Facebook Bounce Could Offer Opportune Profits

Facebook Inc. (FB) more than doubled in price after March’s 52-week low, posting an all-time high at 304.67 during the last week of August. The stock has sold off more than 13% since that time and is now approaching strong support that should generate a reversal and high percentage bounce. Even so, a breakout to new highs appears unlikely at this time, warning market timers to utilize trailing stops and take opportune profits at high-odds reversal levels.

Facebook Parabolic Rally

The social media giant shook off boycott threats from tier one advertisers during the George Floyd protests, racing to higher ground with a select group of other high tech giants. So-called ‘Robinhood traders’ and huge SoftBank Group Corp. (SFTBF – OTC) options plays drove a good part of this parabolic impulse, ahead of a long-overdue pullback that’s dropped the market-leading Nasdaq-100 index a nearly-equal percentage as Facebook, its 5th highest component.

The company just addressed concerns about election manipulation, advising “we won’t accept new political ads in the week before the election. We’ll remove posts that claim that people will get COVID-19 if they take part in voting, and we’ll attach a link to authoritative information about the coronavirus to posts that might use COVID-19 to discourage voting. We will attach an informational label to content that seeks to delegitimize the outcome of the election or discuss the legitimacy of voting methods, for example, by claiming that lawful methods of voting will lead to fraud.”

Wall Street And Technical Outlook

Wall Street consensus has remained steadfastly bullish this year, with a ‘Strong Buy’ rating based upon 30 ‘Buy’ and 4 ‘Hold’ recommendations. A single analyst now recommends that shareholders close positions and move to the sidelines.  Price targets currently range from a low of $195 to a street-high $335 while the stock closed out Friday’s session $27 below the median $293 target. Along with technical factors, this placement now favors a strong recovery wave.

Facebook sold off within a point of the 50-day moving average on Friday and bounced into the closing bell. This level marked support in June and July, raising odds for a bounce that could end at resistance between the 290 and 300 price levels. Relative strength indicators have dropped into their most oversold technical readings since February at the same time, with both elements predicting the stock will bottom out in the low 260s and head to higher ground.

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

Snap Could Break Out To New High

Snap Inc. (SNAP) surged to the highest high in nearly two months on Thursday after announcing the launch of personalized public profiles and advanced analytics to their global user base. The initiative expands on prior permissions that allowed only verified celebrities, brands, and official creators to build static profiles, which contain short biographies, recent content listings, and customized lenses.

Snap Expands User Customization

All users can now set up profiles with account photos, bio sections, text descriptions, locations, email contacts, and URLs. They can also customize a creator-curated collection of recent photo/video uploads as well as everything published through the lens studio. New profile features include ‘Stories Replies’, where users can discuss their stories and ‘Quoting’, which allows creators to share and respond to follower inquiries.

Bank of America analyst Justin Post said in a Thursday note he expects the Snap initiative to underpin share price, commenting, “Snap plans to roll out this functionality globally in the coming months…With this announcement Snap blends together existing Snap functionality with new features that are common to apps including TikTok, Instagram, and Twitter and we see a number of potential engagement drivers if the functionality gains traction”.

Wall Street And Technical Outlook

Wall Street consensus rates Snap as a ‘Moderate Buy’, based upon 19 ‘Buy, 9 ‘Hold’, and 1 ‘Sell’ recommendation. Price targets currently range from a low of $16 to a street-high $30 while the stock is trading less than $3 below the median $26 target in Thursday’s U.S. session. There’s plenty of room for upside in this placement but new investors may wait for more bullish catalysts before jumping on board.

Snap came public at 24 in March 2017 and posted an all-time high at 29.44 in the following session. The subsequent decline hit an all-time low at 4.82 in December 2018 while price action into July 2020 stalled within 5 points of the 2017 high. The stock pulled back into August and has now bounced off the 50-day EMA, raising odds it will complete the long-awaited round trip. Accumulation readings have already hit new highs, indicating that price may soon follow.

Activision-Blizzard Selloff Could Offer Buying Opportunity

Activision-Blizzard Inc. (ATVI) beat Q2 2020 earnings estimates by a country mile in an early August release, lifting the stock to an all-time high. The game maker booked a profit of $0.75 per-share while revenue rose an impressive 72.3% year-over year to $2.08 billion, much higher than $1.35 billion expectations. Sharply raised Q3 and fiscal year guidance also got bulls’ undivided attention, completing a blowout report that triggered a vertical breakout after a brief decline.

