Buffett and Munger Heap Criticism on Robinhood for Casino-Like Atmosphere

By Jonathan Stempel and John McCrank

Speaking at Berkshire Hathaway Inc’s annual meeting, Buffett said Robinhood has attracted, “maybe set out to attract,” a large number of people who are just gambling on short-term price movements in stocks such as Apple Inc.

“There is nothing illegal to it, there’s nothing immoral, but I don’t think you build a society around people doing it,” he said.

Buffett’s long-time business partner, Charlie Munger, was more harsh.

“It’s just god-awful that something like that would draw investment from civilized man and decent citizens,” he said. “It’s deeply wrong. We don’t want to make our money selling things that are bad for people.”

Buffett said that while the odds of profiting from day trading stocks and derivatives are better than playing the state lottery, many new investors would have better results buying and holding shares of good companies.

“The gambling impulse is very strong in people worldwide and occasionally it gets an enormous shove,” Buffett said. “It creates its own reality for a while, and nobody tells you when the clock is going to strike 12 and it all turns to pumpkins and mice,” he said.

Some critics have said free trading platforms can encourage millennials to view trading as a game or amusement.

Brokers like Robinhood Financial have attracted controversy this year as traders drove huge rallies in shares of video game retailer GameStop Corp, movie theater chain AMC Entertainment Holdings Inc and other companies despite no fundamental reason for the frenzy.

Some of the buying was fueled by chats on forums like Reddit’s WallStreetBets to ostensibly to punish hedge funds that had bet against so-called meme stocks.

Robinhood faces many lawsuits over its decision in January to curb trading in GameStop and other stocks, and Massachusetts is seeking to revoke its broker-dealer license.

(Reporting by John McCrank and Jonathan Stempel in New York; Editing by Cynthia Osterman)

GameStop to Elect Cohen as Chairman Following Annual Meeting

Shares of GameStop were up about 3% in premarket trading.

The company also said it was nominating six people to stand for election to its board at the annual meeting of stockholders on June 9.

Since billionaire Cohen joined GameStop’s board in January, he has been pushing towards transformation of the brick-and-mortar retailer into an e-commerce firm that can take on big-box retailers such as Target Corp and Walmart Inc and technology firms such as Microsoft Corp and Sony Corp.

(Reporting by Akanksha Rana in Bengaluru; Editing by Maju Samuel)

Why Shares Of GameStop Are Under Pressure Today?

GameStop Video 05.04.21.

GameStop Announced At-The-Market Equity Offering Program

Shares of GameStop found themselves under strong pressure at the start of today’s trading session after the company announced that it may sell up to 3.5 million shares.

The company stated that it would sell its shares “at-the-market”. This move will allow it to capitalize on the interest of retail investors. After the news was released, GameStop stock made an attempt to settle below the $165 level but then rebounded back above the $180 level.

At current stock price levels, GameStop may get about $630 million from the share sale, although the actual result will likely be different from this figure as the stock is very volatile. The company stated that it will use the proceeds from the share sale to “further accelerate its transformation as well as for general corporate purchases and further strengthening of its balance sheet”.

What’s Next For GameStop?

GameStop had almost no chance to sell shares in a pre-arranged deal with professional investors at the current valuation so it decided to sell its stock via an “at-the-market” program.

The company has about 65 million shares outstanding, so the potential dilution is not significant. If the interest from speculative retail traders is strong enough, GameStop will have a decent chance to raise enough money for its goals.

Analysts remain skeptical about GameStop’s performance and do not expect that the company will be able to return to profitability in the next several years. However, the market may continue to ignore analysts’ earnings forecasts if retail traders’ interest in the stock remains high.

In fact, the share offering may ultimately serve as a bullish catalyst for the stock if traders believe that GameStop will successfully raise plenty of money and use it for its transformation. As usual, traders should keep in mind that GameStop shares are very volatile, so they should be prepared for fast moves.

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

GameStop Shakeup Rolls On, Hires Amazon Executive as Chief Growth Officer

The company’s shares, which were at the heart of a Reddit-driven retail trading frenzy early this year, rose nearly 5% in pre-market trading.

GameStop is in the process of shifting its business away from the brick-and-mortar retailer model into an e-commerce business that can compete with large-scale retailers like Target Corp and Walmart Inc, as well as technology companies Microsoft Corp and Sony Corp.

Signaling a broader overhaul, at least two executives have recently departed – Chief Customer Officer Frank Hamlin and Chief Financial Officer Jim Bell.

Wilke, who has spent nearly seven years at Amazon and last led its Fresh Stores business, will oversee growth strategies and marketing at GameStop.

The company had hired another former Amazon executive, Jenna Owens, as Chief Operating Officer earlier this month. She had managed multi-channel fulfillment and distribution at Amazon.

This was preceded by the appointment of Matt Francis as its first ever Chief Technology Officer last month. He was also an Amazon head of the engineering team at Amazon Web Services.

The shakeup proliferated the company’s board as it announced the expected retirement of eight directors at its annual meeting this year.

Earlier this month, GameStop had announced the formation of a three-member committee chaired by Ryan Cohen, which is responsible for the moves leading to a re-jigging of the company’s leadership.

The company on Tuesday also named former Chewy.com executives Andrea Wolfe and Tom Peterson to lead brand development and merchandising, respectively.

(Reporting by Munsif Vengattil and Chavi Mehta in Bengaluru; Editing by Saumyadeb Chakrabarty, Sriraj Kalluvila and Bernard Orr)

Why Shares Of GameStop Are Down By 20% Today?

GameStop Video 24.03.21.

GameStop’s Quarterly Results Missed Analyst Estimates

Shares of GameStop gained strong downside momentum after the company reported its quarterly results. GameStop reported revenue of $2.1 billion and GAAP earnings of $1.18 per share, missing analyst estimates on both earnings and revenue.

The company did not provide guidance for 2021 but stated that it would focus on its transformation, which was one of the pillars of the bullish thesis for the stock.

GameStop also stated that it was evaluating a potential increase in the size of the at-the-market program to fund its growth initiatives, which means that an equity sale may be around the corner.

Interestingly, the potential equity sale was not mentioned during the earnings call, while the earnings call itself did not had a Q&A session with analysts which is highly unusual given the huge interest in the stock.

What’s Next For GameStop?

GameStop’s rally was driven by the activity of retail investors, and now these investors had a chance to take a look at the fundamental situation in the company.

