The Complete Guide to Comparison Indicators

The comparison indicator is a technical tool that analyzes relationships between two or more securities, indices, or markets. It compares prices, volume, and/or volatility, determining which instrument is relatively stronger or weaker over the chosen time frame. This type of analysis elicits a series of convergence and divergence signals, with the leading instrument generating a bullish divergence when it gets even stronger compared to the lagging instrument, and a bearish convergence when it gets even weaker compared to the lagging instrument.

This type of analysis may also measure correlation, which is the tendency of one security or indicator to mimic the behavior of another security or indicator. Correlation analysis first measures the relationship between two securities, or a security and a technical indicator. The resulting values are then strung together in a new indicator that visualizes how changes in one variable over time influence changes in the other variable.

This plot allows the technician to predict how price behavior in a correlated market will influence investment or trading returns. When computing correlation, one security or indicator is considered to be the dependent variable while the other security or indicator is considered to be the independent variable.  The calculation determines if a change in the independent variable is expected to result in a similar change in the dependent variable.

Plot

Plot

The Plot function simply adds a second security to an Advanced Chart price panel and examines relative strength and weakness between instruments. This built-in charting function normalizes divergent security behavior by replacing Y-axis prices with percentage change. The first security becomes the independent variable when performing this analysis while the second security acts as the dependent variable and can be substituted with other securities, as needed.

Comparison and correlation analysis can be accomplished in several ways with the Plot function. The easiest method just scans price action over days, weeks, or months, looking for relative highs and lows to occur at the same time. Crossovers between securities are especially useful in this analysis because it identifies turning points and divergences, in which one security shifts from a leading into a lagging relationship with the other security. The Plot function is used in conjunction with the Correlation Coefficient and Performance Index indicators.

Correlation Coefficient

Correlation Coefficient

Correlation Coefficient indicator evaluates the relationship between a security price and a related technical indicator, or two securities. As noted above, correlation is measured by choosing an independent variable and comparing performance against a dependent variable, which is usually a related security. Indicator output ranges from plus 1 to minus 1 (+1 to -1), with perfect positive correlation at the upper limit and perfect negative correlation at the lower limit.

A perfect positive reading specifies that any change in the independent variable will generate an identical change in the dependent variable. Conversely, a perfect negative reading specifies that any change in the independent variable will generate an identical but opposite change in the dependent variable.  Not surprisingly, a correlation coefficient of 0 specifies there is no relationship or correlation between the two variables.

The direction of the dependent variable’s plot over time depends on whether the coefficient is positive or negative. When the coefficient is positive, the dependent variable will move in the same direction as the independent variable. Conversely, when the coefficient is negative, the dependent variable will move in the opposite direction of the independent variable. Choosing an appropriate holding period is critical when applying this analysis to trade management because correlation tends to oscillate over time, generating frequent whipsaws.

Performance Index (PI)

Performance Index

Performance Index is used in conjunction with the Plot function. The indicator compares a security’s price to a benchmark index or other security, generating a line that turns green above a reading of 1.0 and red below a reading of 1.0. A reading of exactly 1.0 indicates perfect correlation with the underlying security or index. A security that outperforms a benchmark index should generate higher returns in a trend-following strategy than a security that underperforms a benchmark index.

A rising PI indicates the security is making a stronger move to the upside than the underlying index, or the security is rising while the underlying index is falling. A declining PI indicates the security is declining at a faster rate than the underlying index, or the security is falling while the underlying index is rising.  Flat PI readings indicate that both markets are gaining or losing value at an equal pace.

Price Relative

Price Relative

Price Relative indicator compares the performance of a security against an underlying index, sector, or another security through a ratio chart.  The indicator is also called the Relative Strength indicator, not to be confused with Wilder’s Relative Strength Index (RSI). This analysis generates convergence and divergence signals that may predict relative returns on active positions over time.

It is a simple plot, calculated by taking the closing price of a dependent variable (base security) and dividing it by the closing price of an independent variable (comparative security). A rising ratio indicates the base security is rising at a faster pace than the comparative security, or falling at a slower rate than the comparative security. Conversely, a falling ratio indicates the base security is falling at a faster pace than the comparative security, or rising at a slower pace than the comparative security.

The Complete Guide to Range Indicators

The range indicator is a technical tool that measures the limits of price movement over a specified time frame. It is estimated that market prices are engaged in uptrends and downtrends just 15% to 20% of the time, with the balance spent within the boundaries of trading ranges that can be relatively narrow or wide. This indicator attempts to determine the characteristics of prices caught within these ranges, seeking to predict future movement and direction.

Many range indicators look for boundaries between ranges and trends, with the technician seeking to profit when a) a trend eases into a trading range or b) a trading range yields a new trend, higher or lower. One popular method to perform this analysis identifies range boundaries and then measures the quality of price action between highs and lows. This analysis often includes volatility calculations, looking for transitions from low to high volatility, and vice-versa, to generate preliminary buy and sell signals.

Other types of technical indicators can perform sophisticated range analysis as well. For example, Bollinger Bands will expand during trends and contract during range development. Bands tend to narrow to an extreme at the starting point of a new trend and widen to an extreme at the starting point of a new trading range. Those turning points can generate actionable entry or exit signals, especially when confirmed through other forms of technical analysis.

Average True Range

ATR

Average True Range (ATR) measures volatility by examining a security’s price action over a specified time period. The initial calculation subtracts the high from the low of a single price bar and compares that value to price ranges in prior bars. The final calculation is derived from a smoothed moving average of these values (true ranges) over N periods, with ‘N’ the time setting chosen by the technician. 14 days (or periods) is the most common ATR setting.

Securities with high ATR readings are more volatile than securities with low ATR readings but the calculation does not predict price direction. Rather, it is a supplementary technical tool best used in conjunction with trend-following and momentum indicators. Many traders develop exit strategies using ATR multiples that seek to identify when volatility has reached an unsustainable level. In addition, the indicator has powerful applications in determining position size and risk.

Darvas Box

Darvas Box

The Darvas Box indicator generates rectangular-shaped boxes that rise or fall over time. Although frequently listed as a momentum indicator, the formula identifies rangebound market conditions that lower odds for profitable trend-following strategies. The rise and fall of boxes add to this analysis, signaling when the quality of price action has changed enough to permit freer directional movement, higher or lower.

Traditional Darvas Box strategies require that market participants take exposure solely in the direction of the boxes, updating stops whenever price action crosses the top threshold. The original work includes fundamental filters that prefer growth plays with strong earnings, similar to the work of William O Neil and Investor’s Business Daily. However, the indicator’s usage has expanded naturally over the years into a purely technical form of market analysis.

High Low Bands

High Low Bands

High Low Bands (HLB) are generated from a series of moving averages calculated by evaluating price action over specified time periods, which are then shifted higher or lower by a fixed percentage of the median price. Indicator calculation requires setting the specific period and appropriate shift percentage. The ‘right’ settings are market specific and need to match volatility characteristics for the chosen security or trading venue.

The indicator applies triangular moving averages instead of simple or exponential moving averages. This is a double-smoothed average, or an average of an average, that irons out suspected outliers from the final calculation.  As a result, bands are smoother than similar indicators that track fast moving market activity and are less useful for many short-term trading strategies. However, HLB can generate extremely reliable high and low predictions in rangebound markets.