Activision-Blizzard Pandemic Beneficiary

The installed player base has grown 30% year-over-year so far in 2020 while individual play times have risen a phenomenal 70%, all as a result of pandemic shutdowns and virtual working spaces. Hit content titles that include Call of Duty are also driving growth, with that game’s play time rising eightfold this year. These tailwinds are likely to continue, with the N.Y. Times just releasing a survey that expects only 54% of workers to return to New York offices by July 2021.

Needham analyst Laura Martin pounded the tables on Wednesday, stating, “We believe that lock-downs have accelerated several media trends and Activision-Blizzard is among the biggest beneficiaries. We raise our ATVI estimates for FY20 and FY21 and discuss recent trends in viewing and play times across the video game industry that benefits the stock. We are most excited about ATVI’s leadership position in eSports and we remain optimistic about eSports betting as a long-term revenue driver. We reiterate our Buy rating and $102 PT.”

Wall Street And Technical Outlook

Wall Street has been steadfastly bullish about Activision-Blizzard’s long-term outlook, with a ‘Strong Buy’ rating based upon 22 ‘Buy’ and just 1 ‘Hold’ recommendation. A single analyst is recommending that shareholders sell their positions at this time. Price targets currently range from a low of $65 to a street-high $106 while the stock is now trading $15 below the median $94, perfectly placed for higher prices.

However, Activision-Blizzard isn’t well-positioned to be bought right now because it just failed the breakout above the 2018 high in the mid-80s. Selling pressure is picking up, targeting the 200-day EMA near 70. That level could offer a low risk buying opportunity, for three reasons. First, the stock will no longer be technically overbought. Second, the company should post strong quarterly results well into 2021. Third and most importantly, next-generation video game consoles set for release in coming months should add another significant tailwind.

Has Apple Topped Out?

Dow component Apple Inc. (AAPL) slumped near a 4-week low as trading resumed in the United States on Tuesday, continuing a decline that started just two sessions after the tech giant posted a 4-for-1 split on Aug. 31. The stock hit an all-time high at 137.98 and turned sharply lower on Wednesday, relinquishing nearly 30 points into Friday’s intraday low at 110.89. It’s still testing that level, which has narrowly aligned with the 50-day moving average.

Goldman Sachs Issues Sell Rating

The stock has risen nearly 65% since the last trading day of 2019 and more than 125% since the March low, setting off extremely overbought technical readings that now favor an intermediate correction lasting for weeks and potentially reaching much lower price levels. For now, market watchers are waiting for Apple to confirm the initial production of 5G iPhones after delays caused by pandemic-driven supply disruptions.

Goldman Sachs analyst Rod Hall took aim on Tuesday, justifying a ‘Sell’ rating and $85 target, noting “Apple’s miss/beat track record is mixed, with the company failing to meet consensus expectations in 2016, 2018, and 2019. This compares to Microsoft beating revenue expectations for the last three years running and Amazon beating for three of the last five. To be more positive, we simply would like to see a consistent string of beat-and-raise quarters from Apple that matches the growth narrative.”

Wall Street And Technical Outlook

Wall Street consensus has grown more cautious in recent months, with a ‘Moderate Buy’ rating based upon 25 ‘Buy’ and 8 ‘Hold’ recommendations. Three analysts now recommend that shareholders sell their positions and move to the sidelines. Price targets currently range from a low of $66.60 to a street-high $150 while the stock is trading right on top of the $116 median target. This neutral placement favors neither bulls nor bears.

A multiweek pullback that reaches May breakout support near 80 could ease overbought readings and test the 200-day moving average for the first time since Apple remounted that level in April. While it looks like a perfect position for sidelined capital to get on-board, tight stops may be needed because a failed breakout could expose the March into September rally as the climactic wave in an Elliott 5-wave rally pattern off the December 2018 low.

Expectations Running High Ahead Of Peloton Earnings

Peloton Interactive Inc. (PTON) reports Q4 2020 earnings on September 10, with analysts expecting a profit of $0.11 per-share on $574.86 million in revenue. The stock jumped 16% after May’s Q3 report despite a greater-than expected loss and has doubled in price since that time, underpinned by a wave of upgrades and bullish channel checks. Even so, a long string of quarterly losses has market watchers wondering how long this momentum play can keep flying high.

Peloton Rapid Growth

The company now boasts the largest interactive fitness platform in the world, with more than 2.6 million members. It’s having trouble keeping up with surging demand, despite doubling the manufacturing pace since March and a prior disclosure that estimated delivery times would “normalize” in July or August. This game of catch-up suggests that strong sales and expanding revenue will continue into fiscal year 2021, underpinning the stock price even though it’s already gained nearly 200% year-to-date.

