Nike Fails Second Breakout Attempt

Dow component Nike Inc. (NKE) opened at an all-time high on Monday in sympathy with COVID recovery plays and sold off, failing a breakout above the September high near 130. The turnaround wasn’t a surprise because the failure of professional sports teams to fill stadiums has weighed on fourth quarter performance, even though NFL TV ratings have shown excellent resiliency compared to MLB and NBA misfires.

Professional Sports Weighing on Nike

The turnaround reinforces a holding pattern in place since September and the uncertain impact of the pandemic’s second wave this winter. Everyone hopes that 2021 soccer and baseball seasons proceed on schedule and the 2021 Tokyo Olympics gets off the ground but it could take more than a vaccine to get that accomplished. Even so, Nike is doing a great job building market share through direct e-commerce sales, which have underpinned revenue since the first quarter.

RBC analyst Kate Fitzsimons initiated Nike coverage with an ‘Outperform’ and $145 price target on Thursday, noting “We see NKE as a best-in-class global athletic play, with its Consumer Direct Acceleration strategies supporting a multi-year mid-high teens EPS CAGR through FY26. While shares at 35x earnings suggest that NKE’s strong fundamentals are well appreciated, we believe FY21/22 can see EPS upside as recovery from COVID-related disruption comes through faster and as gross margin comes in better.”

Wall Street And Technical Outlook

Wall Street consensus is highly bullish, with a ‘Strong Buy’ rating based upon 24 ‘Buy’ and 2 ‘Hold’ recommendations. No analysts are recommending that shareholders close positions and move to the sidelines. Price targets currently range from a low of $115 to a Street-high $165 while the stock opened Thursday’s U.S. session nearly $20 below the median $146 target. This placement should offer plenty of upside in reaction to news that brightens the light at the end of the pandemic tunnel.

The stock broke out above the first quarter high at 105.62 in August, triggering a rapid advance into the low 130s in September. October and November breakout attempts have now failed, adding to bearish weekly and monthly relative strength readings. Accumulation peaked in September and has posted two lower highs since that time, raising odds for a decline that fills the unfilled portion of Sept. 23 gap between 117 and 119.

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

Netflix Could Fail Second Quarter Breakout

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

High Churn Levels

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

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

Wall Street And Technical Outlook

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

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

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

Disney Rallies To 10-Month High Ahead Of Earnings

Dow component Walt Disney Co. (DIS) reports Q4 2020 earnings after the U.S. closing bell on Nov. 12, with analysts expecting the entertainment giant to report a loss of $0.65 per-share on $14.14 billion in revenue. The stock rallied nearly 9% after beating Q3 profit estimates by a wide margin in August, even though revenue fell a staggering 41.7% year-over-year. It rallied to a 9-month high on Monday, in reaction to Pfizer’s (PFE) blockbuster vaccine announcement.

Disney Revenue Headwinds

Movie and television production have resumed at a snail’s pace, with California and other venues still under COVID-19 restrictions and reopened theaters bleeding capital. Disney has also reopened a number of theme parks, including Orlando’s Disney World, but visitation has been poor due to air travel fears and continued worries about infection. The second wave sweeping the planet could undermine diminished revenues this winter, reducing confidence in upside potential.

Loop Capital analyst Alan Gould recently upgraded the stock to ‘Buy’, noting “the future, or arguably the present, is all about streaming and sacrificing current profits to be better positioned for streaming. Hence, we anticipate that more resources will be allocated to streaming, Disney will keep its streaming subscription prices lower for longer to encourage subscriber growth and minimize churn. We also expect investors will give Disney a pass on both near-term Covid-19 related losses and increased DTC losses over the next few years”.

Wall Street And Technical Outlook

Wall Street consensus now stands at a marginally positive ‘Moderate Buy’ rating, based upon 10 ‘Buy’ and 4 ‘Hold’ recommendations. No analysts are recommending that shareholders close positions and move to the sidelines, even though revenue may not fully recover for several years. Price targets currently range from a low of $124 to a Street-high $164 while the stock opened Tuesday’s U.S. session more than $4 below the $144 median target.

The vaccine news lifted Disney above tough resistance at 130 and into the .786 Fibonacci selloff retracement level for the second time since August. The stock now needs to hold the 135.00 to 137.50 price zone to set its sights on 2019’s all-time high at 153.41. That seems like a stretch, given continued headwinds and innumerable obstacles to long-term recovery. Even so, market players may ignore those headwinds if the Disney+ streaming service books strong Q4 growth.

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

Pfizer Lifts to 19-Month High After Blockbuster Vaccine News

Pfizer Inc. (PFE) rallied more than 15% at the open of Monday’s U.S. session after reporting a 90% success rate with a vaccine candidate under development in collaboration with Germany’s BioNTech SE (BNTX). COVID-19 beneficiaries sold off on the news while shares of cruise ship operators, movie theaters, and airline carriers took off for the heavens. However, sellers pounced on the opening bid, dropping the pharmaceutical giant more than three points off the high.