Mass Index

Mass Index

Developed by Donald Dorsey in the 1990s, Mass Index evaluates the range between the high and low of a security over a specified time period. Reversal signals with this indicator are generated when a range expands to a subjective extreme and then reverses into contraction. However, the technician may also need to examine momentum, volatility, and trend-following indicators to determine the overall trend direction that will be impacted by the reversal signal.

The classic setting uses a 9-day (or period) exponential moving average (EMA) of the range between the high and low price over the last 25 days. The initial output is then divided by a 9-day EMA of the 9-day EMA used for the initial calculation. In the original usage, an indicator value that surges above 27 and drops to 26.5 issues a reversal signal. However, in modern usage, the technician needs to identify signal levels that are appropriate for the currently traded markets and securities, which can differ greatly from Dorsey’s original observations.

Pivot Points

Pivot Points

Pivot Points determine range and trend intensity in different time frames. The first level of the indicator is calculated by adding the high and low of the current bar to the closing price of the prior bar, and dividing by three. Price action in the next bar is considered bullish when above the pivot point and bearish when below the pivot point. This observation has limited value so the calculation adds support and resistance levels, notated as S1, S2, R1, and R2, based upon projections from the pivot point value.

Price movement above support or below resistance signifies a strengthening uptrend or downtrend while reversals within support (S1 or S2) and resistance (R 1 or R2) boundaries define the quality of rangebound markets, at least within the time frame used in the price chart.  These five levels can also be used to identify appropriate trade entry levels, place stop losses and trailing stops, and to locate high odds trade exit levels.

Additional Range Indicators

Anchored VWAP – attempts to identify the average price of a security over a time period chosen by the technician.

ATR Bands – are drawn around the average true range indicator to identify potential turning points and whether price is engaged in an uptrend, downtrend, or a trading range.

ATR Trailing Stops – identifies optimized stop levels using multiples of average true range indicator output.

Detrended Price Oscillator – seeks to measure the length of price cycles from peak to peak or trough to trough.

Gopalakrishnan Range Index – quantifies price movement and asset volatility by studying the asset’s trading range over a specified time period.

High Minus Low – subtracts the daily (or bar) high from the daily (or bar) low to determine average price movement over a specified time period

Highest High Value – measures the highest high over a specified time period.

Lowest Low Value – measures the lowest low over a specified time period.

Median Price – measures the most common price over a specified time period.

True Range – displays a derivative of the trading range by removing the impact of gaps and volatility between price bars.

Vortex Indicator – separates uptrends and downtrends into two continuous lines that reveal relative bull and bear power over time.

VWAP – attempts to identify the average price for a security over the entire session.

The Complete Guide to Volume Indicators

Volume indicators are technical tools to evaluate a security’s bull and bear power. Most look specifically at buying vs. selling pressure to determine which side is in control of price action. Others attempt to identify emotions that are moving the security at a particular time. For example, exceptionally high volume compared to a moving average of volume can reveal euphoria or fear while much lower than average volume can reflect apathy or disinterest.

These indicators measure shares in the equity markets, contracts in the futures markets, and tick movements in the forex markets. All versions attempt to accomplish the same types of technical analysis. When a market rises on increased volume, it is considered to be under accumulation. Conversely, when a market falls on increased volume, it is considered to be under distribution.    In addition, a market rising on decreased volume generates a bearish divergence while a market falling on decreased volume generates a bullish divergence.

Forex market volume evaluates the degree of price movement within a certain period, rather than looking at individual buy and sell transactions. Forex traders often supplement their accumulation-distribution analysis by looking at open interest in the currency futures markets. Whether equity, contract, or pair, volume is used in conjunction with price action to confirm trend strength, reveal trend weakness, and confirm breakouts and breakdowns.

Accumulation-Distribution (A/D)

A/D

Accumulation-Distribution (A/D) is a cumulative volume indicator, meaning that each data point is added to the prior data point before it’s plotted on an indicator panel. As the name states, the indicator attempts to determine if a security is being accumulated (bought over time) or distributed (sold over time). The calculation measures the closing price in relation to the price bar’s range and multiplies the result by volume for that bar.

A/D indicator direction generates convergence and divergence relationships with price that assist in trade decision-making and risk management when used in conjunction with pattern analysis and other technical indicators. Rising price when A/D is falling generates a bearish divergence while falling price when A/D is falling generates a bullish divergence. The indicator also carves orderly patterns over time that look similar to price action, with channels, trendlines, and triangles assisting prediction.

On Balance Volume (OBV)

OBV

On Balance Volume (OBV) was created by Joseph Granville in 1963 and is now the most popular accumulation-distribution indicator. OBV generates a bullish divergence when price is falling and OBV is rising and a bearish divergence when price is rising and OBV is falling. The value of OBV at a particular time isn’t important but the relationship between current and prior OBV levels determines whether accumulation or distribution is keeping up with price action.

OBV plots a running total of a security’s buy and sell volume, seeking to determine if it is under accumulation (bought over time) or distribution (sold over time). The calculation has three primary components. First, if the current price bar is higher than the previous price bar, current OBV = previous bar’s OBV + current volume. Second, if the current price bar is lower than the previous price bar, current OBV = previous bar’s OBV – current volume. Third, if the current price bar = the previous price bar, current OBV = previous OBV.

Chaikin Money Flow (CMF)

CMF

Chaikin Money Flow (CMF) was created by Marc Chaikin in the early 1980s. The indicator measures accumulation and distribution of a security over time. This is an oscillator, with values ranging from +100 to -100 and a zero line that signifies neither accumulation nor distribution. As with other oscillators, CMF generates buy, sell, and confirmation signals through bullish and bearish convergences and divergences as well as crossovers through the zero line.

Chaikin applied a 21-period (one month) setting to the indicator but that element is now customizable in charting programs and has different implications, depending on the chosen period. According to the creator, money flow persistence over 6 to 9 months evaluates accumulation or distribution by major funds and institutions. Most traders don’t need that information but CMF also reveals short-term money flow convergence-divergence when viewed with shorter time frames and settings.

Volume Oscillator (VO)

VO

Volume Oscillator (VO) identifies accumulation and distribution by examining the relationship between two volume moving averages. A fast cycle moving average of 14 days or weeks is often used in conjunction with a slow cycle moving average of 28 days or weeks but settings are customizable. The calculation simply subtracts the slow MA from the fast MA and plots the result as a line or histogram. As with other oscillators, VO fluctuates across a zero line but has no fixed upper or lower values.

VO is non-directional and expected to turn higher in both uptrends and downtrends. It generates a bearish divergence when price is rising and VO is falling and a bullish divergence when price is falling and VO is falling. The indicator also has the power to identify overbought and oversold markets and to confirm breakouts and breakdowns. In addition, crossovers through the zero line may reveal important turning points or be used to confirm other technical indicators.

Balance of Power (BOP)

BoP

Balance of Power (BOP) measures the strength of buying and selling pressure. This oscillator is plotted in a panel with a central zero line and extremes at +1 and -1. Buyers are in control when the indicator is located above the zero line while sellers are in control when the indicator is located below the zero line. Readings near the zero line can indicate a reversal in trend or a rangebound market. Values near +1 signal an overbought market while values near -1 signal an oversold market.

BOP divides the distance between the open and close of the price bar by the distance between the high and low of the price bar. The initial result looks choppy and confusing so the calculation is then smoothed by a 14-period or other moving average. The distance above or below the zero line indicates the extremity of the positive or negative price change. It emits buy and sell signals through bullish and bearish divergences with price, as well as crossovers through the zero line.