JPMorgan analyst Doug Anmut raised their Peloton target from $58 to $105 last week, noting the company “is on our U.S. Analyst Focus List and is one of our top picks. We continue to like shares into earnings and believe there is significant upside potential to consensus estimates both near and long term. Peloton’s biggest near-term challenge in our view is keeping up with elevated demand, with Bike order-to-delivery times of 6 to 7 weeks on average across the top 20 U.S. markets, as of our checks on September 1.”

Wall Street And Technical Outlook

Wall Street rates Peloton as a ‘Strong Buy’, based upon 15 ‘Buy’ and just 1 ‘Hold’ recommendation. No analysts are recommending that shareholders sell positions and move to the sidelines at this time. Price targets currently range from a low of $58 to a street-high $109 while the stock is now trading just above the $79.50 target. Expectations are extremely high ahead of the earnings release so results may need to exceed estimates to support additional upside.

A May 2020 breakout above the 2019 high at 36.00 attracted intense momentum buying interest, carving a powerful trend advance that stalled near 70 in July. Price action cleared that barrier in late August, reaching an all-time high at 92.50 on September 2. The stock sold off more than 18 points before bouncing into the Labor Day holiday in the United States, indicating that pre-earnings volatility is now picking up steam.

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.

MGM Resorts Acting Well Despite Pandemic Headwinds

MGM Resorts International Inc. (MGM) has been hit hard by the COVID-19 pandemic, which temporarily shut down casino and hotel operations in Las Vegas and Macao. Those venues have since reopened but customers are staying away, worried about air travel and closed ventilation systems. Plunging revenue just forced to company to idle 18,000 workers, or about one-quarter of the total workforce. Wall Street took the bearish news in stride, lifting the stock to a 6-month high.

MGM Resorts Revenue Destruction

Macao just reported that August gross revenue fell more than 90% year-over-year, showing no improvement from July. The Nevada Gaming Board reported a 26.2% year-over-year decline in July ‘winnings’ at the same time, highlighting continued headwinds that are likely to persist well into 2021. Even so, Interactive Corp (IAC) took a 12% stake in MGM Resorts in August, viewing the depressed stock price as a buying opportunity.

MGM Chairman Paul Salem commented on the investment, noting “IAC’s family of brands and digital expertise are a great complement to the direction MGM Resorts has been taking both in leveraging our digital assets to enhance our guests’ experience and building a leading iGaming and sports betting business in BetMGM. We welcome IAC as a long-term strategic partner and intend to invite them to join our Board of Directors.”

Wall Street And Technical Outlook

Wall Street consensus has deteriorated since the layoff news last week, with a ‘Hold’ rating based upon 3 ‘Buy’, 5 ‘Hold’, and 2 ‘Sell’ recommendations. Price targets currently range from a low of $13 to a street-high $27 while the stock is trading less than $4 under the high target in Thursday’s U.S. session. This is a dangerous placement that suggests the casino operator is now fully-valued, potentially triggering further downgrades.

MGM Resorts topped out in the upper 30s in 2018 and sold off into the lower 20s. It broke support in the first quarter of 2020 and bounced strongly, reversing near new resistance in June. The stock is still testing that level three-months later, carving a small cup and handle pattern on top of the 200-day moving average. Strong support pushing against strong resistance establishes a ‘rock and a hard place’ trade set-up, with equal odds for a breakout and breakdown.

Netflix Testing Bull Market High

Netflix Inc. (NFLX) reversed at an all-time high in July after lowering H2 2020 guidance and issuing conservative Q3 new subscriber estimates of just 2.5 million. A few hedge funds took profits after the news, including Stanley Druckenmiller’s Duquesne Capital and David Tepper’s Appaloosa Management. However, the streaming giant may have ‘low-balled’ estimates because folks over 60 are still hiding in their homes to avoid COVID-19. This represents an untapped market opportunity because they’ve subscribed in smaller numbers than younger demographics.

Netflix Adding Older Subscribers

Bernstein’s Todd Juenger highlighted this set-up in an August note, commenting the company “added 5.7 million subs in H1 2020, bringing total subs to 72.9 million, up from 67.7 million at the end of 2019. That’s a lot of growth for a market that was already supposedly saturated. Nielsen’s latest Total Audience Report provides some important clues into where that growth came from and where the leading streaming services sit in terms of engagement and value”.