Pandemic Headwinds Likely To Persist

The high efficacy rate is good news but major obstacles are likely to delay an early end to the pandemic. For starters, an October survey indicated that just 58% of Americans will take a vaccine as soon as it’s manufactured, due to anti-vax theories and general political unrest. The 10% ineffective rate is also too high for instant relief, asking those most vulnerable to serious illnesses to ‘roll the dice’, hoping for an immune response.

Pfizer CEO Albert Bouria appeared on CNBC on Monday morning, expressing genuine enthusiasm for the compound. He believes we’re finally seeing the light at the end of the COVID-19 tunnel but warned that side effects have been reported. He also views the candidate as the ‘most significant medical advance in the past 100 years’, which seems like hyperbole, given statins, the polio vaccine, and other life-saving drugs introduced in the last century.

Wall Street And Technical Outlook

Wall Street has been caught ‘asleep at the wheel’ on Pfizer’s long-term outlook, posting a sluggish ‘Moderate Buy’ rating based upon 4 ‘Buy’ and 4 ‘Hold’ recommendations.  To their credit, no analysts are recommending that shareholders close positions and move to the sidelines. Price targets currently range from a low of $38 to a Street-high $53 while the stock has descended to the low target after an opening spike to $42.

Pfizer is a slow moving stock that’s underperformed since a 9-year uptrend topped out less than four points below 1999’s all-time high in 2018. This weak performance induced the keepers of the Dow Industrial Average to remove the stock last summer, in an act of near-perfect timing. It posted a four-year low in March 2000 and turned higher, stalling in the upper 30s in June. Monday’s breakout is test new support at that level, with mid-term upside limited to the mid-40s.

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

 

McDonalds Could Beat Q3 Earnings Expectations

Dow component McDonalds Corp. (MCD) reports Q3 2020 earnings in Monday’s pre-market, with analysts looking for a profit of $1.90 per-share on $5.36 billion in revenue. If met, earnings-per-share (EPS) would mark an 11% profit decline compared to the same quarter in 2019. The stock sold off 2.5% after posting a Q2 revenue decline of nearly 30% in July but comparative sales surged 4.6% in the third quarter, lifting the fast food icon to an all-time high.

Strong Third Quarter Sales

The stock missed top line estimates in the first and second quarters as a result of pandemic shutdowns but benefited from the summer’s return to normalcy and could easily exceed modest expectations.  However, the dreaded second wave is now underway, with the potential to force millions of folks back into their homes. Even so, the enormous popularity of drive-through, pick-up, and delivery services should keep a floor under profits and revenue until COVID runs its course.

Telsey Advisory Group analyst Bob Derrington raised McDonalds target to $250 last week, noting “same store sales trends accelerated in September to a double-digit increase, yielding its strongest U.S. monthly comps since Sept. 2004, and which carried into early October. While those especially strong September trends were not expected to last, it clearly demonstrated that when its operations, marketing, and product innovation plans are well-aligned, Mickey D is an extremely formidable industry competitor.”

Wall Street And Technical Outlook

Wall Street consensus is highly bullish, with a ‘Strong Buy’ rating based upon 20 ‘Buy’ and 4 ‘Hold’ recommendations. No analysts are recommending that shareholders close positions and move to the sidelines. Price targets currently range from a low of $203 to a Street-high $265 while the stock closed Friday’s U.S. session about $17 below the median $236 target. This placement should yield higher prices if the chain can overcome investor fears about the second wave.

McDonalds topped out at 222 in August 2019 and sold off more than 40% into March’s 3-year low. The subsequent uptick completed a round trip into the prior high in September, yielding a breakout that failed at the end of October. The stock has been trading below the 50-day EMA for the last two weeks, signaling growing fears about the second wave.  This weak sentiment could keep a lid on gains unless the company issues unexpectedly strong Q4 guidance.

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

Microsoft Surges Off Intermediate Support

Dow component Microsoft Corp. (MSFT) is trading at a 3-week high on Thursday after an analyst upgrade, adding to gains posted following Tuesday’s U.S. presidential election. The stock fell 5% at the end of October despite beating Q1 2021 profit and revenue estimates by wide margins.  Market watchers blamed modest Q2 revenue guidance for the sell-the-news reaction, which has now been fully repealed.

Microsoft Reports Strong Quarter

The company booked exceptionally strong results in the Intelligent Cloud Segment in the fiscal fourth quarter, with Azure posting 48% revenue growth year-over-year. The Productivity and Business Processes segment grew 11% year-over-year, underpinned by Teams corroborative software and Office Commercial products. Windows Server growth waned, generating a new headwind, but the current price is discounting that sales slump.

Oppenheimer analyst Timothy Horan upgraded Microsoft from ‘Perform’ to ‘Outperform’ and raised their price target to $260 ahead of Thursday’s opening bell, stating “a Biden presidency should improve relations with China where Microsoft has significant exposure while a Republican majority Senate should prevent higher corporate taxes. We also expect treasury yields to stay low, making MSFT’s 3% FCF yield attractive.”