The quarterly report revealed nothing that could justify the recent huge rally as the company even failed to meet analyst estimates on earnings and revenue. In addition, GameStop did not take questions during the earnings call which could be taken as a sign of weakness.

While the huge short interest in the company’s shares served as the main catalyst for the rally back in January, the rally in March was also driven by traders’ hopes for a robust transformation of the company.

If this story gets busted, GameStop shares will gain significant downside momentum and may get back to levels seen in the second half of February before the stock attracted more interest.

It should be noted that trading dynamics of GameStop stock remain heavily dependent on market mood rather than fundamentals, so traders should be prepared for very fast moves.

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

GameStop Tumbles as Reddit Darling Mulls Share Sale

By Munsif Vengattil and Akanksha Rana

GameStop shares have surged nearly 900% so far this year as retail investors have acted in concert on Reddit forums to bid up prices of heavily shorted stocks.

The company said on Tuesday after reporting quarterly results that it has been considering since January whether to increase the size of the $100 million share sale that it originally announced in December.

GameStop had previously decided against the move as it was restricted under U.S. financial regulations from selling shares because it had not yet updated investors on its earnings.

The stock sale program was assigned to Jefferies, whose research arm on Wednesday raised its price target by a whopping $160 to $175, but kept its rating at “hold”.

That is much higher than the median price target of $25, according to Refinitiv data, and marks the first time a Wall Street brokerage matched its price projections with GameStop’s current trading levels.

Reddit’s WallStreetBets forum was buzzing about another potential short squeeze, which had sent GameStop’s shares as high as 2,300% in January to a record high of $483.

A short squeeze occurs when investors who have bet against a stock need to buy it at much higher levels to cover losing positions.

Short interest in GameStop has since fallen to about 15% of the stock’s float as of Wednesday from a peak of 141% in the first week of 2021, according to data from financial analytics firm S3 Partners.

The shares were last trading at $149.92. The company on Tuesday reported a ninth straight decline in quarterly sales and said it would close more retail stores and exit unprofitable businesses, underscoring Wall Street’s concerns about its business.

GameStop also skipped a question-and-answer session after the results.

Wedbush analysts downgraded the stock to “underperform” from “neutral”, saying the short squeeze had boosted the share price to levels that were completely disconnected from the fundamentals of business.

Billionaire investor and Chewy.com co-founder Ryan Cohen, who is on GameStop’s board, expects to transform the retailer into an e-commerce firm that can take on big-box players Target Corp and Walmart Inc and technology firms such as Microsoft Corp and Sony Corp.

“We continue to be very skeptical on GME’s efforts to address … the fact that its core market in new and pre-owned physical console gaming is shrinking at a rapid pace,” Curtis Nagle, an analyst at Bank of America’s research arm, said in a client note.

Nagle has a $10 price target and an “underperform” rating on GameStop’s stock.

Of the seven analysts covering GameStop, none has a “buy” or a higher rating on the stock.

(Reporting by Munsif Vengattil, Sagarika Jaisinghani and Akanksha Rana in Bengaluru, additional reporting by Megan Davies; Editing by Arun Koyyur and Saumyadeb Chakrabarty)

GameStop Q4 Earnings Not To Be As Impressive As The Increase In Shares

Gravity-defying GameStop, which has seen a stellar rise in its stock price of more than 2,640% in 2021, is not expected to report impressive results on Tuesday when it will announce both fourth quarter and fiscal 2020 earnings after the market closes.

The world’s largest multichannel video game retailer is expected to report its fourth-quarter earnings of $1.35 per share, which represents year-over-year growth of over 6% from $1.27 per share seen in the same quarter a year ago.

The Grapevine, Texas-based company would post year-over-year revenue growth of about 1% year-on-year to $2.21 billion. In the last four consecutive quarters, on average, the company has delivered an earnings surprise of over 21%.

“Though the stock can defy all estimates and move in any direction, we don’t see a significant leg to this rally given the lack of fundamentals. Also, based on our machine learning analysis of trends in the stock price over the last few years, we believe that there is a strong chance of a decline in GME stock over the next month,” noted analysts at Trefis.

Of the five analysts who offered stock ratings for GameStop in the last three months, none gave “Buy”, three rated “Hold” and two rated “Sell”, according to Tipranks.

Bank of America in its latest research note said “We expect an underwhelming quarter given previously announced holiday sales results that were very disappointing.”

However, ZACKS Research, who gave a target price of $232 for 6-12 months and rated neutral, said the gaming giant has been actively involved in fast-tracking its digital transformation efforts and undertaking prudent business initiatives.

“Shares of GameStop have outpaced the industry in the past three months. Notably, the company’s shares got a boost recently after it announced the formation of a new strategic committee for accelerating transformation. The committee includes Ryan Cohen, who had been appointed to the company’s board earlier in January. The company had restructured its board to include three activist investors from RC Ventures. The move is expected to aid the company in boosting digital offerings,” noted analysts at ZACKS Research.

“Moving on, the company’s comparable-store sales (comps) numbers for the holiday season were encouraging. Markedly, strong e-commerce sales and sturdy demand for consoles aided holiday comps. Management continues to expect positive comps and profitability for the fourth quarter. However, store closures and supply chain constraints are likely to remain a drag.”

Check out FX Empire’s earnings calendar

Earnings to Watch Next Week: GameStop, Adobe and Darden Restaurants in Focus

Earnings Calendar For The Week Of March 22

Monday (March 22)

Ticker Company EPS Forecast
YY YY $7.54
CBPO China Biologic $0.69
BKRKY Bank Rakyat $0.13
ILD Iliad €0.75
EGFEY Eurobank Ergasias S.A. ADR -$0.01
NGHC National General $0.73
KGF Kingfisher £6.97
TLK Telekomunikasi Indns Tbk Prshn Pp Pt $0.29
KHOLY Koc Holdings AS $0.55
BEAT BioTelemetry $0.48
PE Parsley Energy $0.25
WPX WPX Energy $0.04
HDS HD Supply Holdings $0.39
PKX Posco $1.52
CHA China Telecom $1.57
MNTA Momenta Pharmaceuticals -$0.50

Tuesday (March 23)


GAMESTOP: The world’s largest multichannel video game retailer is expected to report its fourth-quarter earnings of $1.35 per share, which represents year-over-year growth of over 6% from $1.27 per share seen in the same quarter a year ago.  In the last four consecutive quarters, on average, the company has delivered an earnings surprise of over 21%.