Additional Volume Indicators

Klinger Volume Oscillator – looks at long and short-term money flow to confirm uptrends and downtrends.

Negative Volume Index – evaluates how rising and falling volume impact price movement over time.

On Balance Volume – calculates accumulation or distribution in a security over time. It generates a bullish divergence when price is falling and OBV is rising and a bearish divergence when price is rising and OBV is falling.

Positive Volume Index – evaluates how rising and falling volume impact price movement over time.

Projected Aggregate Volume – calculates the daily volume up to an intraday setting and projects total volume for the remainder of the session.

Projected Volume at Time – looks back at past sessions to project future volume over specified time periods.

Trade Volume Index – tracks correlation between price movement and volume levels to evaluate accumulation and distribution.

Twiggs Money Flow – applies a variation of Chaikin Money Flow to measure accumulation and distribution of a security over time.

Volume Chart – plots a volume histogram below each price bar.

Volume Oscillator – looks at accumulation and distribution by examining the relationship between two volume moving averages.

Volume Profile – displays the quantity of trading activity of a security at different price levels.

Volume Rate of Change – plots the percentage change of volume over a specified time period to determine if participation is rising or falling.

Volume Underlay – displays volume histograms in the same pane as price, rather than in a separate indicator pane.

The Complete Guide to Volatility Indicators

The volatility indicator is a technical tool that measures how far security stretches away from its mean price, higher and lower. It computes the dispersion of returns over time in a visual format that technicians use to gauge whether this mathematical input is increasing or decreasing. Low volatility generally refers to quiet price movement, with predictable short-term swings, while high volatility refers to noisy or dramatic price movement, with often wildly unpredictable short-term swings.

Volatility measures the degree to which price moves over time, generating non-directional information unless the data is plotted in specific visual formats. This technical element has a great impact on options pricing and market sentiment, with high volatility generating greater extremes in greed and fear. Constructed as an indicator, volatility plots a history of price movement that supplements trend, momentum, and range analysis.

Volatile instruments are considered to be more risky than non-volatile instruments. Volatility oscillates regularly between high and low states, offering a potential timing tool for traders and market timers. Specially, the lowest volatility over X periods is often a precursor for an imminent shift to high volatility that translates into trend movement and trading signals. Market lore outlines these classic dynamics, telling market players to ‘buy in mild times and sell in wild times’.

Bollinger Bands

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Bollinger Bands is the financial market’s best-known volatility indicator. Created by John Bollinger in the early 1980s, the indicator constructs three lines around price: a simple moving average acts as the middle band while equally-distanced upper and lower bands expand and contract in reaction to changing volatility. The 20-day or period SMA is the most common setting for the middle band but this value is customizable in the advanced charting program.

The calculation takes the standard deviation of the SMA, which is one way to calculate distance from the SMA over time, and applies the result to the upper and lower bands. Bands expand and contract over time in reaction to changing volatility levels. Constricted bands ‘squeeze’ price action between narrow boundaries, indicating low volatility while predicting a cycle shift to high volatility. The transition can elicit high odds entry and exit signals for many trading strategies.

Donchian Channels

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Donchian Channels construct upper, lower, and mid-range bands through examination of price extremes over the chosen time period. The highest price over the chosen period marks the high band while the lowest price over the chosen period marks the low band. The median band is constructed by subtracting the low band value from the high band value and dividing by two. The indicator is then used to investigate relationships between the current price and trading ranges over the chosen period.

As with Bollinger Bands, 20-days or periods is the most common Donchian Channel setting.  A top band that moves higher when price approaches (or a bottom band that moves lower) signals ease of movement that facilitates trend development. Conversely, a band that remains horizontal when price approaches identifies support or resistance that raises odds for a reversal and return to the median band. Bollinger Bands differ from Donchian Channels, applying moving averages that lower the impact of high and low outliers during lookback periods.

Keltner Channel

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Keltner Channels place bands around developing price in order to gauge volatility and assist directional prediction. Upper and lower bands are calculated as a multiple of average true range (ATR) and are plotted above and below an exponential moving average (EMA). Both the EMA and ATR multiplier can be customized but 50 and 5 are common settings. Price lifting into the upper band denotes strength while price dropping into the lower band denotes weakness.

These bands represent support and resistance regardless of inclination, with piercing through bands generating overbought and oversold trading signals in addition to marking an acceleration of the trend. Horizontal bands exert greater support or resistance than bands ticking higher or lower.  Price falling into a rising band generates a bullish divergence while price rising into a falling band generates a bearish divergence.

Ichimoku Clouds

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Ichimoku Clouds, developed by Goichi Hosada in the late 1960s, plots multiple moving averages above and below price in the form of shaded areas that are called bullish or bearish ‘clouds’. Five calculations are applied to construct the indicator, generating a cloud that represents the difference between two of the lines. Price above a cloud signals an uptrend while price below a cloud signals a downtrend. A bullish price swing into a cloud denotes resistance while a bearish price swing into a cloud denotes support.

Clouds also tick higher or lower over time, adding to the indicator’s versatility. Trend signals are expected to be stronger and more reliable when price is moving higher above a cloud or lower below a cloud. The two cloud lines are called ‘Span A’ and ‘Span B’. The cloud is colored green when Span A is above Span B and colored red when Span A is below Span B.  Price above a red cloud signals a bullish divergence while price below a green cloud signals a bearish divergence.

Historical Volatility

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Historical Volatility is plotted in a separate pane, unlike most volatility indicators. It measures the distance that price travels away from a central mean over the chosen time period. Standard deviation is often used to calculate the indicator but variations utilize other measurements. Risk increases when the indicator rises and decreases when it falls. It is non-directional, meaning that rising or falling volatility doesn’t specifically favor buying or selling strategies.

The original indicator applied a 10-period and 252-day setting to measure volatility over a year (252 = average number of trading days in a year). The technician now customizes these inputs as well as standard deviation (SD). It’s best to ‘form fit’ the calculation to a security because average volatility is expected to differ between different types of instruments and markets. Interpretation of historical volatility compares current levels with prior levels, looking for high and low extremes that may impact profits and losses. It can also be useful to compare values across highly correlated instruments to uncover ‘typical’ value and hidden divergences.

Additional Volatility Indicators

Beta – measures a security’s volatility compared to the broad market or another security.

Bollinger %b – translates the distance between price and Bollinger Bands into an oscillator plot.

Bollinger Bandwidth – calculates the percentage distance between upper and lower Bollinger Bands, seeking to identify high odds turning points.

Choppiness Index – measures whether a market is engaged in a trend or a trading range.

Chaikin Volatility – generates an oscillator that applies Moving Average Convergence Divergence (MACD) to accumulation-distribution rather than price. A crossover above a zero line indicates strength and accumulation while a crossover below a zero line indicates weakness and distribution.

Donchian Channel – constructs upper, lower, and mid-range bands through examination of price extremes over a chosen time period. The highest price over the chosen period marks the high band while the lowest price over the chosen period marks the low band.

Donchian Width – measures the price difference between the high and low bands of the Donchian Channel.

Fractal Chaos Bands – draws bands around price action, with the slope determining whether or not the security is trending or flat.

Moving Average Deviation – measures volatility by examining how an asset’s price has deviated from the selected moving average over time.

Moving Average Envelope – plots a band over price, with top and bottom extremes calculated as a pre-chosen percentage above and below a moving average.

Prime Number Bands – identifies the highest and lowest prime numbers in a trading range over a given period and plots the output as a band across price.