Wall Street And Technical Outlook

Wall Street consensus is immaculate, with a ‘Strong Buy’ rating based upon 22 ‘Buy’ and 0 Hold’ recommendations. In addition, not a single analyst is recommending that shareholders sell their positions. Price targets currently range from a low of $235 to a Street-high $260 while the stock is now trading $12 below the low target.  Disconnects between traders and analysts often reflect unrecognized internal issues but the company does seem to be significantly under-valued.

The stock broke out above the February 2020 high at 190.70 in June and added about 35 points into September’s all-time high at 232.86. A broad-based tech decline then set into motion, dropping Microsoft into 50-day moving average support a few weeks later. It’s now ejecting off that level for the second time, trading within 10 points of the prior high.  Long-term relative strength readings have turned south in the last two months, raising odds for continued rangebound action, rather than a sustained assault on new highs.

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

Uber On Fire After California Vote

Uber Technologies Inc. (UBER) soared more than 10% overnight after California voters passed Proposition 22, allowing ride-share drivers to continue classification as independent contractors, rather than employees entitled to a host of benefits. The company and rival Lyft Inc. (LYFT) argued the measure would undermine their fragile business models, forcing Californians back into taxis and other traditional riding methods.

Uber Earnings On Tap

The timing couldn’t be better. Uber reports Q3 2020 earnings after Thursday’s closing bell, with analysts expecting a loss of $0.49 per-share on $3.18 billion in revenue. The company expected to post its first profit at the end of 2020 but the pandemic delivered a knock-out blow, inducing thousands of customers to avoid the service. Fortunately, UberEats has picked up the slack, with at-home food delivery orders surging as result of social distancing.

Market watchers will be listening closely to the conference call, hoping Uber forecasts a new profitability date. CEO Dara Khosrowshahi recently suggested that milestone will take longer than expected, guaranteeing new protections to workers if the measure passed, including 30 cents per mile for gas and other vehicle costs, healthcare subsidies for drivers who work 15 hours or more a week, and occupational-accident insurance coverage while on the job.

Wall Street And Technical Outlook

Wall Street has grown increasingly bullish on the company’s long-term outlook in 2020, with a consensus ‘Strong Buy’ rating based upon 20 ‘Buy’ and 2 ‘Hold’ recommendations. No analysts are recommending that shareholders close positions and move to the sidelines. Price targets currently range from a low of $34 to a Street-high $50 while the stock is set to open Wednesday’s U.S. session about $1 below the $41 median target.

A rally into February 2020 stalled six points below 2019’s all-time high at 47.08, giving way to a steep decline that posted an all-time low in the teens in March. The subsequent bounce ended in the upper 30s in June, yielding 5 months of sideways action, followed by a post-election uptick that’s now reached within 40 cents of the February peak. Accumulation readings are testing 2020 highs at the same time, raising odds the stock will head into a test of resistance in the upper 40s.

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

Disclosure: the author held Uber shares at the time of publication.

 

 

Legacy Businesses Weigh On Cisco Systems Outlook

Dow component Cisco Systems Inc. (CSCO) reports fiscal Q1 2021 earnings on Nov. 12, with Wall Street analysts looking for a profit of $0.70 per-share on $11.85 billion in revenue. If met, the earnings-per-share (EPS) would mark a 17% profit decline compared to the same quarter in 2019. The stock sold off more than 5% after warning about the current quarter’s earnings and revenue in August and has relinquished another 16% since that time.

Hardware Revenue In Multiyear Decline

Revenue from legacy routing and switching businesses has been declining for many quarters, forcing the company to reinvent itself through software and services. This approach has worked well for other old school tech giants but income from the new divisions has, so far at least, failed to replace lost hardware revenue. Additional investment, acquisitions, and restructuring may be needed to cover the shortfall and get Cisco back into mid-to-high single digit growth.

Citigroup recently downgraded Cisco to ‘Neutral’, with analyst Jim Suva warning that “Cisco’s switching and routing sales, or about 40% of total sales, remain on the decline and we are less confident in the company’s ability to return to growth or gain market share, particularly in declining markets. As a result, we do not expect Cisco’s hardware segment (Infrastructure Platforms) to return to growth near term.

Wall Street And Technical Outlook

Wall Street consensus is split right down the middle, with a ‘Moderate Buy’ rating based upon 10 ‘Buy’ and 10 ‘Hold’ recommendations. No analysts are recommending that shareholders close positions and move to the sidelines. Price targets currently range from a low of $36 to a Street-high $55 while the stock is set to open Tuesday’s U.S. session right at the low target. There’s plenty of room for upside in this humble configuration but the company isn’t likely to exceed modest expectations later this week.

Cisco topped out about 24 points below 2000’s all-time high at 82.00 in April 2019 and broke down in August, entering a decline that immediately sliced through support at the 200-day moving average. The stock fell to a two-year low during the first quarter’s pandemic decline and failed a second attempt to remount moving average support in August. It’s now trading just four points above the March low, raising odds it will test and possibly break that level in coming months.

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

Boeing Could Test March Low

Dow component Boeing Co. (BA) reported a Q3 loss of $1.39 per-share last week, underpinned by a 29.2% year-over-year revenue decline to $14.14 billion. Commercial airline revenue fell a staggering 56% y/y, held down by slumping demand and the 737 MAX grounding. The results beat bearish top and bottom line estimates but that didn’t forestall a sell-the-news reaction dumping the aerospace giant to a 5-week low. The stock has now reached September range support in the 140s, with a breakdown favoring a test of the May low near 114.