The Grapevine, Texas-based company would post year-over-year revenue growth of about 1% year-on-year to $2.21 billion.

“Shares of GameStop have outpaced the industry in the past three months. Notably, the company’s shares got a boost recently after it announced the formation of a new strategic committee for accelerating transformation. The committee includes Ryan Cohen, who had been appointed to the company’s board earlier in January. The company had restructured its board to include three activist investors from RC Ventures. The move is expected to aid the company in boosting digital offerings,” noted analysts at ZACKS Research.

“Moving on, the company’s comparable-store sales (comps) numbers for the holiday season were encouraging. Markedly, strong e-commerce sales and sturdy demand for consoles aided holiday comps. Management continues to expect positive comps and profitability for the fourth quarter. However, store closures and supply chain constraints are likely to remain a drag.”

ADOBE: San Jose, California-based software company is expected to report its first-quarter earnings of $2.79 per share, which represents year-over-year growth of about 23% from $2.27 per share seen in the same quarter a year ago. In the last four consecutive quarters, on average, the company has delivered an earnings surprise of 4.7%.

According to the ZACKS Research, Adobe forecasts year-over-year revenue growth of 26% from Digital Media. Digital Experience segment revenues are expected to grow 19% on a year-over-year basis, while Digital Experience subscription revenues are likely to increase 22%.

“Our Digital Media partner survey showed an improvement vs. last qtr w/ 58% meeting/beating targets, up from 50% last qtr. 2Q pipeline commentary was strong; FY outlooks were unchanged; outlook on Doc Cloud very encouraging. At ~29xEV/CY22E FCF, valuations are near trough levels & we think shares are poised for a bounce off of strong results,” noted J. Derrick Wood, equity analyst at Cowen and Company.

ADBE shares are down 10% YTD and we think valuations are attractive at ~29x EV/CY22E FCF. We continue to see strong upside potential navigating through CY21, aided by an SMB recovery & growing tailwind for Doc Cloud. Reiterate Outperform & $600 price target.”


Ticker Company EPS Forecast
HUYA HUYA Inc $0.82
ADBE Adobe Systems $2.79
INFO IHS Markit Ltd $0.70
BNGO BioNano Genomics Inc -$0.06
HOME At Home Group $0.69
VNET 21Vianet $1.65
GME GameStop $1.35
NEOG Neogen $0.26
GGB Gerdau $0.17
CEO Cnooc $4.94

Wednesday (March 24)

Ticker Company EPS Forecast
BWY Bellway £120.00
GIS General Mills $0.84
WGO Winnebago Industries $1.40
WOR Worthington Industries $1.12
HTHT China Lodging $2.41
RH Restoration Hardware $4.72
KBH Kb Home $0.92
FUL HB Fuller $0.48
PAYX Paychex $0.93
TCEHY Tencent $0.52
ACH Aluminum Of China -$0.15

 Thursday (March 25)


Darden Restaurants, an American multi-brand restaurant operator, is expected to report its third-quarter earnings of $0.69 per share, which represents a year-over-year decline of over 64% from $1.90 per share seen in the same quarter a year ago. However, it is worth noting that in the last four consecutive quarters, on average, the company has delivered an earnings surprise of over 260%.

The company, which owns and operates 1,800 full-service casual and fine dining, is expected to see a year-over-year revenue decline of over 30% to around $1.6 billion.

“Best in class casual dining operator with strong brand portfolio. As the largest CDR operator, DRI has substantial scale advantages in shared services which can be levered in a post-COVID-19 environment by improving margins and gaining market share. Lead brand Olive Garden (50% of sales) garners top consumer scores, its comp sales have historically outpaced the industry and recent cost savings have improved unit economics,” noted John Glass, equity analyst at Morgan Stanley.

“Acquisition of Cheddar’s has been more challenging than initially expected, though still provides longer-term growth potential. Strong position relative to peers, scale, operational leadership, unit growth, and structurally higher margins drive our Overweight rating.”


Ticker Company EPS Forecast
DRI Darden Restaurants $0.69
SAIC Science Applications International $1.45
TOELY Tokyo Electron Ltd PK $0.80
AUOTY AU Optronics $0.31
CAG Conagra Foods $0.58
LULU Lululemon Athletica $2.49
PTR Petrochina $1.22
JEF Jefferies Financial Group Inc $1.08
IGMS IGM Biosciences -$0.74
SBS Companhia De Saneamento Basico $0.18
SHI SinOPEC Shanghai Petrochemical $1.60


Friday (March 26)

No major earnings scheduled for release.

Why Shares Of GameStop Gained More Than 65% This Week?

GameStop Video 09.03.21.

GameStop Stock Is Rallying

GameStop shares are once again moving higher. Last week, the stock closed at $137.74, and it is currently trying to settle above $230.

The stock gained upside momentum when Bloomberg reported that Ryan Cohen, who founded Chewy.com, will lead the company’s push for increased presence in the e-commerce space.

GameStop mania started when the company entered into a deal with Cohen’s RC Ventures LLC back at the beginning of this year. Traders have originally bet that Cohen will be able to improve the business of the struggling brick-and-mortar retailer, but speculators’ attention has quickly shifted to the huge short interest in the stock.

While the short interest has significantly declined from levels seen back in January as hedge funds exited their short bets with huge losses, it remains at elevated levels and provides fuel for another squeeze.

It should be noted that trading volume is much lower during the current rally compared to the levels we’ve seen back in January, but traders’ interest in the stock has been steadily increasing in recent trading sessions.

What’s Next For GameStop?

Analysts expect that GameStop will not be able to return to profitable operations anytime soon so the stock continues to move higher on speculative activity rather than a significant change in fundamentals.

The strength of the current rally will depend on the number of traders that will be ready to bet on increased interest for GameStop shares at current levels. The previous rally was stopped near the $500 level, but it remains to be seen whether the current upside move will be able to get that strong as the number of forced buyers (short-sellers who face margin calls) has clearly decreased together with short interest.

Traders should be prepared for huge volatility in the upcoming trading sessions as the stock will likely attract new players after the recent move.