The analyst saved the best for last, concluding “our two biggest takeaways: Netflix’s sub growth was largely fueled by older age cohorts. We have argued, adamantly, for a long time that contrary to popular belief; Netflix is not fully penetrated in North America, because of the low penetration among older age cohorts. Over time, there will be a natural growth tailwind as younger cohorts age and carry-forward their higher penetration rates. We have estimated this aging benefit to be worth 23 million U.S. subs over the next 15 years.”

Wall Street And Technical Outlook

Wall Street consensus hasn’t changed much in recent weeks, highlighting persistent conflict about potential upside, with a ‘Moderate Buy’ rating based upon 20 ‘Buy’ and 9 ‘Hold’ recommendations. Notably, 5 analysts now recommend that shareholders take profits and move to the sidelines. Price targets range from a low of $220 to a street-high $625 while Netflix is now trading more than $25 above the median 519 target.

The selloff that started in July found support above 460 while a successful August test at that level has fortified buying interest into September. The stock has now rallied within 30 points of the July high but it will take a lot of buying power to trigger a breakout and sustained trend advance toward 600. Even so, the long-term technical outlook is highly bullish, with the potential to mount the 1,000 level in the next one to two years.

Best Buy Could Offer Low Risk Buying Opportunity

Best Buy Inc. (BBY) beat Q2 2020 earnings estimates by a wide margin last week, booking a profit of $1.71 per-share. Revenue rose 3.9% year-over-year despite 25 permanent store closures, underpinned by sales strength in computing, appliances, and tablets. Comparative sales grew 5.0%, driven by a 5.8% increase in Enterprise Comparable sales and a hefty 242% increase in Domestic Comparable sales. The retail chain chose not to offer Q3 guidance due to ongoing uncertainty as a result of the COVID-19 pandemic.

Best Buy Robust E-Commerce Sales

The company, which boasts more than 1,100 stores in the United States, Canada, and Mexico, has been a top performer in the electronics and appliance space for years, with a robust e-commerce portal taking market share from Amazon.Com Inc. (AMZN) and Dow component Walmart Inc. (WMT). Online sales also kept the cash registers ringing during the first quarter shutdown, underpinning a broad recovery that lifted the stock to an all-time high in July.

Best Buy CFO Matt Bilunas discussed the withheld guidance after the release, stating, “As a result of the ongoing uncertainty, we are not providing financial guidance today. However, I would note that we are planning for Q3 sales to be higher compared to last year but likely will not continue at the current quarter-to-date level of approximately 20% growth. Also, as our stores are fully reopened, we are planning for Q3 SG&A expense to be more in line with last year’s third quarter.”

Wall Street And Technical Outlook

Wall Street consensus has improved since the earnings release, with a ‘Moderate Buy’ rating based upon 11 ‘Buy’ and 8 ‘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 $97 to a street-high $135 while the stock is now trading about $10 below the $122 median target. This positioning should support higher prices in coming months.

Best Buy broke out above the February high at 91.99 in July and added nearly 30 points into August’s all-time high at 119.48. The earnings release triggered a sell-the-news reaction that’s spent the last week testing short-term support near 109. Weekly relative strength indicators have crossed into bear cycles at extremely overbought levels, raising odds the pullback will expand into an intermediate correction that could offer a low risk entry at or above the breakout level.

General Electric Under Pressure After Morgan Downgrade

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

General Electric Historic Downtrend

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

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

Wall Street And Technical Outlook

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

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

Spotify On The Defensive After Mixed Quarter

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

Spotify Posts Three Quarterly Losses in 2020

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

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

Wall Street And Technical Outlook

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

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

Microsoft Rallies To New High Ahead Of TikTok News

Dow component Microsoft Corp. (MSFT) broke out to an all-time high this week, completing a 7-week basing pattern just above 200. The rally follows media reports that a deal for TikTok US is getting close, just one month after the tech giant disclosed it wanted to buy the controversial but wildly-popular Chinese social media application. However, there are no guarantees that Mr. Softee will emerge as the winner because other suitors have stepped up in recent weeks.

Microsoft Sell-The-News Reaction After Earnings

The stock sold off more than 9% in July despite beating fiscal Q4 2020 profit and revenue estimates. The company earned $1.46 per-share during the quarter while revenue rose 12.8% year-over-year to $38.03 billion. The highly-successful Intelligent Cloud segment underpinned revenue growth, rising 17% to $13.4 billion, super-charged by 47% year-over-year growth of the Azure public cloud computing system.