MAX 737 Grounding Coming To An End

The European Commission recently gave the OK for Boeing to return the troubled 737 MAX jetliner to the skies but the U.S. Federal Administration (FAA) has determined the software ‘fix’ for certain planes was not ‘adequate’. Even so, the jet should get its airworthiness certificate reinstated prior to year’s end, lifting a dark cloud off the company. However, the pandemic has taken its place, with at least two more years before a return to traditional demand.

Fitch downgraded Boeing debt to a highly cautious ‘BBB-‘ after the release, stating they don’t expect air travel to return to 2019 levels until the end of 2023. The rating agency noted that “downgrades reflect a prolonged recovery from the pandemic compared with Fitch’s original expectations, continued pressures from the 737 MAX grounding, and Fitch’s estimate that Boeing will be challenged to return financial metrics to levels consistent with a ‘BBB’ by the end of 2022.”

Wall Street And Technical Outlook

Wall Street has maintained a marginally-positive ‘Moderate Buy’ consensus based upon 7 ‘Buy’ and 8 ‘Hold’ recommendations. Amazingly, not a single analyst is telling shareholders to close positions, even though revenue may not return to pre-COVID levels for years. Price targets currently range from a low of $137 to a Street-high $260 while the stock is set to open Monday’s U.S. session just $7 above the low target.

Boeing topped out and sold off after the March 2019 Ethiopian crash and broke 200-day EMA support at year’s end. The first quarter’s pandemic decline completed a double top breakdown, signaling a secular downtrend that remains in force as we head through the fourth quarter. The stock has failed to test either broken support level, reinforcing the bear case while raising odds the downtick that started in June will eventually test the March low.

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

Expedia Heads Into Dangerous Winter

Expedia Group Inc. (EXPE) reports Q3 2020 earnings after Wednesday’s U.S. closing bell, with analysts expecting the battered travel giant to post a loss of $0.79 per-share on just $1.35 billion in revenue. The company earned $3.38 per-share during the same quarter in 2019, highlighting an historic fall from grace as a result of the COVID-19 pandemic. The stock recovered from a one-day selloff after missing Q2 top and bottom line estimates by wide margins in July and has now settled into a holding pattern under long-term resistance.

New Lockdowns Undermine Expedia Recovery

One million airline passengers crossed U.S. Transportation Security Administration (TSA) checkpoints on Oct. 18, the highest number since March, in reaction to growing optimism. However, surging infections in Europe and the United States have undermined short-term sentiment, with new lockdowns and rapidly dwindling hospital beds. Many experts now predict this wave will be worse than the first, putting pressure on Expedia and other travel stocks.

RBC analyst Mark Mahaney warned about “rising competitive risk” in a recent survey, finding “several negative read-throughs” specific to the company. For starters, Expedia is losing market share to rivals Airbnb and Google, relinquishing its position as the #1 most popular destination for planning travel in the U.S., in results dating back to 2015. Worse yet, it’s also fallen from a 190%/107% selection as a travel planning/booking site in 2016 to just 128%/76% in 2020.

Wall Street And Technical Outlook

Wall Street consensus is mixed, which looks appropriate given the uncertain travel environment into 2021. It’s currently rated as a ‘Moderate Buy’ based upon 5 ‘Buy’ and 6 ‘Hold’ recommendations. No analysts are recommending that shareholders close positions and move to the sidelines, despite the surge in lockdowns. Price targets currently range from a low of $85 to a Street-high $143 while the stock closed last week about $12 below the median $107 target.

Expedia entered a bear market long before the pandemic struck in the first quarter, posting an all-time high near 160 in July 2017 and reversing into a decline that broke support at the 200-day moving average in November 2019. The stock fell to an 8-year low in March and bounced into September, stalling around the 100 level. This price action looks like a classic pullback to new resistance, raising odds for a rollover and test of the deep March low.

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

Twitter At 5-Year High Ahead Of Earnings

Twitter Inc. (TWTR) reports Q3 2020 earnings after Thursday’s U.S. closing bell, with analysts looking for a profit of $0.05 per-share on $773.16 million in revenue. If met, earnings-per share (EPS) will mark just one-third of the profit posted in the same quarter in 2019.  The stock sold off at the end of July after missing Q2 top and bottom line estimates but recovered in August and is trading at a 5-year high.

Twitter Monetization Initiatives

The social media giant is now caught in the crosshairs of the Republican Senate, accused of anti-conservative bias and message filtering. Even so, its booked exceptionally strong user statistics in the last two years, with 21% growth in 2019 and 34% growth in 2Q 2020. It’s currently engaged in new monetization initiatives, including digital marketing products and a subscription portal that has the power to reduce or eliminate noise from bots, trolls, and off-topic entries.