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

Why The Ongoing War of Words Between Charlie Munger and Robinhood Underline The Lack of Inclusivity in Investing

With accusations of investing apps like Robinhood being labeled a “dirty way to make money” by Berkshire Hathaway vice-chairman, Charlie Munger in an attack that the app dismissed as “disappointing and elitist,” it’s clear that a war on inclusivity is only just beginning.

The battle lines were drawn following the Reddit group, r/WallStreetBets encouraging investors on the platform to buy GameStop shares en masse to pump its price up.

The plan was highly effective in the short term, as casual investors bought into GME shares, its stock peaked past $325 dollars – a significant rise for a company trading at lower than $5 per share in the summer of 2020.

In a short space of time, GameStop’s market capitalization flew from $300 million in August 2020 to $3 billion at the company’s January peak. However, the achievements of social investing on Reddit caused a form of friction across the market that hasn’t been seen before.

How Reddit Outpaced Wall Street’s Hedge Funds

The mass purchase of GMB stock came at a time when hedge fund Melvin Capital had looked to short GameStop shares in the anticipation of a drop in price. However, the mass social investments from Reddit led to not only Melvin Capital but multiple other hedge funds losing significant volumes of money.

(Image: Talk Markets)

In the chaotic timeline of events, we can see how heavily GameStop’s shares were influenced by the tug of war between hedge funds and Reddit. The unforeseen battle led to Melvin Capital losing 53% of its funds in January alone, but it was the actions of the retail investment platform, Robinhood that stole the headlines in the wake of the rally on GameStop.

Robinhood’s Moral Conflict

Robinhood is a commission-free stock trading app that promises to ‘democratize finance for all.’ However, as the price of GameStop began surging, the app took the step of freezing purchases of GMB stock, as well as that of AMC Entertainment (AMC), BlackBerry (BB), and Nokia (NOK) while claiming that the company ‘makes changes where necessary’ in light of market volatility. While the app continued to allow users to sell their shares, they weren’t permitted to buy more.

Robinhood was one of a group of trading platforms that curbed the purchases of its stocks. As an app that stood as a means of enabling people from all backgrounds to enter the stock market and invest their money, the notion of preventing them from buying into an asset in the minutes and hours after hedge funds were stung by retail investors provoked an outcry.

With at least 90 lawsuits filed against Robinhood in the wake of the fiasco, the app inadvertently exposed the significant lack of inclusivity when it comes to stock investing. The act of limiting the actions of its own users as the damage to hedge funds became clear has left more casual retail investors alienated by the market.

Dirty Way to Make Money or Elitism in Action?

When Berkshire Hathaway vice-chairman, Charlie Munger, gave his scathing assessment on Robinhood, and commission-free trading apps in general, he compared the investment platform to a gambling website.

“Robinhood trades are not free. When you pay for order flow, you’re probably charging your customers more and pretending to be free,” the 97-year old told the Daily Journal’s annual shareholder meeting. “It’s a very dishonorable, low-grade way to talk. And nobody should believe that Robinhood’s trades are free.”

Munger pointed the finger at brokerage apps for enabling the recent trading chaos by bringing together “a whole lot of people who are using liquid stock markets to gamble the way they would in betting on racehorses.”

“The frenzy is fed by people who are getting commissions and other revenues out of this new bunch of gamblers,” Munger claimed. “And of course, when things get extreme, you have things like that short squeeze.”

Robinhood responded to the criticism by claiming that Munger has actively dismissed the next generation of investors – labeling his words “disappointing and elitist.”

“In one fell swoop an entire new generation of investors has been criticized and this commentary overlooks the cultural shift that is taking place in our nation today,” explained a Robinhood spokesperson. “Robinhood was created to allow people who don’t have access to generational wealth or the resources that come with it to begin investing in the U.S. stock market.”

Sadly, the war of words between Charlie Munger and Robinhood signifies how much of a lack of inclusivity exists in trading, despite the development of technology that has the potential to bing new investment opportunities to scores of new users.

The Next Generation of Investor

In the past year, 10% of Americans bought a stock for the first time. On top of this, 7% began contributing to a retirement account.

There’s been a significant surge in retail investing since the beginning of the pandemic. In fact, over 10 million people in America have opened a new brokerage account in 2020. In a survey conducted by CNBC, 22% of Gen Z respondents claimed to have opened a stock market account in 2020.

Furthermore, the survey found that those without a college degree and in the income bracket of $50,000 or less were also more likely to buy a stock for the first time in the past year.

This data clearly shows that trading has taken strides towards new generations of investors that may have previously lacked the accessibility they needed to invest.

Platforms like Robinhood have opened the door to these traders, offering them access to investments that had seemed inaccessible before. However, in the wake of Robinhood’s kerfuffle, retail investors are now turning to other platforms offering similar features. For instance, NasDaq-listed Freedom Holding Corp. (NASDAQ: FRHC) has a platform called Freedom24, which not only enables retail investors to purchase stocks but also participate in selected IPOs. That said, not everybody is eligible as there’s an application process and a threshold of $2,000.

Alternatively, there are more traditional platforms like E*TRADE and TD Ameritrade that enable the general public to invest in stocks. TD Ameritrade, for instance, also allows its customers to take part in selected IPOs. However, the account value threshold is set at $250,000. Alternatively, the account must have completed 30 trades in the last 3 months.

The Covid-19 pandemic has offered individuals the chance to stop and reconsider how their money is best invested. With a brand new and broad generation of new investors entering the market, Charlie Munger’s comments may appear dismissive of the huge new collective drive towards trading. Likewise, Robinhood’s restrictive actions risk repelling new investors before they have a chance to see their first profits.

In a world that’s increasingly interconnected, fintech platforms and old hedge funds alike need to put in more effort to accommodate new entrants onto the market. After all, the free market will be a much more prosperous place when it’s accessible for all.

GameStop Surges After Tapping Tech Tycoon to Lead Digital Shift

GameStop Corp. (GME) shares closed Monday’s regular session up 41.21% after the videogame retailer announced that it had appointed Chewy co-founder Ryan Cohen to spearhead an e-commerce transition.

Cohen – a board member and major shareholder – has actively pushed management in recent months for a strategic shift away from traditional brick-and-mortar sales. “Through our private conversations, we have explained to Mr. Sherman [CEO] and the Board that GameStop has the ability to pivot toward becoming a technology-driven business that excels in the gaming and digital experience worlds,” Cohen outlined in a letter late last year.