Relative Volatility – is a variation of Relative Strength Index (RSI) that measures the direction of volatility over the specified time period, using standard deviation calculations.

Standard Deviation – examines how far price stretches away from a central mean price over time.

STARC Bands – also known as Stoller Average Range Channel Bands, are plotted above and below a simple moving average, highlighting extreme levels that can elicit potent buy or sell signals.

Ulcer Index – predicts the drawdown, depth, and duration of asset declines through examination of highs and lows over time.

Salesforce.com Could Rally To 300

Dow component Salesforce.com Inc. (CRM) is gaining ground in Wednesday’s market after Morgan Stanley upgraded the sales tracking giant to ‘Overweight’. The stock posted an all-time in the 280s in September, just days after the company was added to the Dow Jones Industrial Average. Price action since that time has carved an orderly but persistent bull flag pattern that’s been engaged in nearly six months of testing at 200-day moving average support.

Major Acquisition

The stock ended a 12-day 20% slide in March 2021 after Slack Technologies Inc. (WORK) reported a Q4 2020 loss of $0.01 per-share. Salesforce bought the business technology provider for $27 billion in December 2020 in a transaction expected to close in the second quarter of 2022. Price action since that time has tracked bilateral catalysts, adding volatility and modest downside. Even so, the company remains on track to hit new highs sometime this year.

Morgan Stanley analyst Keith Weiss raised his Salesforce rating to ‘Overweight’ with a $270 target on Wednesday, advising the pullback since September “creates a good entry point.” He also notes the company is “well positioned to benefit from an accelerating pace of investment in strategic digital transformation initiatives” and added that “significantly” better performance in past two quarters has addressed critics of the December acquisition.

Wall Street and Technical Outlook

Wall Street consensus is solid as a rock, with a ‘Buy’ rating based upon 32 ‘Buy’, 3 ‘Overweight’, and 9 ‘Hold’ recommendations. No analysts are recommending that shareholders close positions and move to the sidelines. Price targets range from a low of $200 to a Street-high $336 while the stock has opened Wednesday’s session just $18 above the low target. Caution after Salesforce’s outsized 37% 2020 return is contributing to this dismal placement.

Salesforce broke out above 2018 resistance above 160 in January 2020 and failed the breakout during the pandemic decline. It bounced back to the first quarter peak in July and broke out in August, surging into the 280s after addition to the Industrial Average. That marked the top, followed by a bull flag correction that should hold support near 200. Just keep in mind a breakdown will also fail the third quarter breakout, exposing a trip into the 150s.

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

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

Home Depot Trading Higher After Beating Estimates

Dow component Home Depot Inc. (HD) is trading higher by more than 2% in Tuesday’s pre-market after beating Q1 2021 top and bottom line estimates by healthy margins. The home improvement giant earned $3.86 per-share during the quarter, $0.93 better than estimates, while revenue rose a healthy 32.7% year-over-year to $37.5 billion, nearly $5 billion higher than consensus. Comparative sales grew 31% worldwide, with 29% growth in the United States.

Home Buying Boom

The company has benefited from intense pandemic tailwinds, with locked-down and socially-distanced customers using the crisis to engage in home improvement projects. While that catalyst is winding down at a rapid pace, COVID also triggered a major geographical shift at the same time that remote-working millennials are marrying and building their nests, underpinning a massive home building and buying spree that should last for several years, at a minimum.

Despite Home Depot’s stellar report, bullish sentiment could offer a better opportunity for rival Lowes Corp. (LOW), who reports Q1 earnings in Tuesday’s pre-market. Oppenheimer analyst Brian Negal embraced this strategy last week. noting this “more upbeat call on Lowe’s is largely tactical in nature and hinged upon prospects for a continued flow of funds into more cyclically focused equities and now historically discounted valuation versus that of Home Depot.”

Wall Street and Technical Outlook

Wall Street consensus on Home Depot now stands at an ‘Overweight’ rating based upon 21 ‘Buy’, 3 ‘Overweight’, 10 ‘Hold’, and 1 ‘Sell’ recommendation. Price targets currently range from a low of $280 to a Street-high $377 while the stock is set to open Tuesday’s session about $24 below the median $350 target. A trip back up last week’s all-time high at $345.69 looks likely with this configuration but a breakout might not be in the cards.

Home Depot sold off from a 2020 high at 247 to a three-year low near 140 during the first quarter of 2020 and turned sharply higher, returning to the prior high in May. A June breakout stalled just below 300 in August while a March 2021 buying surge above that peak posted an all-time high last week.  A weekly Stochastic sell cycle makes a breakout unlikely in the second quarter but the long-term uptrend should eventually resume control of the ticker tape.

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

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

The Children’s Place Could Rally Above 100

The Children’s Place Inc. (PLCE) is trading higher by more than 5% in Monday’s pre-market after two analyst upgrades. The children’s specialty apparel retailer reports Q1 2022 earnings in Thursday’s pre-market when it’s expected to post a loss of $0.21 per-share on $331.15 million in revenue. If met, the loss-per-share will be one-tenth of the red ink posted during the same quarter last year when retailers around the world closed their doors as a result of the pandemic.

Back-To-School Play

The company operates more than 1,000 locations in 21 countries as well as lucrative online e-commerce sites Childrensplace.com and Gymboree.com. U.S. operations are rapidly returning to normal but restrictions in other countries are keeping pressure on revenue. In addition, American school kids will return to physical classrooms this fall, underpinning back-to-school sales that have suffered badly due to remote learning.

Monness Crespi and Hardt analyst Jim Chartie upgraded The Children’s Place to ‘Buy’, noting “the reopening economy and government stimulus has driven strong consumer demand across all categories in March and April, with many retailers reporting sales above March/April 2019 levels. Given much better than expected consumer spending and conservative guidance, we are raising our 1Q EPS estimate more than $1 above consensus and see the potential for more upside”.

Wall Street and Technical Outlook

Wall Street coverage has shrunk from 8 to 5 top tier analysts since the start of 2021. Consensus now stands at an ‘Overweight’ rating based upon 2 ‘Buy’, 1 ‘Overweight’, 1 ‘Hold’, and 1 ‘Sell’ recommendation. Price targets currently range from a low of $74 to a Street-high $150 while the stock is set to open Monday’s session about $18 below the median $101 price target. There’s plenty of room for upside with this configuration if the company posts an upbeat quarter.

The Children’s Place hit an all-time high near 160 in the first quarter of 2018 and entered a persistent downtrend that bottomed out at 17- year low in single digits in March 2020. It bounced off that depressed level in two strong recovery waves, finally stalling at 200-week moving average resistance in January 2021. The stock is testing four-month range resistance in the pre-market, with a breakout favoring a rapid advance into triple digits.

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

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

Walmart Struggling With Wage Inflation

Dow component Walmart Inc. (WMT) reports Q1 2022 earnings ahead of Tuesday’s opening bell, with analysts looking for a profit of $1.21 per-share on a staggering $131.5 billion in revenue. If met, earnings-per-share (EPS) will mark a slight profit increase compared to the same quarter last year. The stock fell nearly 13% in just two weeks after missing Q4 2021 estimates in February and providing weak fiscal year 2022 guidance.