A Microsoft blog commented on TikTok negotiations earlier this month, noting the “two companies have provided notice of their intent to explore a preliminary proposal that would involve a purchase of the TikTok service in the United States, Canada, Australia, and New Zealand and would result in Microsoft owning and operating TikTok in these markets. Microsoft may invite other American investors to participate on a minority basis in this purchase”.

Wall Street And Technical Outlook

Wall Street has been wildly bullish on the tech giant for many years, with good reason, while current consensus translates into a ‘Strong Buy’ rating, based upon 26 ‘Buy and just 3 ‘Hold’ recommendations. No analysts are recommending that shareholders sell positions at this time. Price targets currently range from a low of $195 to a street-high $260 while the stock is now trading right on top of the median $228 target.

Microsoft broke out above February 2020 resistance in June and added about 30 points into the July peak near 216. It then eased onto a narrow consolidation above the 200 level, finally lifting to an all-time high earlier this week. A rising highs trendline going back to April suggests initial upside into the 240s where the blue chip could enter another trading range. The stock pays a modest 0.92% forward dividend that might add a few bucks to potential upside.

Salesforce.Com Soars After Blowout Quarter

Salesforce.Com Inc. (CRM) is trading higher by more than 20% in Wednesday’s U.S. session after beating fiscal Q2 2021 profit estimates by $0.77 per-share and guiding fiscal year top and bottom line above consensus. The San Francisco-based cloud software company earned $1.77 per-share during the quarter while revenue rose an impressive 28.9% year-over-year to $5.15 billion, triggering a strong buy-the-news reaction despite lowered Q3 EPS guidance.

Salesforce.Com Added To Dow Jones Industrial Average

The keepers of the Dow indices announced on Monday that Salesforce.com would be added to the Dow Jones Industrial Average, one of three blue chips replacing the departing Pfizer Inc. (PFE), Exxon-Mobil Corp. (XOM), and Raytheon Technologies Corp. (RTX). The bullish news lifted the stock more than 3.0% in Tuesday’s session on the heaviest trading volume since June 2019, ahead of this morning’s vertical slingshot.

Monness Crespi and Hardt analyst Brian White raised his target from $195 to $275 after earnings, noting the company “reported excellent 2Q 2021 results and provided a strong 3Q 2021 outlook while sharply increasing FY2021 guidance. Although we expect this new economic reality to mask Salesforce’s true growth potential over the next year, we believe this crisis will prove a catalyst for digital transformation initiatives and Salesforce will emerge from this downturn even stronger.”

Wall Street And Technical Outlook

Wall Street consensus is off-the-charts after this week’s bullish events, with a ‘Strong Buy’ rating based upon 28 ‘Buy’, 2 ‘Hold’, and just one ‘Sell’ recommendation. Price targets currently range from a low of $160 to a street-high $300 while the stock is now trading just $26 below the high target. This placement is a two-edged sword because it could persuade some analysts to raise price targets while others issue downgrades based on valuation.

Technically speaking, Saleforce.com is nearing historic extremes in overbought readings, with relative strength indicators approaching levels that set off major sell signals in 2017 and 2019.  The stock has also rallied more than 20% on Wednesday and more than 40% in the last four weeks. Taken together with approaching Wall Street targets, the vast majority of investors should stand aside and look for lower-risk buying opportunities with greater upside potential.

Chipotle Mexican Grill At Resistance After Big Breakout

Chipotle Mexican Grill Inc. (CMG) met Q2 2020 earnings and revenue estimates in July, prompting a sell-the-news reaction that held short-term support. Revenue fell 4.8% year-over-year, with comparative sales slumping badly in May and June but rising 2% in June. The popular fast food chain noted a healthy sales escalation throughout July, with a 6.4% increase in comparative restaurant sales.

Chipotle Posts Impressive Return Since 2018

Chipotle Mexican Grill operates 2,580 Mexican-themed fast food restaurants in the United States, along with 39 international locations. The stock was a top NYSE and restaurant sector performer until 2015 when it got blamed for a major food poisoning outbreak that uncovered questionable sanitizing procedures. The downtrend finally bottomed out at a 6-year low in 2018, giving way to a strong recovery that’s gained more than 500% in the last 2½ years.

Bernstein raised their target from $1,300 to $1,600 on Tuesday, with analyst Sara Senatore noting that, “Chipotle Mexican Grill appears to have taken the first small steps toward the margin part of the recovery path with delivery fees; we expect modest pricing could also play a role as could a slacker labor market. Even relatively modest fees support margins. Mobile order ahead has also tripled; reduced delivery support will likely translate into ordering channel shift, not lost traffic.”