Stifel analyst John Egbert raised their target to $39 and issued an upbeat but cautious evaluation ahead of the report, noting “we expect Daily Average User (DAU) additions (+14mm q/q) to remain strong in 3Q as Twitter likely benefited from elevated conversation around social issues, the global pandemic, and ongoing elections. However, we believe Twitter needs to invest heavily in the security of its platform, following several breaches/privacy lapses, and develop more robust tools and technology for advertisers.”

Wall Street And Technical Outlook

Wall Street hasn’t jumped on the bull train just yet, still skeptical about the long-term outlook. Consensus yields a mixed ‘Hold’ rating based upon 3 ‘Buy’, 16 ‘Hold’, and 0 ‘Sell’ recommendations. Price targets currently range from a low of $39 to a Street-high $60 while the stock is now trading more than $5 above the median $46 target. The company may need to beat modest expectations and/or raise guidance to generate more positive coverage.

Twitter just completed a breakout above resistance at the opening print of the 2013 IPO in the mid-40s and is trading in the low 50s for the first time since April 2015. Accumulation readings have risen to all-time highs, confirming the breakout while raising odds the uptrend will eventually reach long-term resistance on the 70s. However, immediate upside may be limited, with initiatives just now underway and an election that could further politicize the social media sector.

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

Facebook Sitting At Ground Zero In U.S. Election

Facebook Inc. (FB) reports Q3 2020 earnings after Thursday’s U.S. closing bell, with analysts expecting a profit of $1.91 per-share on $19.8 billion in revenue. If met, earnings-per-share (EPS) would mark a 10% profit decline compared to the same period in 2019. The stock rallied more than 8% after beating Q2 top and bottom line in July, despite warning that Q3 daily and monthly average users (DAUs and MAUs) would be flat or lower. The stock posted an all-time high in August and has lost ground since that time.

CEO Zuckerberg Faces Hostile Senate

CEO Mark Zuckerberg will testify before a Senate committee on Wednesday, in response to a subpoena from the Republican-controlled group, who are furious with Facebook for alleged anti-conservative message filtering ahead of next week’s presidential election. The CEO had resisted all forms of censorship following Russian interference in the 2016 election, finally acceding to demands and instituting filters that conservatives believe have placed them at a disadvantage.

All political ads on Facebook will be shut down at the close of polling on Nov. 3. The social media giant also announced steps to deter voter intimidation, declaring “we will also remove calls for people to engage in poll watching when those calls use militarized language or suggest that the goal is to intimidate, exert control, or display power over election officials or voters. We thank the civil rights experts and community members who continue to help us understand trends in this area and we look forward to continuing to work with them.”

Wall Street And Technical Outlook

Wall Street has been quiet as a church mouse about Facebook’s political controversies, with a ‘Strong Buy’ rating based upon 32 ‘Buy’, 3 ‘Hold’, and just 1 ‘Sell’ recommendation. Price targets currently range from a low of $195 to a Street-high $340 while the stock is trading about $31 below the median $304 target. This relatively humble placement indicates that many investors have taken note of the conflict and are keeping their powder dry for now.

The stock posted an all-time high at 304.67 on Aug. 26 and rolled over, undercutting the 50-day moving average a few weeks later. It remounted that level in early October but hasn’t made much progress in the last three weeks, suggesting that price action has entered a holding pattern ahead of next week’s election. Bears have a modest advantage, given the perfect timing of Q3 earnings, with a strongly-positive report unlikely to attract committed buying interest.

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

Amazon Stuck In Neutral Ahead Of Earnings

Amazon.Com Inc. (AMZN) reports Q3 2020 earnings after Thursday’s U.S. closing bell, with Wall Street analysts expecting a profit of $7.17 per-share on $92.5 billion in revenue. If met, that would mark a 65% earnings-per-share (EPS) increase compared to the same quarter in 2019, highlighting huge market share gains as a result of the COVID-19 pandemic. The stock rallied 3.7% after a blowout Q2 report at the end of July but hasn’t added a penny since that time.

Growing Political Headwinds

The next presidential administration could signal growing risk for the $1.6 trillion mega-cap, regardless of who wins the election. CEO Jeff Bezos also owns the Washington Post, which President Trump has repeatedly accused of disseminating ‘fake news’. A Democratic presidency could be even tougher on Amazon, following through on accusations of anti-competitive and monopolistic behavior that’s forced tens of thousands of small businesses to shut down.

The Benchmark Company analyst Daniel Kurnos raised their target to $3,800 earlier this month, stating “we expect Amazon to be a material share gainer this holiday period, while also spreading out and front running some early holiday demand to avoid shipping shortages and incrementally costly last mile delivery methods. We get that timing is challenging but see the recent pullback as an excellent entry point.”

Wall Street And Technical Outlook

Wall Street consensus has been one-sided throughout 2020 despite historic share gains, with a ‘Strong Buy’ rating based upon 37 ‘Buy’ recommendations. No analysts covering the retailer are posting a ‘Hold’ or ‘Sell’ recommendations. Price targets currently range from a low of $3,400 to a Street-high $4,500 while the stock is now trading about $150 below the low target. This unanimity of opinion looks like a warning sign, given depressed price action and lack of Q3 upside.