Profits Impacted by Rising Wages

The retail giant has struggled since hitting an all-time high above 150 in December, held down by an exodus out of COVID-19 beneficiaries. Shrinking profit margins have now lifted to the top of investor concerns, with the company shifting more workers to full time employment while raising average hourly wages to over $15 per hour. However, that still doesn’t measure up with competitors Amazon.com Inc. (AMZN) and Target Corp. (TGT), raising odds for further wage pressure.

Recent reports also warn that Walmart is having trouble competing in the highly-lucrative grocery space, struggling to hold onto the top sales slot. According to Vox’s Recode, grocery sales are “losing market share rapidly”, which isn’t surprising because multiple competitors introduced curbside pickup services in 2020 to address the COVID-19 pandemic and have kept those initiatives in place due to their immense popularity.

Wall Street and Technical Outlook

Wall Street consensus remains modestly bullish, with an ‘Overweight’ rating based upon 21 ‘Buy’, 6 ‘Overweight’, 5 ‘Hold’, 1 ‘Underweight’, and 2 ‘Sell’ recommendations. Price targets currently range from a low of $120 to a Street-high $180 while the stock closed Friday’s session more than $20 below the median $160 target. This week’s report isn’t likely to change analyst sentiment, given growing inflationary pressure that could weigh on fiscal year results.

Walmart cleared 2000 resistance in the 60s in 2017 and entered an uptrend that carved a series of higher highs and higher lows into December’s all-time high at 153.66. The stock sold off to the 200-day moving average in March and bounced into the second quarter but is still trading in the lower half of the range established by that downdraft.  Accumulation has dropped to 2019 levels at the same time, raising odds for mixed price action into the second half of 2021.

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

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

Deere Overloved and Overbought Ahead of Report

Deere Inc. (DE) is trading lower on Thursday after a top tier Wall Street bank downgraded the stock to ‘Market Perform’. It’s testing 50-day moving average support for the first time since October 2020, just one week before the company reports Q2 earnings, when analysts expect a profit of $4.28 per-share on $10.27 billion in revenue. If met, earnings-per-share (EPS) will mark more than a 100% profit increase compared to the same quarter in 2020.

Benefiting From Price Hikes

The stock is benefiting from higher agricultural commodity prices that have forced all sorts of food price hikes in 2021. It’s also a high tech leader, transitioning into fully autonomous tractors, combines, cotton pickers, sugarcane harvesters, and loaders as well as soil preparers, seeders, and crop care equipment. The conversion is adding to the bottom line, expanding margins in a multi-billion dollar industry with few competitors.

BMO Capital Markets analyst Joel Tiss downgraded the stock to ‘Market Perform’ from ‘Outperform’ on Thursday, noting the agriculture business could be on the front end of multi-year growth cycle, but “investing in Deere may not be the best way to reap the rewards”. In addition, he warns that “even a bullish scenario for the underlying business wouldn’t cause a big jump for the stock”, which has more than tripled in price since March 2020.

Wall Street and Technical Outlook

Wall Street consensus has eased in reaction to share gains, yielding an ‘Overweight’ rating based upon 14 ‘Buy’, 1 ‘Overweight’, 6 ‘Hold’, and 2 ‘Sell’ recommendations. Price targets currently range from a low of $287 to a Street-high $455 while the stock is set to open Thursday’s session about $30 below the median $404 target. A strong quarter may not generate much upside despite this modest placement, given extremely overbought readings after the vertical uptrend into 2021.

Deere topped out at 175 in 2018 and entered a trading range that broke down during 2020’s pandemic decline. It posted a three-year low and turned sharply higher, breaking out above resistance in August. Vertical price action stalled at 392 in March 2021 while a breakout attempt this week failed, reinforcing resistance. The stock has fallen to a 7-week low in the pre-market, highlighting weakness that could signal an intermediate correction lasting for weeks or months.

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

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

Twitter Could Sell Off Into the 40s

Twitter Inc. (TWTR) sold off more than 15% at the end of April after posting weak Q1 2021 earnings and dropped to the lowest low since January this week, closing under the critical 200-day moving average for the fifth day in a row. A market wide decline generated most of downside but outrage following a report that Facebook Inc. (FB) would release an Instagram for children contributed to bearish sector sentiment.

Weaker Than Expected User Growth

Along with Facebook and Alphabet Inc. (GOOG), Twitter performance is levered to advertising revenue that’s projected to grow rapidly as U.S. and world economies emerge from the pandemic. However, user growth appears to be stumbling as customers return to normalcy, potentially forcing these issues to miss lofty quarterly estimates. April earnings stoked those fears, with weaker than expected Q1 user growth and lower Q2 guidance.

CEO Ned Segal noted after the report that Twitter grew 30% on an annualized basis in Q1 and now expects Q2, Q3, and Q4 to book “low double digit growth with the low point in Q2”. This outlook isn’t too exciting, given rapid 2020 growth as a result of lockdowns and a hotly-contested presidential election. It’s even worse after months of bullish hype about a new ad platform that was expected to bring profits closer to deeper-pocketed rivals.

Wall Street and Technical Outlook

Wall Street remains skeptical about the long-term outlook, posting a consensus ‘Hold’ rating based upon 10 ‘Buy’, 1 ‘Overweight’, and 27 ‘Hold’ recommendations. In addition, four analysts now recommend that shareholders close positions and move to the sidelines. Price targets currently range from a low of $30 to a Street-high $83 while the stock is set to open Wednesday’s session about $13 below the median $65 target.

Twitter came public in the 40s in 2013 and topped out in the 70s in early 2014. The subsequent decline ended in 2017, yielding a two-legged advance that finally reached the prior high in February 2021. The subsequent breakout failed, yielding a double top pattern that broke to the downside in April. The stock is now trading below the 200-day moving average for the first time since July 2020, fully engaged in a downtrend that could reach eventually support in the 40s.

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

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

Coca-Cola Perfectly Positioned for Breakout

Dow component Coca-Cola Co. (KO) is trading lower with U.S. stocks on Tuesday morning but looks are deceiving because the beverage icon is perfectly positioned to complete a rally into 2020’s all-time high and enter a strong uptrend. Seasonality is lending a hand in the uptick, with dividend plays often attracting buying interest in the second and third quarters, as investors sell first half winners and park profits until new opportunities arise.

Pandemic Pummeling

Revenues got battered through most of 2020, with lucrative sports franchises and stadium deals gathering dust due to pandemic shutdowns. Restaurant closures also compounded losses, along with an overly-narrow product line, at least compared to rival PepsiCo Inc. (PEP). The venerable Coke machine even took a hit because thirsty customers were reluctant to hold physical coins and bills or touch potentially-infectious plastic surfaces.

The current downturn in world markets should add to upside in coming months, with growing worries about inflation and over-valuation triggering a flight to safety. However, we can’t rule out the adverse impact of surging agricultural prices, which could undermine profit margins in coming quarters. Even so, it could be a blessing in disguise because targeted price increases have the power to overcome those headwinds and add to the bottom line.

Wall Street and Technical Outlook

Wall Street is getting the message, lifting consensus to a ‘Moderate Buy’ and $60 target. CEO James Quincy supported that bullish analysis in an interview last month, stating the company will exceed guidance if the second quarter strength matches Q1 results. However, he admitted that cost pressures could have an impact as economies reopen and demand rises but said the company will “manage price increases” to maintain profitability.

Coca-Cola completed a round trip into the 1998 high in the 40s in 2013 and entered a multiyear test, finally clearing resistance in 2019. It failed the breakout after posting an all-time high at 60.13 in February 2020, dropping 40% in just five weeks. A slow motion recovery wave reached major Fibonacci resistance in December, yielding a pullback, followed by a bounce that’s now testing that harmonic barrier.