Wall Street And Technical Outlook

Wall Street consensus rates the stock as a ‘Moderate Buy’, with an even split of 15 ‘Buy’ and 15 ‘Hold’ recommendations. No analysts are recommending that shareholders sell their positions and move to the sidelines. Price targets currently range from a low of $751 to a street-high $1,600 while Chipotle Mexican Grill is now trading $60 above the median $1,207 target. This placement could put a lid on returns, especially with the astronomical 140.46 price-to-earnings ratio (P/E).

The stock broke out above the 2015 high near 750 in August 2019 and failed the breakout in the first quarter’s pandemic swoon. It bounced back to the rally high in May and broke out once again, entering a rising channel that’s contained price action into August. Fortunately for bulls, this pattern significantly lowers risk because stops can be placed relatively close to price action, allowing an easy exit during the first stages of an intermediate correction.

Roku Stuck In Neutral After Second Quarter Bounce

Roku Inc. (ROKU) is the global leader in the rapidly-growing connected TV market (CTV), boasting an installed base of 43 million customers. Wall Street analysts expect the company, which has traded publicly for less than three years, to grow at an annual 30%+ rate in the next one to three years, underpinned by ad spending that may double from the current $8 billion. This volatile growth play could benefit from this revenue expansion and trade well above current price levels in coming years.

Roku Expects To Lose Money Until 2021

Even so, Roku sold off on August 5th despite beating Q2 2020 profit and revenue estimates by wide margins. Shareholders, who have suffered through an endless string of losses since the 2017 IPO, walked away after the company said it expects to lose money through year’s end. The stock currently sports a market cap of $18.28 billion and the COVID-19 pandemic has lowered advertising revenue because many small businesses have been forced to cut back.

Deutsche Bank analyst Jeffrey Rand just issued a ‘Buy’ call with a $185 target, proclaiming the company is “the market leader in the CTV market, with close to 50% market share of global CTV streaming hours, and is seeing strong growth opportunities as more consumers and advertisers spend time and money on streaming content. It’s done an impressive job building out the largest installed base in the industry and monetizing it through its Platform business.”

Wall Street And Technical Outlook

Wall Street consensus currently rates Roku as a ’Moderate Buy’ based upon 10 ‘Buy’, 6 ‘Hold’, and 2 ‘Sell’ recommendations. Price targets currently range from a low of $65 to a street-high $208 while the stock is now trading more than $13 below the median $160 target. There’s plenty of potential upside in this placement but prospective investors may wish to sit on their hands until a positive catalyst shows up on the newswire.

Roku posted an all-time high at 176.55 in September 2018 and sold off to an 11-month low in March 2020. A two-legged recovery rally stalled 10 points under the prior high in July, giving way to a trading range with support near 144. The stock has been testing range support for the last two weeks, setting the stage for a bounce that could eventually reach the 2018 high, or a breakdown that targets the psychological 100 level.

Advanced Micro Devices Near All-Time High After Historic Breakout

Advanced Micro Devices Inc. (AMD) soared after beating Q2 2020 profit and revenue estimates in July, underpinned by a remarkable 45% year-over-year increase in Computing and Graphics division sales. The smaller Embedded and Semi-Custom division grew 62% during the quarter while Enterprise income fell 4%. The chip manufacturer ended the bullish call by raising Q3 revenue guidance by a wide margin, now expecting to book between $2.45 and $2.65 billion.

Advanced Micro Devices Taking Market Share From Rivals

The company is taking advantage of systemic delays at larger rival Intel Corp. (INTC), expanding a loyal customer base by getting highly-competitive next-generation processors to market at a faster pace. Both central processing unit (CPU) and graphics processing unit (GPU) sales are posting impressive growth, with formerly-loyal NVIDIA Corp. (NVDA) users making the switch. The graphics segment has been growing exponentially since the first quarter.

Cowen analyst Matthew Ramsay raised their AMD target from 90 to 100 last week, noting “We had the opportunity to host AMD CEO Dr. Lisa Su for a series of virtual investor meetings/calls. Messages of road map consistency, execution dependability and much closer collaboration with key customers shone through. With Intel’s road map in flux, but in larger measure due to AMD’s own product innovation, we forecast share gains and strong revenue/margin growth.”