The company, which has had its stock become subject to wild social media-driven speculation in recent months, said that it has established a new “Strategic Planning and Capital Allocation Committee” lead by Cohen to identify ways to accelerate its digital transformation. Since the committee was formed, the company has hired former Amazon Web Services engineering lead Matt Francis as chief technology officer and two other executives tasked with overseeing GameStop’s e-commerce and customer service functions.

The strip mall retailer has seen sales plunge in recent years as customers shift toward digital downloads and videogame streaming services, such as Nvidia GeForce Now, PlayStation Now, and Google Stadia. As of March 9, 2021, GameStop stock has a market capitalization of $13.57 billion and trades nearly 1,000% higher since the start of the year. In the past month alone, the shares have rallied over 200%.

Wall Street View

In late January, Telsey Advisory analyst Joseph Feldman downgraded the shares to ‘Underperform’ but lifted his price target to $33 from $22. Feldman said he sees a “disconnect” between GameStop’s fundamentals and its valuation following the recent surge in the share price.

Other brokerage firms have been reluctant to provide coverage of the stock given its recent market speculation and volatility. Currently, it receives 4 ‘Hold’ ratings, 1 ‘Underweight’ rating, and 3 ‘Sell’ ratings. Through Monday’s close, GameStop stock trades at a 489% premium to Feldman’s $33 twelve-month price target.

Technical Outlook and Trading Tactics

Despite the lack of brokerage coverage, the stock continues to provide opportunities for active traders who have higher risk tolerance. In recent price action, the shares have maintained their sharp advance, with the stock nearly closing the Feb. 2 gap.

Those who want to capitalize on the bullish momentum should target a move back to the all-time high (ATH) at $483 while managing the downside with a stop-loss order placed somewhere under the weekly low at $146.10. Longer-term value investors should look for entries on retracements to a multi-month uptrend line that finds a confluence of support from the 200-day SMA.

For a look at today’s earnings schedule, check out our earnings calendar.

3… 2… 1… Let the Corrective Gold Rally Begin

Folks, it seems that gold has formed an interim bottom, and a short-term corrective upswing is now likely, before the medium-term downtrend resumes.

Any further declines from this point are not likely to be significant for the short-term. The same applies to silver and the miners.

In yesterday’s (Mar. 4) intraday Gold & Silver Trading Alert , I described briefly why I think that the very short-term bottom is already in (or is at hand), and in today’s analysis, I’ll illustrate my points with charts. Let’s start with gold.

ChartDescription automatically generated

Figure 1 – COMEX Gold Futures (GC.F)

Gold just reached its 61.8% Fibonacci retracement level (based on the entire 2020 rally), and it just bounced off the declining red support line based on the August and November 2020 bottoms.

Gold didn’t reach the previous 2020 lows just yet, but it moved very close to them and the two strong above-mentioned support levels could be enough to trigger a corrective upswing. After all, no market can move up or down in a straight line without periodic corrections.

I previously wrote that when gold moves $1,693 we’ll be closing any remaining short positions, and when gold moves to $1,692, we’ll automatically open long positions in the miners. Since gold moved below $1,690, that’s exactly what happened.

Yesterday (Mar. 4), gold futures were trading below $1,692 for about 10 minutes, so if you acted as I had outlined it in the Gold & Silver Trading Alerts, you made your purchases then. The GDX ETF was trading approximately between $30.80 and $31 (NUGT was approximately between $49.30 and $50) at that time – this seems to have been the exact daily bottom.

One of the bullish confirmations came from the silver market .

Chart, histogramDescription automatically generated

Figure 2 – COMEX Silver Futures

I previously wrote that silver is likely to catch up with the decline at its later stage, while miners are likely to lead the way.

While gold miners showed strength yesterday, silver plunged over 4% before correcting part of the move. Yesterday’s relative action showed that this was most likely the final part of a short-term decline in the precious metals sector, and that we should now expect a corrective rebound, before the medium-term decline resumes. If not, it seems that the short-term bottom is at hand and while silver might still decline somewhat in the very short term, any declines are not likely to be significant in case of the mining stocks. At least not until they correct the recent decline by rallying back up.

Speaking of mining stocks, let’s take a look at the GDX ETF chart.

ChartDescription automatically generated

Figure 3 – VanEck Vectors Gold Miners ETF (GDX)

Mining stocks showed strength yesterday. Even though gold moved visibly to new yearly lows, the GDX didn’t move to new intraday lows. The GDXJ did move to new intraday lows, but the decline was relatively small compared to what happened in gold and to what happened on the general stock market. The latter declined substantially yesterday and the GDXJ is more correlated with it than GDX – hence GDXJ’s underperformance was normal. Still, compared to both gold’s decline and stocks’ decline, the GDXJ and GDX declined very little.

The price level at which miners showed strength matters greatly too. Miners stopped their decline practically right in my target area, which I based on the 50% Fibonacci retracement and the 2020 highs and lows. Moreover, the proximity of the $31 level corresponds to the 2019 high and the 2016 high. Since so many support levels coincide at the same price (approximately), the latter is likely to be a very strong support.

Moreover, the RSI was just close to 30, which corresponded to short-term buying opportunities quite a few times in the past.

How high are miners likely to rally from here before turning south once again? The nearest strong resistance is provided by the neck level of the previously broken head and shoulders pattern, which is slightly above $34.

Also, let’s keep in mind the mirror similarity in case of the price action that preceded the H&S pattern and the one that followed it. To be precise, we know that the second half of the pattern was similar to its first half (including the shape of pattern’s shoulders), but it’s not yet very clear if the follow-up action after the pattern is going to be similar to the preceding price action. It seems quite likely, though. If this is indeed the case, then the price moves that I marked using green and purple lines are likely to be at least somewhat similar.

This means that just as the late-April 2020 rally was preceded by a counter-trend decline, the recent decline would likely be followed by a counter-trend rally. Based on the size of the April counter-trend move, it seems that we could indeed see a counter-trend rally to about $34 this time.

There’s also an additional clue that might help you time the next short-term top, and it’s the simple observation that it was relatively safe to exit one’s long positions five trading days after the bottom.

That rule marked the exact bottom in November 2020, but it was also quite useful in early February 2021. In early December 2020, it would take one out of the market only after the very first part of the upswing, but still, let’s keep in mind that it was the “easy” part of the rally. The same with the October 2020 rally. And now, since miners are after a confirmed breakdown below the broad head and shoulders pattern, it’s particularly important not to miss the moment to get back on the short side of the market, as the next move lower is likely to be substantial. Therefore, aiming to catch the “easy” part of the corrective rally seems appropriate.