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

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

Facebook Trading Lower After Citi Downgrade

Facebook Inc. (FB) is trading near a weekly low on Monday after Citi analyst Jason Bazinet downgraded the social media giant from ‘Buy’ to ‘Neutral’, insisting that Wall Street is “overly bullish on the growth potential of the advertising market”. The stock has sold off more than 1% in the pre-market and is pressing against a trading floor near 315, with a breakdown favoring a critical test of April breakout support at 303.

Politics and Advertising

The company is highly dependent on advertising revenue to meet quarterly revenue guidance, vulnerable to cyclical forces that can impact a broad spectrum of marketing decisions. The stock is trading near an all-time high even though the pandemic is still taking a bite out of ad purchases while stubbornly high unemployment rates and slow vaccine uptake in other parts of the world could defer the much-heralded ‘return to normalcy’ until 2022.

Facebook is also a prime political target due to its massive footprint and engagement in questionable censorship practices. Along with Alphabet Inc. (GOOG) and Twitter Inc. (TWTR), Republicans have accused CEO Zuckerberg and Co. of selective censorship under the broad spectrum of ‘misinformation’.  Unfortunately, they’re finding few friends on the other side of the aisle, with Democrats opening investigations on monopolistic behavior.

Wall Street and Technical Outlook

Wall Street continues to ignore the political intrigue, yielding a ‘Buy’ rating based upon 39 ‘Buy’, 4 ‘Overweight’, 6 ‘Hold’, and 1 ‘Sell’ recommendation. Price targets currently range from a low of $225 to a Street-high $460 while the stock is set to open Monday’s session $70 below the median $395 target. This low placement suggests Main Street is taking the political controversy more seriously than the denizens of lower Manhattan.

Facebook rallied above 2018 resistance near 200 in May 2020 and entered a strong uptrend that topped out at 303.60 in September. The subsequent correction found support at the 200-day moving average in January 2021, yielding a bounce that mounted the 2020 peak in March. It posted an all-time high at 329.82 in April and turned lower once again, dropping about halfway down to breakout support. A test at that level should offer a low risk buying opportunity unless another round of political conflict hits the 24-hour news cycle.

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

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

Marriott Looks Overvalued Ahead of Monday Report

Marriott International Inc. (MAR) reports Q1 2021 earnings ahead of Monday’s opening bell, with analysts looking for a profit of just $0.04 per-share on $2.41 billion in revenue. If met, earnings-per-share (EPS) will mark less than one-tenth of the profit posted in the same quarter last year. The stock gained ground despite reporting a 59.6% Q4 2020 revenue decline in February but topped out a week later and has been rangebound since that time.

Empty Hotel Rooms

Rivals Hyatt Hotels Corp. (H) and Hilton Worldwide Holdings Inc. (HLT) missed Q1 estimates by wide margins last week, prompting selloffs throughout the lodging sector. Both companies posted revenue declines in excess of 50%, raising doubts about the much-heralded ‘return to normalcy’ following broad-based US vaccination efforts. The dismal results add to growing pessimism that Marriott will need to overcome this week to attract buying interest.

Marriott and rivals are dependent on international business travel, which will recover at a slower pace than recreational travel due to sluggish vaccine uptake in Europe and parts of Asia. In addition, the virtual meeting space is here to stay, likely to dampen revenues long after the pandemic runs its course. Sector stocks look highly overvalued given those bearish catalysts, trading near all-time highs thanks to the ultra-hot US equity markets.

Wall Street and Technical Outlook

Wall Street consensus now stands at a ‘Moderate Buy’, based upon 3 ‘Buy’ and 8 ‘Hold’ recommendations. No analysts are recommending that shareholders close positions and move to the sidelines. Price targets currently range from a low of $116 to a Street-high $168 while the stock closed Friday’s session about $8 above the median $138 target.  Upside appears limited due to this elevated placement, at least until warm bodies fill hotel rooms at a greater pace.

Marriott broke out above 2018 resistance at 149 in December 2019 and failed the breakout during 2020’s pandemic decline. A multiwave uptick reached the prior high in February 2021, yielding a breakout that also failed. Price action since that time has carved a descending triangle with horizontal support near 139 while accumulation has eased into a neutral holding pattern. Bears hold a modest edge in this set-up but earnings is likely to generate more smoke than fire.

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

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

Divergences Could Sink McDonald’s Uptrend

Dow component McDonald’s Corp. (MCD) posted an all-time high above 238 this week, adding to a modest uptick after the company beat Q1 2021 top and bottom line estimates, earning $1.92 per-share on 8.7% revenue growth to $5.12 billion. Global comparative sales rose a healthy 7.5%, underpinned by a 13.6% surge in the United States. Foreign venues reported positive but less impressive growth, highlighting continued restrictions as a result of the pandemic.

Winning the Chicken Wars

The fast food giant noted continued expansion of digital order and delivery segments, even though seating restrictions have been eased or removed in many states. It’s looking for pent-up demand to drive positive net 2021 growth, although it hasn’t been too hard to buy a Big Mac since April 2020. The company also noted victories in the chicken sandwich wars breaking out across the nation, noting their applicants “have exceeded projections especially after 4pm”.

Telsey Advisory Group analyst Bob Derrington raised his target to $260 on Tuesday, noting the company “reported strong 1Q results which included adjusted EPS of $1.92 compared to our $1.76 estimates. McDonald’s global system sales benefited from the strategic embrace of its 3-Ds (Drive-thru, Digital, Delivery), its streamlined menu, quicker drive-thru service and the successful launch of new products across its system. That included the February launch of its new Crispy Chicken sandwich within its U.S. market, which has enjoyed robust sales”.

Wall Street and Technical Outlook

Wall Street consensus now stands at an ‘Overweight’ rating based upon 25 ‘Buy’, 2 ‘Overweight’, and 9 ‘Hold’ recommendations. No analysts are recommending that shareholders close positions and move to the sidelines. Price targets currently range from a low of $225 to a Street-high $282 while the stock is set to open Thursday’s session about $25 below the median $260 target. Additional upside appears likely, given this relatively humble configuration.

McDonald’s topped out above 220 in August 2019 and plunged to a multiyear low during 2020’s pandemic decline. A strong recovery wave reached the prior high in September, yielding a failed breakout, followed by a rounded correction that completed a cup and handle pattern in March. The breakout into May has started slowly, with the stock trading just three or four points above new support, but this classic pattern may support much higher prices in coming months.

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

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

What Is Backwardation?

Backwardation of commodities hit the steepest level in nearly 15 years this week, driven by a worldwide shortage of raw materials. Massive stimulus, low-interest rates, and the light at the end of the pandemic tunnel have driven this surge in demand, which is coinciding with the first commodity uptrend in a decade. Metals, agriculture, and the energy markets have all been moved by this historic impulse, which ironically predicts lower commodity prices in the coming months.

Understanding backwardation requires learning three key terms. First, the spot price denotes the current commodity price. Theoretically, anyone can walk into a commodity store and walk out with that commodity at the spot price, which changes over time due to the market forces of supply and demand.  Second, the futures contract denotes an agreement to buy or sell the commodity at a specified delivery date in the future, with contract maturity as short as a month or up to 10 years in the future.