Wall Street And Technical Outlook

Wall Street consensus has eased off extremely bullish levels, with extraordinary share gains lifting Advanced Micro Devices above some valuation targets. It’s currently rated as a ‘Moderate Buy’, based upon 14 ‘Buy’, 11 ‘Hold’, and one ‘Sell’ recommendation. Price targets now range from a low of $50 to a street-high $120 while the stock closed Friday’s session about $3 above the median $81 target. This placement suggests that further upside will be limited without fresh upgrades.

Technically speaking, the stock is extremely overbought after gaining more than 60% so far in the third quarter, raising odds for a multi-week range or deep retracement. The turnaround may have already begun because bear power has increased since the uptrend hit an all-time high at 87.29 more than two weeks ago, forcing weekly relative strength indicators to roll over. Even so, weakening technicals have yet to issue a strong sell signal so an assault on 100 is still possible.

Walmart Could End Long-Term Uptrend

Dow component Walmart Inc. (WMT) hit an all-time high and sold off earlier this week after posting a better-than-expected Q2 2020 profit of $1.56 per-share on a 2.8% year-over-year rise in revenue to $137.7 billion, also beating estimates. U.S. e-commerce sales grew an impressive 97% while quarterly comps rose 9%. Home improvement, sporting goods, landscape, and electronics all reported strong increases while back-to-school sales have lagged due to pandemic shutdowns.

Walmart Picking Up Market Share After Competitors Close

The retail giant surged to an all-time in March, building first quarter market share while smaller competitors shut their doors in reaction to stay-at-home and quarantine orders around the globe. A robust e-commerce portal also allowed Walmart to compete forcefully with Amazon.Com Inc. (AMZN), while both mega-caps picked up permanent market share. However, 2020 leaders have now fallen out of favor, with large chunks of capital rotating into beaten-down recovery plays.

Telsey Advisory Group raised their target from $140 to $145 on Wednesday, with analyst Joseph Feldman noting “we believe Walmart is well-positioned to gain market share in this volatile market, given its defensive core product mix, renewed focus on discretionary categories, and solid digital/omni-channel initiatives. Furthermore, newer initiatives, such as the expansion of third-party marketplace services, new health clinics, and a potential membership program, should all fuel growth”.

Wall Street And Technical Outlook

Wall Street consensus has deteriorated since the earnings release, with a ‘Moderate Buy’ rating based upon 17 ‘Buy’ and 6 ‘Hold’ recommendations. No analysts are recommending that shareholders sell their positions and move to the sidelines at this time. Price targets currently range from a low of $130 to a street-high $160 while the stock is now trading right on top of the low target. This is dangerous positioning because it could trigger further downgrades.

The stock has been under aggressive selling pressure since February, despite a volatile uptrend that carved four new highs between March and August. This odd conflict establishes a major bearish divergence, warning that smart money has been using higher prices to unload large positions. This is a potent combination that often precedes major tops, telling shareholders to take defensive measures and consider moving to the sidelines.

First Solar At Cusp Of Long-Term Uptrend

First Solar Inc. (FSLR) rallied to the highest high since April 2018 earlier this month after the Arizona-based manufacturer beat top and bottom line Q2 2020 estimates, earning $0.35 per-share on $642.41 million in revenue. A project sale drove the 9.8% year-over-year revenue increase, adding to investor optimism about a realigned business strategy following years of sub-par performance.

New California Law Will Increase First Solar Revenue

The company stands to benefit from a California law that mandates solar on all new residential and commercial construction, starting in 2020. The power grid in that state has been shaky at best, with massive blackouts due to unusually hot summer conditions. Locals have been reluctant to fund utility companies in recent years, with that negligence now coming home to roost. Taken together with the long-term transition into alternative energy sources, the stock and solar sector could trade much higher in coming years.

Bank of America Securities analyst Julien Dumoulin-Smith upgraded First Solar from ‘Neutral’ to ‘Buy’ after the quarterly release, noting the company should benefit from positive solar sales trends in the United States, especially with commercial and industrial customers. He states the ongoing shift to new CuRe technology will improve efficiency in wattage and energy density while “cost reductions with CuRe and incremental capacity through site optimization should continue to trend well.”

Wall Street And Technical Outlook

Wall Street has ignored the stock in recent years, issuing a ‘Hold’ rating based upon 4 ‘Buy’, 4 ‘Hold’, and 3 ‘Sell’ recommendations. Price targets currently range from a low of $38 to a street-high $82 while the stock is now trading just $5 below the high target. The street-high makes perfect sense in this case because resistance in the upper 70s has acted as an impenetrable barrier since it was broken on heavy volume in 2011.