So, if the bottom was formed yesterday, then we can expect to take profits from the current long position off the table close to the end of next week.

Finally, let’s take a look at the USD Index.

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Figure 4 – USD Index

While the medium-term breakout continues to be the most important technical development visible on the above chart (with important bullish implications for the following months), there is one factor that could make the USD Index decline on a temporary basis.

This factor is the similarity to the mid-2020 price pattern. I previously commented on the head and shoulders pattern that had formed (necklines are marked with dashed lines), but that I didn’t trust. Indeed, this formation was invalidated, but a bigger pattern, of which this formation was part, wasn’t invalidated.

The patterns start with a broad bottom and an initial rally. Then it turns out that the initial rally is the head of a head-and-shoulders pattern that is then completed and invalidated. This is followed by a sharp rally, and then a reversal with a sizable daily decline.

So far, the situations are similar.

Last year, this pattern was followed by a decline to new lows. Now, based on the breakout above the rising medium-term support line, such a bearish outcome doesn’t seem likely, but we might see the pattern continue for several more days, before they disconnect. After all, this time, the USD Index is likely to really rally – similarly to how it soared in 2018 – and not move to new lows.

What happens before the patterns disconnect? The USD Index could decline temporarily.

Back in November 2020, the second top was below the initial one, and we just saw the USD Index move to new yearly high. Did the self-similar pattern break yet? In a way yes, but it doesn’t mean that the bearish implications are completely gone.

In mid-2020, the USD Index topped after moving to the previous important intraday low – I marked it with a horizontal line on the above chart.

Right now, the analogous resistance is provided by the September 2020 bottom and at the moment of writing these words, the USD Index moved right to this level.

Consequently, it could be the case that we see a decline partially based on the above-mentioned resistance and partially based on the remaining self-similar pattern. The latter would be likely to lose its meaning over the next several days and would be decisively broken once the USD Index rallies later in March. The above would create a perfect opportunity for the precious metals sector to correct the recent decline – and for miners (GDX ETF) to rally to $34 or so.

Please note that if gold rallies here – and it’s likely to – then this will be the “perfect” time for the gold and stock market permabulls to “claim victory” and state that the decline is over and that they were right about the rally all along. Please be careful when reading such analyses in the following days, especially if they come from people that have always been bullish. If someone is always bullish, the odds are that they won’t tell you when the next top is going to be (after all, this would imply that they stop being bullish for a while).

Just because anyone can publish an article online, doesn’t mean that they should, or that others should follow their analyses. The internet is now replete people who claim to have expertise in the markets, and we all saw what happened to the profits of those who bought GameStop at $300. It’s the same thing that happened to the profits of those who were told since the beginning of this year that gold is going to rally – they turned into losses. What we see as well are internet echo chambers, where you are more likely to only read articles that express what you already agree with, instead of being exposed to differing viewpoints that shed light on other critical factors.

Gold is likely to rally from here, but it’s highly unlikely that this was the final bottom, and that gold can now soar to new highs. No. The rally in the USD Index has only begun and while it could pull back, it’s likely to soar once again, similarly to how it rallied in 2018. And gold is likely to respond with another substantial wave lower. This doesn’t mean we’re permabears either or that we want to see gold fail. On the contrary, gold has a bright future ahead, but not before it goes through a medium-term decline after this corrective rally is over.

Thank you for reading our free analysis today. Please note that the above is just a small fraction of today’s all-encompassing Gold & Silver Trading Alert. The latter includes multiple premium details such as the targets for gold and mining stocks that could be reached in the next few weeks. If you’d like to read those premium details, we have good news for you. As soon as you sign up for our free gold newsletter, you’ll get a free 7-day no-obligation trial access to our premium Gold & Silver Trading Alerts. It’s really free – sign up today.

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

Przemyslaw Radomski, CFA
Founder, Editor-in-chief
Sunshine Profits: Effective Investment through Diligence & Care

* * * * *

All essays, research and information found above represent analyses and opinions of Przemyslaw Radomski, CFA and Sunshine Profits’ associates only. As such, it may prove wrong and be subject to change without notice. Opinions and analyses are based on data available to authors of respective essays at the time of writing. Although the information provided above is based on careful research and sources that are deemed to be accurate, Przemyslaw Radomski, CFA and his associates do not guarantee the accuracy or thoroughness of the data or information reported. The opinions published above are neither an offer nor a recommendation to purchase or sell any securities. Mr. Radomski is not a Registered Securities Advisor. By reading Przemyslaw Radomski’s, CFA reports you fully agree that he will not be held responsible or liable for any decisions you make regarding any information provided in these reports. Investing, trading and speculation in any financial markets may involve high risk of loss. Przemyslaw Radomski, CFA, Sunshine Profits’ employees and affiliates as well as members of their families may have a short or long position in any securities, including those mentioned in any of the reports or essays, and may make additional purchases and/or sales of those securities without notice.


Why GameStop Shares Are Rallying Again?

GameStop Video 25.02.21.

GameStop Bulls Are Squeezing Short-Sellers

Yesterday, shares of GameStop gained 104% on news that the company’s Chief Financial Officer would leave the company at the end of March.

This catalyst was sufficient enough to ignite another speculative rally in GameStop shares as traders bet that the company would become more aggressive in its attempts to improve its business.

Today, the stock continued to move higher and is currently up by about 40%. Trading activity in the stock declined over the past few weeks but now the trading volume is back as speculative traders rush to join the rally. It should be noted that there is still plenty of short interest in GameStop shares which made another short squeeze possible.

What’s Next For GameStop?

From a fundamental point of view, the change of CFO is indeed signaling the company’s intent to improve the current business situation. GameStop has completely missed the opportunity to use the previous rally to improve its financial position, although it remains to be seen whether there is any interest for the company’s shares from institutional investors.

The CFO change served as a catalyst that triggered another short-squeeze while the company’s business prospects have not changed in a radical manner after the move.

In this light, traders should be prepared to stomach huge volatility as GameStop trading dynamics will depend on the number of speculative traders who will believe that the second rally will be sustainable.

If trading volume starts to decline, the stock will likely experience a serious pullback. The previous rally showed that such pullbacks can be very fast and brutal so traders will have to pay close attention to their speculative positions.