Third, the futures curve illustrates the relationship between the spot price and futures prices. A futures curve is in backwardation when the slope is declining, predicting the commodity price will be lower ‘n-months’ into the future. Conversely, a futures curve is in contango when the slope is rising, predicting the commodity price will be higher ‘n-months’ into the future. This information is so actionable it can be used to gauge market sentiment, in addition to pricing.

What is Backwardation?

Simply stated, a commodity futures contract and spot market enter backwardation when shorter-term pricing is higher than longer-term pricing. As in 2021, this phenomenon can reflect intense short-term scarcity that forces suppliers of these commodities to raise prices at a rapid rate. This is significant because futures with longer maturities have to include inventory carrying and storage costs in addition to fundamentals and market-driven demand estimates.

Backwardation can be short-term (bottlenecks that will soon be eased) or long-term (supply and demand imbalances that persist for months or years). In the current phenomenon, futures traders expect that short-term scarcity will ease as production and supply ramp-up, putting a dampening effect on longer-dated contracts. However, backwardation can also end with futures ramping up to higher prices to match spot prices, generating a nearly perfect storm for rising inflation.

Decade-long cycles drive commodity prices and backwardation may set off warning signs that demand has overtaken supply on a semi-permanent basis, set to generate significant inflationary pressure. However, the curve’s downslope indicates that expectations remain within boundaries, at least in the short-term, reacting to balanced conditions. As a result, those tasked with rate analysis have to watch the futures curve, looking for signs of stress that can translate into higher prices.

Traders seek to profit from backwardation by selling short at the spot price and buying back at the futures contract price. In theory, the practice will eventually restore normal conditions, inducing the spot price to fall until it is lower than or equal to longer-dated securities. Expiration can help or hurt this process, as illustrated during the 24 hour period ahead of April 2020 expiration, when the expiring WTI crude oil contract fell below minus $40 due to a massive short-term exodus.

Contango vs. Backwardation

Contango, also known as forwardation, is the opposite of backwardation.  This market condition occurs when each successively longer-dated futures contract costs more than the next shorter-dated futures contract, generating an upward slope.  For example, when a futures contract rotates on a monthly bases, the price of the July contract will be higher than the price of the June contract, which will be higher than the May contract, and so on. Futures contracts can shift rapidly between contango and backwardation, or get stuck in one state that persists for years.

It is assumed that spot prices will rise to meet futures prices when contango is in effect. As a result, market players will sell short higher-priced futures contracts and attempt to buy back the exposure through spot prices, pocketing the difference. This technique has a self-perpetrating effect, i.e. generating even greater demand that drives the spot price higher until it matches or exceeds futures prices, ending the contango. The expiration date affects this process, capable of generating high volatility when market forces are in conflict.

Interpreting Backwardation and Contango

Traders engaged in backwardation and contango strategies can get trapped when the spot/futures relationship doesn’t follow expectations. As noted above, both imbalances can result from short-term influences or long-term paradigm shifts. In 2021, we’re coming out of a pandemic that disrupted supply chains and forced factories to shut down but we don’t know if supply can ramp up quickly enough to keep futures prices lower than spot prices. We also don’t know if we’re facing a short-term bottleneck or multiyear phenomenon.

Commodity traders keep close watch on other markets for clues about the persistence of backwardation and contango. The bond market is especially useful in this endeavor because it reflects the investment community’s consensus about interest rates along the yield curve. At the moment, this group of ‘traders’ is more bullish about interest rates than the futures crowd, who have chosen  by consensus to keep longer-term pricing at lower levels than spot pricing.

Finally, backwardation is considered to be a leading indicator, predicting that spot prices will be lower in the future. This prognosis works well if suppliers can boost production quickly and bring supply/demand back into balance, but bullish and bearish signals fail when macro events overtake short-term conditions.  Once again, cross-market verification is an absolute necessity to increase futures curve signal reliability and to reduce whipsaws.

Summary

Backwardation indicates the futures curve is falling, with spot markets and short-term futures contracts priced higher than longer-dated contracts. Conversely, contango indicates the futures curve is rising, with progressively higher prices between spot markets and longer-dated futures contracts.  Both market conditions are normal but can sometimes signal significant long-term shifts in market behavior.

Disney Slumps to Support Ahead of Earnings

Dow component Walt Disney Co. (DIS) reports Q2 2021 earnings next week, with analysts looking for a profit of just $0.27 per-share on $16.0 billion in revenue. If met, earnings-per-share (EPS) will mark a 55% reduction in profit compared to the same quarter in 2020, when the pandemic forced shutdowns in most divisions. The stock sold off nearly 2% in February after beating Q1 top and bottom line estimates but posted an all-time high less than one month later.

California Disneyland Reopens

California Disneyland reopened this week after a 14-month closure, raising hopes that Parks revenue will return to pre-pandemic levels. However, persistent infections in other parts of the world could delay that recovery by months or longer, forcing the entertainment giant to rely more heavily on film production and streaming service income. There’s no doubt that Disney+ will continue to perform like gangbusters but no one knows what to expect with box office receipts, given the uneven recovery and continued fears of closed spaces.

Truist analyst Matthew Thornton raised his price target to $205 in April, marking one of the few Wall Street calls so far in 2021. He noted “We continue to view DIS as very well positioned in global Media and Entertainment (and the shift to DTC) on account of its franchises/brands/assets (Marvel, Star Wars, Pixar, National Geographic, Disney/Disney+, ESPN/ ESPN+, Hulu/HLTV, Hotstar, others) and competencies (merchandising, advertising, M&A)”.

Wall Street and Technical Outlook

Wall Street consensus has deteriorated after outsized 2020 returns, with an ‘Overweight’ rating based upon 18 ‘Buy’, 1 ‘Overweight’, 7 ‘Hold’, and 1 ‘Underweight’ recommendation. Price targets currently range from a low of $147 to a Street-high $230 while the stock is set to open Wednesday’s session more than $30 below the median $218 target. This placement suggests that Main Street investors are worried that Disney won’t resume its growth trajectory until more countries emerge from the pandemic.

Walt Disney failed a breakout above the 2015 high at 120 during 2020’s pandemic decline, ahead of a vertical recovery wave that reached new highs in November. It posted an all-time high at 203.02 in March 2021, ending a 124-point price swing off the March 2020 low. The stock carved just a single basing pattern during the torrid advance, exposing price action to an extended correction that could easily last into the fourth quarter.

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

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

Cirrus Logic Could Sell Off to 60

iPhone supplier Cirrus Logic Inc. (CRUS) is posting marginal gains in Tuesday’s pre-market following a tier one analyst upgrade. The Austin-based integrated circuits manufacturer fell 15% last week after missing Q4 2021 top and bottom line estimates, posting earnings-per-share (EPS) of $0.66 on a 5.1% revenue increase to $293.54 million. The company also issued downside guidance, blaming supply constraints that have caught the semiconductor industry off-guard.

Hurt By Supply Constraints

The company should benefit from US – China discussions intended to reduce export control-driven bottlenecks that have impacted dozens of industries dependent on the silicon chip. However, natural forces of supply and demand should eventually ease the crisis, with manufacturers now ramping up production. Meanwhile, Apple Inc.’s (AAPL) blowout iPhone sales this year raise odds that Cirrus Logic will recover lost ground once balance is returned.