Amazon broke out above the first quarter high at 2,190 in April, posted an all-time high at 3,552 in September, and failed the breakout above 3,350 a few days later. Accumulation topped out in July while price action since June has carved the outline of a potential head and shoulders topping pattern. The July and September lows define the possible neckline, with a breakdown exposing a multi-week correction that could reach breakout support near 2,200.

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

Did Alphabet Make Shady Deal With Apple?

Google parent Alphabet Inc. (GOOGL) reports Q3 2020 earnings after Thursday’s U.S. closing bell, with analysts expecting a profit of $11.14 per-share on $42.81 billion in revenue. That would mark a modest 10% earnings-per-share (EPS) increase compared to the same quarter in 2019. The stock fell after a mixed Q2 report in July but bottomed out quickly, ahead of a strong advance that posted an all-time high at 1726.10 in September.

Department Of Justice Files Anti-Trust Suit

The U.S. Department of Justice filed an anti-trust suit against Alphabet last week, alleging “Google has unlawfully maintained monopolies in search and search advertising by (1) entering into exclusivity agreements that forbid pre-installation of any competing search service and (2) entering into tying and other arrangements that force pre-installation of its search applications in prime locations on mobile devices and make them undeletable”.

DoJ intends to target a questionable deal with an alleged co-conspirator to prosecute their anti-trust case. According to The New York Times, the company pays Apple Inc. (AAPL) an estimated $8 to $12 billion per year to make Google the exclusive search engine for all their devices and services, including the iPhone and Siri. More importantly, this is alleged to be Alphabet’s biggest single payout, accounting for as much as 21% of Apple’s annual profits.

Wall Street And Technical Outlook

Wall Street consensus is utterly euphoric, with a ‘Strong Buy’ rating based upon 31 ’Buy’ and 1 ‘Hold’ recommendation. No analysts are recommending that shareholders close positions and move to the sidelines. Price targets currently range from a low of $1,600 to a Street-high $2,202 while the stock opened Monday’s U.S. session just $15 above the low target. This suggests Alphabet is undervalued but the lawsuit could weigh on buying pressure in coming months.

The stock reversed in September at a rising highs trendline going back to 2015 and sold off to the 200-day moving average. It bounced off that support level into October and has now recovered about 75% of the downdraft. Accumulation readings are perking up after garden variety profit-taking and a strong quarterly report could close the distance into the prior high. Even so, it will be tough to overcome trendline resistance between now and year’s end.

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

Apple Rangebound Ahead of Thursday Report

Dow component Apple Inc. (AAPL) reports earnings after Thursday’s U.S. closing bell, headlining the busiest week for big tech stocks of the third quarter earnings season. Analysts are pounding the tables ahead of the release, expecting a profit of $0.70 per-share on $62.7 billion in Q3 2020 revenue. While that marks just 23% of Q3 2019 earnings-per-share (EPS), Wall Street’s undivided attention is now focused on last week’s iPhone release.

iPhone 12 Should Drive Higher Sales

The next iPhone generation should book excellent sales and impressive margins, if the euphoric early teardowns and reviews are any guide. The release marks the start of the 5G era for Apple, even though the buildout won’t be done for three to five years. The higher price tag crushes the $1,000 barrier after resistance in the early days of the iPhone 11 while a boost in graphic performance will improve gaming capabilities, underpinning Chinese and Asian sales.

Cowen’s Krish Sankar issued upbeat commentary after the Oct. 13 release event, stating “We maintain our Outperform rating on AAPL as we believe the arrival of 5G wireless and a range of screen form factors could be a catalyst for consumers to replace older devices. The refreshed iPhone product family was largely in line with our expectations, and the modest sell-off in the stock post the event is not surprising given the recent appreciation in shares”.

Wall Street And Technical Outlook

Wall Street has grown more cautious in recent months, due to returns in excess of 50% so far in 2020. Current consensus yields a ‘Moderate Buy’ rating, based upon 25 ‘Buy’, 8 ‘Hold’, and 2 ‘Sell’ recommendations. Price targets currently range from a low of just $67 to a Street-high $150 while the stock closed Friday’s session $10 below the median $125 target. There should be plenty of room for upside after a strong report, given this placement.

The rapid share appreciation set off overbought technical readings during the summer, triggering an intermediate correction just two days after the Aug. 31 four-for-one stock split. Price action has been testing support at the 50-day moving average for more than 7 weeks while long-term relative strength indicators have slipped into sell cycles that could persist until year’s end. Given these headwinds, Apple could remain rangebound until the first quarter of 2021.

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Tesla Gains Evaporating After Strong Open

Tesla Inc. (TSLA) is trading higher by less than 2% in the first hour of Thursday’s U.S. session after posting a Q3 2020 profit of $0.76 per-share, $0.16 better than expectations, while revenue rose an impressive 39.2% year-over-year to $8.77 billion, beating estimates by about $500 million. Results marked the fifth consecutive quarterly profit for the EV manufacturer, with sales of regulatory credits marking the difference between a profit and a loss.