I’d also note that the short interest has significantly declined compared to January levels while many traders got burned in the first rally and may be not ready to participate in the second attempt to squeeze the remaining short-sellers. In this light, GameStop shares may be not ready to move much higher from current levels.

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

U.S. Market Wrap and Forecast for Monday

Early buying pressure faded during Friday’s expiration session, dropping major indices into the red. WTI crude oil reversed, dropping below 60 as temperatures lifted above the freezing mark in Texas and southern states. The 30-year bond posted another monthly low, continuing the relentless rise in yields across short- and long-dated instruments. Gamestop Inc. (GME) hit a monthly low, forcing another batch of Reddit traders to look for a less stressful hobby.

Roku Rocks

Roku Inc. (ROKU) posted a Q4 2020 profit of $0.49 per-share, well above expectations for a $0.03 loss, lifting the streaming hardware provider to a three-day high. However, rich valuation weighed on buying interest, stalling price well below Tuesday’s all-time high at 486.72. Deere and Co. (DE) reported the second blowout quarter in a row, lifting the agricultural giant to an all-time high above 330. The stock rose more than 55% in 2020 and has added another 20% so far in 2021.

Russell-2000 index ignored blue chip selling pressure, lifting into the midpoint of the weekly trading range. This instrument has rallied 55% since September, carving one of the strongest small cap buying waves since the 1990s. Speculative fervor in the Reddit crowd is driving the upside, with SPACs acting as petri dishes for hundreds of start-up operations. Unfortunately, most small caps won’t succeed down the road due to roadblocks set up by trillion dollar mega-techs.

Post-Options Hangover Ahead

Discovery Inc. (DISCA) could provide early metrics on the paid streaming service it launched in January in Monday’s pre-market earnings release. Home Depot Inc. (HD) and Lowes Inc. (LOW) lead next week’s blue chip calendar, highlighting do-it-yourself income during the pandemic’s second wave. The bubble in mall anchors could break after department stores release miserable quarterly results, which should confirm the slow bleed of long-term customers.

Consumer confidence and durable goods head next week’s economic calendar, along with new home sales. Millennials have entered their nesting stages, scooping up the limited supply of existing homes and driving prices to all-time highs. The supply crunch is forcing many nest builders to take advantage of remote work opportunities and build homes far away from west coast and northeast urban centers, in a phenomenon that will alter US demographics for decades.

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

U.S. Market Wrap and Forecast for Friday

Major benchmarks sold off at the start of Thursday’s session while a congressional committee debated the implications of last month’s Gamestop Inc. (GME) frenzy. Risk-adverse instruments surged to monthly highs in the first half of the day, shaking out a few weak hands. An afternoon bounce pushed a few points above opening prints but SP-500 Volatility Index (VIX) held firmly in the green into the closing bell.

Mean Reversion

Traders sold many stocks that had rallied to unsustainable price levels, including Tesla Inc. (TSLA), squaring positions ahead of Friday’s options expiration finale. GME and its companions sold off as well, hitting 4-week lows. High yield plays perked up, attracting buying interest for the first time in 2021.  FAANG stocks ticked lower in unison, displaying none of the leadership that generated impressive 2020 returns.

Marriott International (MAR) closed higher despite a 59% year-over-year revenue decline, with executives hoping vaccines translate into a booking resurgence and travel season that keeps hotels from going bankrupt. Fauci said vaccines were reducing COVID-19 infections this morning, which we assumed long before he reached that conclusion. That now needs to translate into baby boomers leaving their caves and spending billions in their favorite destinations this summer.

Friday Expiration

Friday options expiration is often sloppy and uncomfortable, with position squaring more important to the ticker tape than short-term price patterns. Limited exposure makes sense during this period but stocks that have sold off into popular strikes could offer good trade entries into Monday’s options hangover. Twitter Inc. (TWTR) comes to mind in this regard, dropping three or four points this week before bouncing just above the 70 strike.

Home Depot Inc. (HD) highlights next week’s earnings calendar, with the Dow component grinding through the sixth month of a narrow range price pattern. Macy’s Inc. (M) is also on the schedule, shining a light on one of the fallen angels of last month’s Gamestop squeeze. Sadly, M and the mall anchor group have no future, beyond the lipstick put on the pig in recent months, because e-commerce is an unstoppable monster.

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

U.S. Market Wrap and Forecast for Friday

The SP-500 and Nasdaq-100 indices gapped into tests of Wednesday’s highs at the start of Thursday’s U.S. session and sold off, grinding out narrow range congestion patterns. A slumping VIX matched mixed price action, with indecision a bigger market mover than buyers or sellers.  Commodities pulled back after crude oil’s assault on multi-month highs mid-week, marking one of the few highlights of an otherwise dull Thursday market.

Uber Does U-Turn

Uber Technologies Inc. (UBER) dropped like a rock and shook out short sellers after the delivery disruptor reported another quarterly loss on a steep revenue decline. Even so, a company spokesman reaffirmed guidance for positive EBITDA, better known as ‘profitability’, by the end of fiscal year 2021. Unfortunately for bulls, aggressive sellers returned midday and knocked the stock back into a 4% loss and a test of new support around 60.

The lazy but bullish tape continues while everyone knows that major benchmarks are glued to overbought levels in anticipation of a $1,400 stimulus bill passing into law. The impeachment trial is just a distraction in this scenario, forcing market players to bide their time until the theatrics draw to a close. Ominously, stocks at all capitalization levels are priced for perfection, setting up  ideal conditions for a shakeout of weak hands.

Looking Ahead to Friday

Dow component Walt Disney Co. (DIS) reports earnings after Thursday’s close. The stock trades at 71.7x forward earnings and is expected to report a Q1 2021 loss of $0.34 per-share on $15.9 billion in revenue. DIS reported a loss of $0.65 per-share in November’s Q4 report, along with a 26.2% y/y revenue decline. Despite those results, the new crowd obsessed over the 194% y/y Disney+ and ESPN+ sub bookings. That made no sense, with income dependent on sidelined movie franchises.

The consumer sentiment report on Friday morning is unlikely to be a market mover. Next week is mid-quarter options expiration, perhaps generating some volatility in the short interest small caps that were going to change the world less than two weeks ago. Somehow, I don’t think a Reddit fan’s boast that Gamestop will trade between 500 and 800 next week will find its way into 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.