Technically speaking, First Solar has rallied into resistance at the top of a multiyear trading range, raising odds for a downside reversal that could easily shed 20 to 30 points, However, the recent buying surge marks the 7th trip into range resistance since 2014, with each test raising odds for a breakout. Accumulation readings don’t support additional upside just yet but that could change in coming years, finally lifting the stock into market leadership.

Fedex Hits 20-Month High After Surcharge News

Fedex Corp. (FDX) has booked substantial upside since March, ending a multiyear downtrend that accelerated after Amazon.Com Inc. (AMZN) revealed it would bring deliveries in-house through a new shipping division. The stock posted an 8-year low and turned higher into April when AMZN reversed gears, returning a fair share of packages to third party carriers so it could concentrate on surging demand, in reaction to the COVID-19 pandemic.

Fedex Adds Fourth Quarter Surcharges

The shipping giant is still trading nearly 70 points below January 2018’s all-time high at 275, despite the 117-point advance into August, telling market watchers it will take months before the former market leader can post a new high. It took a big step in that direction on Tuesday morning, instituting seasonal peak surcharges and fees that will add substantially to revenue between October and mid-January.

A company statement justified the surcharges, noting “FedEx continues to keep commerce moving and delivering critical shipments to homes during the COVID-19 pandemic. As the impact of the virus continues to generate a surge in residential deliveries, we are entering this holiday peak season with extremely high demand for capacity and are experiencing increased operating costs across our network. We anticipate residential volume to continue to surge into the New Year.”

Wall Street And Technical Outlook

Wall Street consensus has improved in recent months, with a ‘Moderate Buy’ rating based upon 14 ‘Buy’ and 8 ‘Hold’ recommendations. No analysts are telling shareholders to close positions and move to the sidelines at this time.  Price targets currently range from a low of $100 to a street-high $235 while the stock opened Tuesday’s session just $19 below the high target. It will be tough for Fedex to add to gains with this placement, but this morning’s news could generate higher targets.

Fedex lifted above the 200-day moving average for the first time since October 2018 in June, signaling a new uptrend. The 5-month uptick has now reached strong resistance just above 200, predicting that price action will roll into a sideways pattern or pullback that shakes out weak hands. A decline into the moving average, currently in the 150s, could offer a low risk entry in this scenario, underpinned by accumulation readings that have now hit new highs.

NVIDIA Bulls In Charge Ahead Of Wednesday Report

NVIDIA Corp. (NVDA) reports Q2 2020 earnings after the close of Wednesday’s U.S. session, with Wall Street analysts expecting a profit of $1.68 per-share on $3.66 billion in revenue. The graphics card manufacturer beat top and bottom line Q1 estimates in May and raised Q2 revenue guidance, with personal computer, video game, and mobile device sales surging as a result of COVID-19 pandemic shutdowns and self-quarantines.

NVIDIA In Talks To Buy UK Chip Designer

The company is engaged in talks with SoftBank to acquire U.K. chip designer Arm for £40 billion. The local press is calling on the British government to intervene, worried about potential job losses. Arm, which supplies technology to Apple Inc. (AAPL), was put up for sale in April, with Goldman Sachs Inc. (GS) contracted to ‘sound out buyers’. NVIDIA has emerged as the sole suitor, with a potential deal expected to close by year’s end.

Raymond James analyst Chris Caso added to bullish sentiment last week, stating, “we reiterate our Outperform rating on NVIDIA and raise our price target to $500 ahead of Q2 results. While the stock has had a good run, we consider NVDA to have among the strongest product cycles in semiconductors, given the continued ramp of Ampere for datacenter, and the upcoming ramp of the new gaming chip, for which it appears the launch will occur on August 31.

Wall Street And Technical Outlook

Wall Street consensus on NVIDIA is highly bullish, with a ‘Strong Buy’ rating based upon 25 ‘Buy’, 3 ‘Hold’, and just 1 ‘Sell’ recommendation. Price targets currently range from a low of $260 to a street-high $540 while the stock is trading more than $50 above the median $433 target. Q2 profit and revenue numbers on Wednesday will need to fire on all cylinders to justify this lofty placement, especially with the expensive 91.0 price-to-earnings ratio (P/E).

The stock completed a 19-month cup and handle breakout above 290 in May and has added more than 190 points since that time. It’s also more than doubled in price since the last trading day of 2019, with both metrics setting off extremely overbought technical readings. However, channeled price action since May lowers the risk of new long positions, with nearby channel support allowing traders and investors to place relatively tight stop losses.