U.S. President Donald Trump warned that the situation could get worse before it gets better, putting some pressure on recent market optimism.

In the U.S., Democrats and Republicans struggle to negotiate the new coronavirus aid package. The potential delay of this package may also serve as a negative catalyst for the markets.

At the same time, the current earnings season may provide support to stocks since analysts have significantly trimmed their expectations, making it easier to beat them.

Housing Data In Focus

Today, the U.S. will provide Existing Home Sales data for June. Existing Home Sales are expected to grow by as much as 24.5% on a month-over-month basis as homebuyer activity rebounded after virus-related restrictions were lifted.

The market will likely pay close attention to the speed of the rebound as the coronavirus situation got worse in July.

An encouraging Existing Home Sales report has the potential to boost stocks despite another increase in U.S. – China tensions and continued problems on the coronavirus front.

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

NIO Drives Higher On Upbeat June Sales

NIO Inc. (NIO) shares charged 22.71% higher Monday after the Chinese electric vehicle maker reported June sales jumped 179% from a year earlier despite challenges from the pandemic. The better-than-expected figure comes on the back of U.S. rival Tesla, Inc. (TSLA) smashing Wall Street quarterly delivery projections.

NIO delivered 3,740 vehicles last month, taking its second-quarter tally to 10,331 vehicles. It marks the first times the Shanghai-based carmaker has exceeded 10,000 quarterly shipments – an impressive feat amid slipping global auto sales.

As well as topping its delivery expectations, the company’s chief operating officer Steven Feng remains confident of meeting operational efficiency targets. ‘We are pleased to deliver solid results driven by our competitive products, superior services, and expanding sales network. Our deliveries in the second quarter of 2020 exceeded the high end of our earlier projection, and we are confident that our goals on gross margin and operational efficiency will be achieved.’ Feng said, per CleanTechnica.

Investors may have already factored in most of the upside, given the company’s American Depositary Receipt (ADR) listed on the New York Stock Exchange has risen a staggering 366% over the past three months as of July 7.

Wall Street View

Goldman Sachs analyst Fei Fang upgraded the stock from ‘Neutral’ to ‘Buy’ in early June but revised his rating back to ‘Neutral’ by the end of the month and slashed his 12-month price target from $7 to $6.4.

Although the analyst still likes the company’s underlying fundamentals, he has grown more concerned about its lofty valuation. Since Fang’s initial upgrade on June 3, NIO shares trade over 100% higher, despite the firm posting an unaudited first-quarter net loss of $243.3 million.

Most other analysts have also taken the ‘wait and see’ approach, with the stock receiving 9 ‘Hold’ ratings. Currently, the consensus price target among analysts sits at $39.01, according to Yahoo! Finance – amazingly representing another 239% upside from Monday’s $11.51 close.

Technical Outlook

Since bottoming out just above $2 in mid-March, Nio shares have trended steadily higher with price accelerating on heavy volume in the past two trading sessions. Investors should be mindful of chasing recent gains as the relative strength index sits deep in overbought territory, increasing the probability of a retracement. Instead, those who wish to buy should look for an entry point near $5, where the stock finds a confluence of support from a horizontal trendline and the 50-day simple moving average.

NIO Chart

Tesla Beats Q2 Vehicle Deliveries; Shares Soar 8%

Tesla Inc, an American electric vehicle and clean energy company based in California, has exceeded analysts’ projection of vehicle deliveries in the second quarter, defying a trend of falling sales amid the ongoing coronavirus pandemic lockdown, sending the shares of the electric carmaker up over 8%.

In the second quarter, Tesla manufactured more than 82,000 vehicles and delivered approximately 90,650 vehicles. It delivered 80,050 units of its new Model Y vehicles and Model 3.

“While our main factory in Fremont was shut down for much of the quarter, we have successfully ramped production back to prior levels. Our net income and cash flow results will be announced along with the rest of our financial performance when we announce Q2 earnings. Our delivery count should be viewed as slightly conservative, as we only count a car as delivered if it is transferred to the customer and all paperwork is correct,” Tesla said in the statement.

Final numbers could vary by up to 0.5% or more. Tesla vehicle deliveries represent only one measure of the company’s financial performance and should not be relied on as an indicator of quarterly financial results, which depend on a variety of factors, including the cost of sales, foreign exchange movements and mix of directly leased vehicles, the electric car maker added.

Following this announcement, Tesla shares surged more than 8% by about $85 in early trading to $1,208.

Tesla outlook and price target

Twenty-six analysts forecast the average price in 12 months at $805.85 with a high of $2,000.00 and a low of $275.00. The average price target represents a -33.46% decrease from the last price of $1,210.99, according to Tipranks. From those 26, eight analysts rated ‘Buy’, nine analysts rated ‘Hold’ and nine rated ‘Sell’.