Needham analyst Rajvindra Gill upgraded Cirrus Logic to ‘Buy’ with a $100 target this morning, noting “We’ve been on the sidelines owing to the high valuation and the concentration of revenues in Apple (70 to 80%+). The stock has fallen ~26% from its mid-January peak (underperforming the SOX by 29% over that period) and its P/E multiple has compressed 40%. While recent results/guidance was disappointing … new opportunities are emerging. Net, we expect revenue growth to accelerate in FY22 and believe stock is compelling here.”

Wall Street and Technical Outlook

Wall Street consensus has grown cautious so far in 2021 due to high valuation, yielding an ‘Overweight’ rating based upon 7 ‘Buy’ and 4 ‘Hold’ recommendations. Price targets currently range from a low of $80 to a Street-high $115 while the stock is set to open Tuesday’s session about $7 below the low target. While the upgrade should ease highly bearish sentiment, short-term technical damage will take time to overcome.

Cirrus Logic failed a breakout above the 2017 high at 71.97 in the first quarter of 2020, descending into the mid-40s. It bounced back to resistance in January 2021 and broke out but failed that advance as well. Price action is now caught between support in the 70s and resistance just above 100 while downside momentum after last week’s selloff favors a breakdown that could deep support near 60 before attracting committed buying interest.

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

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

Costco Testing Key Resistance Level

Costco Wholesale Corp. (COST) is pressing against a key resistance level in Monday’s pre-market in reaction to bullish analyst commentary. The stock is still in the red for 2021 after posting a 28% return in 2020, underpinned by its commanding retail position during the COVID-19 pandemic. Taken together with 2019’s 36% return, the underperformance isn’t usual, given the market’s classic warning that “the big the move, the broader the base”.

Post-Pandemic Economic Surge

Big box store sentiment has deteriorated this year, with rival Walmart Inc. (WMT) also posting a negative year-to-date return. Despite investor reluctance, Costco is perfectly positioned to benefit from the post-pandemic economic surge in the United States and other parts of the world, given its massive footprint in North America, Asia, Australia, and Europe. It’s also trading close enough to the 2020 high to potentially support an advance toward the 500 level.

Telsey Advisory Group analyst Joseph Feldman raised his target to $375 on Monday, noting “Costco should remain a share gainer, with its solid sales, high membership renewal rates, and square footage growth of LSD. Costco should continue to generate solid EPS growth, driven by a MSD-DD comp, MSD-HSD membership fee income growth, healthy digital growth, and lapping COVID-19 related costs. We maintain our ‘Outperform’ rating, applying a P/E multiple of ~35x to our new FY22 EPS estimate of $11.15.”

Wall Street and Technical Outlook

Wall Street consensus also stands at an ‘Overweight’ rating, based upon 19 ‘Buy’, 4 ‘Overweight’, 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 $325 to a Street-high $415 while the stock is set to open Monday’s session more than $25 below the median $400 target. The Q3 2021 earnings report on May 27 could lift these targets.

Costco rallied above the February 2020 high at 325 in July and took off in a strong uptrend that posted an all-time high at 393.15 in November. It sold off more than 80 points into March and bounced strongly, grinding out a straight line recovery that stalled at the .786 Fibonacci retracement level at 375 about two weeks ago. A rally above this harmonic barrier should support a rapid advance into the 2021 peak near 400, setting off a potential breakout attempt.

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

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

PayPal Rangebound Ahead of Wednesday Report

PayPal Holdings Inc. (PYPL) reports Q1 2021 earnings after Wednesday’s closing bell, with analysts looking for a profit of $1.01 per-share on $5.9 billion in revenue. If met, earnings-per-share (EPS) will mark a 53% increase in profit compared to the same quarter last year. The stock surged 7.4% in February after beating Q4 2020 top and bottom line estimates but topped out a few sessions later and has been rangebound since that time.

Fintech Leadership Grows

The company benefited from 2020’s acceleration into digital transactions, posting a phenomenal 116% annual return. It’s added another 12% so far in 2021, with a surging U.S. economy and bullish fintech sentiment adding to the list of tailwinds. It’s now a recognized market leader in digital wallets, highlighted by this week’s news that Coinbase Global Inc. (COIN) will allow customers to buy crypto using debit and credit cards linked to their PayPal accounts.

Rosenblatt Securities analyst Sean Horgan called PayPal one of his top digital payment picks last week, maintaining a ‘Buy’ rating while raising the firm’s price target from $320 to $350. He’s looking for 30% upside compared to mid-April price levels, with the Venmo mobile payment division set to exceed a $900 million 2021 revenue target due to the surge in spending generated by massive stimulus in the United States.

Wall Street and Technical Outlook

Wall Street bulls have been pounding the tables since the second quarter of 2020, yielding a current ‘Buy’ rating based upon 36 ‘Buy’, 5 ‘Overweight’, 6 ‘Hold’, and 1 ‘Sell’ recommendation. Price targets now range from a low of $241 to a Street-high $375 while the stock closed Friday’s U.S. session more than $50 below the median $313 target. This low placement raises odds for a high percentage rally if earnings exceed expectations this week.

PayPal broke out above the 2019 high at 121.48 in May 2020 and entered a powerful trend advance that stalled just above 200 in September. Bullish action cleared that barrier in December, yielding a vertical rally impulse that posted an all-time high at 309.14 in February. The subsequent downdraft found support at 223 in March while price action since that time has been stuck within those boundaries, which are likely to persist through the second quarter.

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

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

Apple Trading Higher After Blowout Quarter

Dow component Apple Inc. (AAPL) is trading higher by nearly 3% in Thursday’s pre-market after beating Q2 2021 top and bottom line estimates by wide margins, posting a profit of $1.40 per-share on $89.58 billion in revenue. The tech icon beats expectations across all product categories, led by iPhone sales of $47.9 billion, which fueled an overall 53.6% year-over-year   revenue increase. Guidance for double digit year-over-year Q3 growth and a 7% dividend increase capped off the highly bullish presentation.

Strong Sales Across the Board

Installed base upgrades to 5G iPhone 12 models added considerable revenue during the quarter while iPad posted the strongest March sales ever.  Even Mac got into the act, wrapping up the best three quarters in the company’s history. Sales grew by double digit percentages in all geographical regions, highlighting the impact of massive U.S. stimulus and a slow worldwide recovery from the COVID-19 pandemic.

Goldman Sachs analyst Rod Hall cried “Uncle” after the report, upgrading Apple from ‘Sell’ to ‘Neutral’, noting “We are upgrading our rating after Apple posted another large beat and implied a raise vs. our June revenue expectations. Our original view that the iPhone cycle would disappoint in the midst of COVID was clearly wrong. Not only has Apple done better than we expected on iPhone during the cycle but Mac and iPad have also materially outperformed our forecasts”.

Wall Street and Technical Outlook

Wall Street consensus currently stands at an ‘Overweight’ rating based upon 24 ‘Buy’, 4 ‘Overweight’, 10 ‘Hold’, 1 ‘Underweight’, and 1 ‘Sell’ recommendation. The blowout quarter should lift ratings and targets in coming sessions but it might not be enough to trigger a new trend advance. Price targets currently range from a low of $83 to a Street-high $185 while the stock is set to open Thursday’s session about $23 below the median $160 target.

Apple returned to February 2020 resistance in the low 80s in May and broke out, entering a strong uptrend that stalled at 138 on Sept 2, just two days after the 4-for-1 split. A swift decline to 103 got bought aggressively but a January breakout failed after just four sessions, reinforcing resistance between 138 and 145. Price action is now pushing against the lower edge of this zone but adverse cycles predict the trading range will be hard to break in the short term.

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

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