Credit Sales Underpin Tesla Profit

The company insists it will deliver a half million vehicles in 2020 but that lofty goal will require blowout sales in the fourth quarter. CEO Elon Musk hedged his bets during the post-earnings conference call, stating they should have the capacity to produce those vehicles but achieving the sales goal has become more difficult. In addition, a China industry report recently noted that Tesla Model 3 sales remained flat between July and September, after a second quarter surge.

Needham’s Rajvindra Gill delivered a skeptical post-report analysis, noting “while we are encouraged that automotive margins have improved since Tesla’s factories returned to normal operations, if you exclude credit revenue, the company is still showing consistent GAAP net losses. Moreover, we believe there’s a high bar set for Q4 deliveries as Tesla would have to grow deliveries 30% quarter-over-quarter, well above historical patterns of 13%, in order to hit the 500K target.”

Wall Street And Technical Outlook

Wall Street has grown more cautious in recent months, despite two modest upgrades after the report. Consensus now stands at a ‘Hold’ rating based upon 9 ‘Buy’, 11 ‘Hold’, and a stomach-churning 11 ‘Sell’ recommendations.  Price targets currently range from a low of just $19 to a Street-high $578 while the stock opened Thursday’s U.S. session more than $90 above the median $346 target. This lofty placement suggests that overly-aggressive short sellers are keeping a floor under the stock price.

Tesla broke out above the February high at 194 at the start of July and took off in a powerful trend advance that posted an all-time high at 502.49 exactly two-months later. Price action then eased into a symmetrical triangle pattern that’s still in force as we head through the fourth quarter.  Support at 400 and resistance at 460 define the edges of this classic pattern, with odds now evenly weighted between bullish and bearish outcomes.

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Peloton Could Offer A Low Risk Buying Opportunity

Fitness centers around the world are shutting down at a rapid pace, unable to pay the rent due to COVID-19 restrictions. Investors have taken note, bidding up online fitness provider Peloton Interactive Inc. (PTON) nearly eight-fold since the March low. The latest rally wave posted an all-time high near 140 and reversed last week, setting the stage for a pullback that could offer a low risk buying opportunity.

Peloton Pullback Trading Strategy

As it turns out, the company reports fiscal Q1 2021earnings on Nov. 3, with analysts expecting a profit of $0.15 per-share on $732.15 million in revenue. The stock sold off for two days in September despite beating Q4 estimates and then turned sharply higher, rewarding pullback buyers. A similar trade set-up could unfold this time around because the report is likely to attract another crowd of weak hands who need to be shaken out.

KeyBanc Capital Markets analyst Edward Yruma raised their Peloton target from $120 to $160 on Wednesday, commenting “We think investor attention will focus on companies leveraged to a post-COVID-19 reopening but PTON will remain a beneficiary due to the contraction in the traditional fitness space. Our Key First Look Data points to <60% retention for many leading fitness chains, which will further exacerbate closures. Demand (new and Bike+ upgrades) remains very strong and marketing leverage could be greater than previously forecast.”

Wall Street And Technical Outlook

Wall Street consensus is highly bullish, with a “Strong Buy’ rating based upon 21 ‘Buy’ and 2 ‘Hold’ recommendations. One analyst recommends that shareholders close positions and move to the sidelines at this time. Price targets currently range from a low of just $33 to a Street-high $160 while the stock is now trading about $7 above the median $121 target. However, it’s dropped more than $10 since last week and could hit the median target before the earnings date.

Peloton is losing momentum and has now completed a head and shoulders pattern on the 60-minute chart. Accumulation readings are rolling over at the same time, indicating that caution is growing ahead of the quarterly confessional. Daily relative strength readings could be at or near oversold levels by that time, supporting the post-report pullback strategy. Just keep in mind that earnings will be reported on the afternoon of Election Day, adding a measure of volatility.

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

Monster Beverage Could Hit New Highs After Earnings

Nasdaq-100 component Monster Beverage Corp. (MNST) is trading just 7 points below September 2020’s all-time high in Tuesday’s U.S. session, following a June breakout above 2-year resistance. The stock got a boost from Guggenheim ahead of the opening bell, with the tier one firm raising their price target. The bullish call comes just one week after Bank of America Securities pounded the table on the stock, insisting it deserves a higher valuation than the current 37.98 price-to-earnings ratio (P/E).

Monster Beverage Earnings Opportunity

Coca-Cola Co. (KO) owns 16.7% of Monster Beverage, leading to persistent speculation the Dow component and international icon will eventually acquire the company at a hefty premium. Monster will report Q3 2020 earnings on Nov.5, with analysts expecting a profit of $0.62 per-share on $1.24 billion in revenue. If met, earnings-per-share (EPS) performance will mark at least a 13% increase compared to the same quarter in 2019.

Guggenheim analyst Laurent Grandet raised their target to $90 on Tuesday, noting “We are adjusting our model ahead of results, where we expect a meaningful sequential organic sales improvement to +11% as consumer mobility has increased, driving growth in the convenience channel. Although we continue to expect short-term headwinds from Covid-19 and we see increased competitive pressures heading into next year, we still think there is a high likelihood that Coca-Cola will increase its ownership of Monster over time”.