Wedbush raised the target price to $1,250 from $1,000 with a high of $2000 under a bull scenario. UBS raised the target price to $800 from $420. Morgan Stanley target price is $650 with a high of $1200 under a bull scenario and $190 under the worst-case scenario.

Analyst comment

“We note that 2Q would have benefitted by factors such as pent-up demand for the Model Y, the early China ramp, and relatively ample inventory levels to begin the quarter, but one must also consider their biggest factory (Fremont) was totally shut for the better part of 2 months and all the related distribution disruption related to COVID-19. While still a stretch, some investors are beginning to ask us if Tesla could see positive earnings revisions taking forecasts to levels even higher than pre-COVID. Imagine that,” noted Adam Jonas, equity analyst at Morgan Stanley.

“Using this delivery number in place of our prior Q2 delivery estimate, this would bring our full-year forecast to ~433k, which compares to current consensus in the range of 400-420k. We would expect consensus expectations to rise meaningfully, potentially back toward Tesla’s initial 2020 guidance to “comfortably exceed” 500k units. Right now, we see deliveries meaningfully above 500k as more of a bull case. We now see 400k deliveries as more of a bear case than a base case,” he added.

Tesla Bottoms Popular J.D. Power Vehicles Quality Survey, Shares Down Over 4%

Tesla Inc, an American electric vehicle and clean energy company based in California, came last in the quality ranking of major auto manufacturers survey by J.D. Power. It was the first time Tesla vehicles were profiled by the closely watched survey of customer satisfaction.

Out of thirty-three major automakers brands survey, Tesla was rock bottom with 250 problems per 100 vehicles, way above an industry average of 166 seen this year, according to the annual J.D Power survey, where auto brands like Dodge and Kia topped the list.

Land Rover, a car brand that specializes in four-wheel-drive vehicles, owned by India’s Tata Motors since 2008, scored second-worst performer after Tesla.

“Unlike other manufacturers, Tesla doesn’t grant us permission to survey its owners in 15 states where it is required. However, we were able to collect a large enough sample of surveys from owners in the other 35 states and, from that base, we calculated Tesla’s score,” Doug Betts, president of the automotive division at J.D. Power, said in a statement, CNBC reported.

Following this report, investors’ optimism soared, pushing shares below the $1,000 level. It closed 4.08% lower at $960.85 on Wednesday.

Tesla outlook and target price

Twenty-six analysts forecast the average price in 12 months at $713.40 with a high of $1,250.00 and a low of $275.00. The average price target represents a -25.75% decrease from the last price of $960.85, according to Tipranks. From that, eight analysts rated ‘Buy’, eight rated ‘Hold’ and eleven rated ‘Sell’.

On the other hand, it is good to buy at the current level as 50-day Moving Average and 100-200-day MACD Oscillator signals a strong buying opportunity. Jefferies Financial Group raised the target price to $1,200.00 from $650.00 in a research note released on Thursday.

New Street Research upgraded Tesla from a neutral rating to a buy rating. Wedbush raised the target price to $1,000 from $800. In May, JMP Securities raised the target price to $1,001.00 from $1,020.00.

Analyst comment

“We understand the attraction of the Tesla story, we think investors may have a chance to revisit the stock at a more attractive price. We believe $1,000/share discounts outcomes that, while plausible, may ignore a host of execution/market risks,” said Adam Jonas, an auto analyst at Morgan Stanley.

“We downgraded Tesla from Equal-weight to Underweight on three primary risks: Near term risk to demand/pricing, as well as longer-term risks to the China business and potential competition from other “mega-tech” platforms,” he added.

Tesla Probing All-Time High Despite Deep Skepicism

Tesla Inc. (TSLA) dodged a bullet in the first quarter, reporting a Q1 2020 profit of $1.24 earnings-per-share (EPS), beating estimates by a hefty $1.45. The Shanghai Gigafactory was closed for two weeks during the quarter due to the coronavirus outbreak while the Fremont, California plant shut down in March. The unexpected profit overcame both of those obstacles, prompting a strong buy-the-news reaction.

Tesla Balance Sheet Issues

The electric vehicle manufacturer declined to provide net income or free cash flow guidance during the April earnings presentation, two metrics that are needed to evaluate Tesla’s performance accurately, due to heavy cash burn and high debt levels. In addition, the Fremont plant didn’t reopen until mid-May, adding to anxiety about second-quarter performance. On the flip side, the company just reported record sales in China, countering the continued drag of slumping United States and European revenue.

David Einhorn, head of Greenlight Capital, questioned CEO Elon Musk about the Q1 results, sarcastically commenting “I will continue to be left wondering if not only your accounts receivable are suspect, but your income statement as well”. He points out apparent inconsistencies in the SEC quarterly filing, which he says omit the negative impacts of the lower average selling price, factory shutdowns, interruption costs, margin compression, and currency factors.

Wall Street and Technical Outlook

Wall Street analysts are evenly divided on Tesla’s outlook, with 8 ‘Buy, 9 ‘Hold’, and 11 ‘Sell’ recommendations. The broad distribution of price targets highlights widely conflicting opinions, with a low of $246 and a street high of $1250.  The stock is now trading less than $250 below the high target and nearly $1000 above the low target. All in all, this disagreement translates into an excessive market risk that many investors may wish to avoid.

The stock’s price action has been phenomenal so far in 2020, with a 600-point decline from February high at 969, followed by an equal-sized rally into June. It broke out after completing the round trip but has made little progress so far, consolidating around the first-quarter peak. Accumulation and relative strength readings are solid as a rock, despite mixed analyst calls and skepticism from market insiders, raising odds for even higher prices in the coming weeks.

U.S. Stocks Set To Open Lower As Economy Continues To Lose Jobs

Initial Jobless Claims

The U.S. Initial Jobless Claims report has just been released. It showed that 3.84 million Americans filed for unemployment benefits last week, higher than the analyst consensus of 3.5 million.

Continuing Jobless Claims were lower than expected at 17.99 million. Since the beginning of the crisis, more than 30 million Americans filed for unemployment benefits.

Clearly, this is an unprecedented disruption of the job market. However, the equity market has previously managed to shrug off the bad news. Currently, S&P 500 futures are indicating a lower open of about -0.5% but things may change quickly.

In addition to the employment data, U.S. has also released Personal Income and Personal Spending reports. Both came below expectations at -2% and -7.5% respectively.

The Fed Left Rates Unchanged And Signaled That Economic Recovery Might Be Gradual

Yesterday, the U.S. Federal Reserve decided to leave the interest rate unchanged. This was not a surprise since an additional rate cut would have put the rate into the negative territory.

In this light, the market focused on Fed’s commentary. On the positive side, the Fed promised to support the economy as long as necessary and also hinted that it was not out of ammo to do so.

For now, the Fed will have to wait a bit to see how the measures that have already been implemented impact the economy.

On the negative side, the Fed stated that the near-term blow to the economy was very heavy, and that the current situation also presented risks for the medium term.

Big Tech Earnings Reports May Provide Support To The Market

Earlier, I wrote about good earnings reports from Tesla, Facebook and Microsoft. The rebound from mid-March levels was very strong, and the market certainly needs good reports from big-cap companies to continue the upside trend.

With no new measures announced by the Fed, solid reports from big companies could serve as the main catalyst for market upside in case investors and traders are willing to buy stocks at current levels.

The economic data looks very grim, and it remains to be seen whether the market will continue to ignore the economic reality which will hurt second-quarter results of most companies.

U.S. Stocks To Watch Today

Tesla

Tesla reported earnings of $0.09 per share, beating analyst estimates by a wide margin despite the fact that March was a challenging month for most companies. Revenue of $5.99 billion was also higher than expected.

During the earnings call, Elon Musk promised to increase investment at times when other auto producers were cutting costs and also criticized shelter-in-place policies, calling them “fascist”.

Tesla shares gained almost 10% in the after-hours trading session and will surely have huge trading volume today. Tesla has already had several profitable quarters in a row which is a very bullish catalyst for a company whose investors eagerly tolerated multi-million losses and kept buying its stock.

Today, Tesla may gain even more ground than in the after-hours session, and a test of all-time high levels is possible.

Facebook

Facebook reported earnings of $1.71 per share, slightly beating analyst estimates. The revenue of $17.74 billion was also ahead of analyst expectations. Just like Google, Facebook noted that ad revenue plunged in March but also added that it saw signs of stabilization in April.

Not surprisingly, Facebook reported increase in the number of daily active users and monthly active users as people who were forced to stay at home spent their time online.

The original market reaction to Facebook report was positive, and the company’s shares gained about 10% during the after-hours trading session. Just like in Tesla’s case, Facebook shares are close to all-time highs.

Microsoft

Microsoft was another tech giant who reported its earnings on April 29 after the market close and whose stock will be very active today.

The company reported revenue of $35.02 billion and earnings of $1.40 per share, beating analyst estimates on both earnings and revenue.

Microsoft stated that demand for its Teams chat has increased sharply due to the shift to remote work at times of coronavirus pandemic. Xbox gaming services also experienced healthy gains.

At the same time, the company noted that it was not immune to what was happening in the world so some parts of the business will likely suffer in the upcoming quarters.

In general, the report painted a positive picture, and Microsoft shares gained about 2% in the after-hours trading session. Microsoft is also trading not far from all-time highs, and its report could have an impact on the general market which continues to rise on optimism about monetary stimulus and potential treatment for COVID-19.