Wall Street And Technical Outlook

Wall Street consensus is mostly bullish, with a ‘Moderate Buy’ rating based upon 8 ‘Buy’ and 2 ‘Hold’ recommendations. One analyst is recommending that shareholders close positions and move to the sidelines. Price targets range from a low of just $57 to a Street-high $93 while the stock is now trading about $6 below the median $86 target. The humble placement offers plenty of upside potential if the company meets or exceeds quarterly estimates.

Monster Beverage topped out at 70 in January 2018 and entered a trading range, with support just below 50. It finally broke out in June 2020, adding 17 points into September’s all-time high at 87.07. The stock then sold off with other Nasdaq-100 components and has been testing 50-day moving average support for the last 6 weeks. A bounce off this trading floor could generate healthy buying interest, lifting above the prior high and toward the 100 level.

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

Anticipation Builds Ahead Of Microsoft Earnings

Dow component Microsoft Corp. (MSFT) reports fiscal Q1 2021 earnings on Oct. 27, with analysts expecting a profit of $1.36 per-share on $35.8 billion in revenue. The stock sold off more than 6% after the Q4 release in July, despite beating top and bottom line estimates. Market watchers blamed the sell-the-news reaction on overly-high expectations for the cloud and commercial products divisions. The stock recovered those losses into August and posted an all-time high in early September.

Microsoft And TikTok

Buying pressure resumed after Mr. Softee threw its hat into the ring in the TikTok drama, seeking to acquire the company while jumping through political hoops in China and the United States. Oracle Inc. (ORCL) eventually won the coveted prize but continued conflict between nations suggests that Microsoft was lucky to walk away empty-handed and redirect attention to core services and the Nov. 10 release of the next-generation Xbox console.

Morgan Stanley analyst Keith Weiss discussed the revenue boost expected from the Xbox release earlier this month, stating, “The fiscal year 2021 console cycle and the addition of Bethesda highlight incremental growth opportunities for Microsoft’s gaming franchise, w/ a potential ~$80 billion value for the gaming subscription biz alone. Our bottom up work suggests the console cycle should not derail a broader margin expansion story. Overweight.”

Wall Street And Technical Outlook

Wall Street has been bullish on the big tech powerhouse for years, with a current ‘Moderate Buy’ consensus based upon 23 ‘Buy’ and 3 ‘Hold’ recommendations. No analysts are recommending that shareholders close positions and move to the sidelines at this time. Price targets currently range from a low of $208 to a Street-high $260 while the stock is set to open Monday’s U.S. session about $16 below the median target. There’s plenty of potential upside after a strong strong quarterly report, given this humble placement.

Microsoft broke out above the first quarter high at 190.65 in June and added more than 40 points into the September peak. It then sold off with broad benchmarks, testing the 50-day moving average for more than 5 weeks before surging off a small base earlier this month. Accumulation readings are hovering near new highs, supporting continued upside, but monthly cycles are flashing overbought technical readings. This conflict suggests two-sided action through most or all of the fourth quarter.

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

Caterpillar Testing the 2018 All-Time High

Dow component Caterpillar Inc. (CAT) rallied more than 2% in Friday’s U.S. session after Wells-Fargo pounded the table, upgrading the heavy equipment manufacturer to ‘Overweight’. The rally stretched within 5 points of January 2018’s all-time high at 173.24, initiating a test that could eventually trigger a major breakout. However, market players may need to tread lightly because this level marks resistance while accumulation has failed to keep up with bullish price action.

Caterpillar Slumping 2020 Profits

The company reports Q3 2020 earnings on Oct. 27, with analysts expecting the company to report a profit of $1.15 per-share on $9.78 billion in revenue. That EPS performance would mark a 57% decline compared to the same quarter in 2019, raising doubts about the sustainability of a breakout. The stock is also trading nearly 40 points higher now than it was during the Q3 2019 earnings release, suggesting that short sellers will reload positions, given the right catalyst.

Well Fargo analyst Andy Casey outlined three reasons for higher Caterpillar prices, as follows:

  1. Revenue growth from global growth acceleration, with signs that key markets critical to the bear case are beginning to bottom, with likely growth by mid-2021 and the absence of 2020 inventory reduction actions.
  2. Expected margin improvement due to higher revenue generation across improved cost structure, although still below 2021 Investor Day target and in-line for 2022.
  3. Anticipated higher cash flow that could be allocated to enhance growth.

Wall Street And Technical Outlook

Wall Street consensus remains mixed despite the upgrade, with a ‘Moderate Buy’ rating based upon 7 ‘Buy’, 7 ‘Hold’, and 1 ‘Sell’ recommendation. Price targets currently range from a low of $120 to a Street-high $220 while the stock ended Friday’s session more than $14 above the median $155 target. The company may need to fire on all cylinders in next week’s earnings report in order to sustain this elevated placement.

Caterpillar is a cyclical play near an all-time high in the 11th year of a bull market that many believe is growing ‘long-in-the-tooth’. Traditionally, their performance tracks economic boom and bust periods, as well as developments in BRIC countries where heavy earth movers are needed for industrialization. 2020 China growth is stronger than expected after pandemic shutdowns but North America and Europe are posting sub-par numbers, adding risk for breakout buyers.

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