U.S. Market Wrap and Forecast for Wednesday

Major indices oscillated near the flatline in a lazy Tuesday session, with small caps attracting the most buying interest. Gold, bonds, equities, and VIX traded in lockstep while the WTI Crude Oil contract continued its bullish assault, lifting to the highest high since January 2020. Long-time laggard SPDR S&P Oil & Gas Exploration & Production ETF (XOP) rallied to a 52-week high, outperforming the broad-based SPDR Select Sector Energy ETF (XLE).

Netflix Testing Resistance

Netflix Inc. (NFLX) gained 2%, continuing a recovery wave after filling the post-earnings gap on Jan. 27. The stock posted an all-time high after the release and promptly sold off, failing the breakout when it traded through 575. The stock closed about 16 points below that level, setting up an interesting test in coming days. Alphabet Inc. (GOOG) is the only member of the FAANG quintet currently in breakout mode after Apple Inc. (AAPL) reversed on Jan 26.

Former Reddit favorites took another big hit, dropping Gamestop Inc. (GME) below 50 for the first time in nearly three weeks. A true believer messaged me on Monday morning, convinced the stock must rally between 500 and 800 soon because that’s where the biggest open interest was located. Numerous attempts to instruct these folks on the history of broken bubbles is invariably met with derision.

Looking Ahead to Wednesday

Keep an eye on Zoom Video Communications Inc. (ZM) in coming sessions. The stock rose 4% to a two-month high on Tuesday after Dow component Salesforce.com Inc. (CRM) said its employees would continue to work remotely part-time or full-time after the pandemic runs its course. Twitter Inc. (TWTR) earnings this evening could also impact Wednesday’s market, with the stock sitting near resistance ahead of the release.  Even so, the company is not big enough yet to leave a deep footprint on the ticker tape.

The second impeachment trial is sapping market interest, killing momentum from stimulus legislation that is needed to keep bulls on the offensive. Americans on both sides of the aisle are exhausted after the election conflict and reliving the sad tale isn’t the best way to encourage higher equity prices. Meanwhile, the slow drift higher continues unabated while bears wait patiently for a more reliable selling opportunity.

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


U.S. Market Wrap and Forecast for Monday

January’s Non-Farm Payrolls report added 49,000 new jobs while the unemployment rate fell from 6.7% to 6.3%. December jobs were revised sharply lower, continuing a bleak employment scenario as the Western world works through the last stages of the winter’s second pandemic wave. The equity market yawned and bonds sold off after the news, squaring positions into the weekend so that short-term options market makers get paid.

Ford vs. Tesla

SP-500 Volatility Index (VIX) fell to the lowest low since early December. GameStop Inc. (GME) shareholders declared their loyalty in a widely read Reuters article, ready to become the bagholders of a new generation. Ford Motor Co. (F) CEO Jim Farley (no relation) declared the new Mustang Mach-E will compete successfully with Tesla Inc.’s (TSLA) Model Y, forgetting that brand is everything in the third decade of the new millennium.

Snap Inc. (SNAP) recovered after a 9% post-earnings decline, lifting to an all-time high. Fitness juggernaut Peloton Interactive Inc. (PTON) fell into the 140s despite beating top and bottom line estimates and raising first quarter guidance. The company has to compete with real fitness centers in coming quarters, lowering expectations about their vertical growth trajectory. Wynn Resorts Ltd. (WYNN) hit an 11-month high despite a 58.5% year-over-year revenue decline, offering shareholders an opportunity to get out with their capital still intact.

Heading into Monday

Fourth quarter earnings season draws to a close next week, with reports from Dow components Cisco Systems Inc. (CSCO) and Walt Disney Co. (DIS) as well as Twitter Inc. (TWTR), and General Motors Co. (GM). Disney is trading near an all-time high even though their wildly successful streaming service has done little to replace income lost from empty movie theaters, dry-docked cruise ships, and socially-distanced theme parks.

Sky’s the limit for U.S. equities, at least until the Biden administration hits a brick wall with their massive stimulus bull. At least to the point, left-leaning politicians have avoided most of the logistical mistakes made by the Obama administration in 2009.  The Republican Party is trying to rebrand itself after the departure of Donald Trump and their infighting has allowed the Democratic-controlled Congress to move aggressively on economic policy.

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

US Stock Indices Daily Recap: Bulls on Stock Parade

Six days into 2021, the Capitol saw its first insurrection since 1814.

Two weeks later, we inaugurated a new president.

A week later, we saw class warfare before our eyes when Redditors from the “WallStreetBets” subreddit took on hedge funds and won.

After declining in two of the last four weeks, the indices haven’t seen a single down day all week. If Friday (Feb. 5) futures stay the same, we might not have a down day all week.

Bulls on parade.

Good morning investors, thanks for finally caring about strong earnings and not paying attention to GameStop (GME) (that was fun while it lasted, though).

The sentiment is rosey and for good reason. Earnings continue to crush. Some form of President Biden’s aggressive stimulus could also pass within days. Jobless claims fell for the third consecutive week and hit the lowest level since the end of November, labor market data looks strong, vaccines hit a record daily total on Thursday (Feb. 4) and could be distributed at CVS and Walgreens within days, and the 5-to-30 year treasury curve was the highest its been since March 2016.

Johnson & Johnson (JNJ) also just applied to the FDA for emergency use authorization for its one-dose vaccine. If approved, it could be game-changing.

Happy days.

My overheating and trading concerns in an overbought market remain, though, and have returned with a vengeance. I liked where many sectors and indices ended last week for potential BUY opportunities. This blazing win streak, though, is teetering on the edge of mania and overvaluation again.

The S&P 500, Nasdaq, and Russell 2000 hit new record closes yet again.

Are we in a bubble? Maybe.

I worry about complacency and overvaluation.

The S&P 500’s forward 12-month P/E ratio is back to nearly 22 and well above the 10-year average of 15.8. The Russell 2000 is also back at a historic high above its 200-day moving average. Tech stock valuations are even approaching dot-com bust levels, once again.

According to a recent Bank of America survey of 194 money managers, bullishness on stocks is at a three-year high, and the average share of cash in portfolios, which is usually a sign of protection from market turmoil, is at the lowest level since May 2013.

The market needed last week’s pullback, but it was nothing but a minor cooldown period thanks to Reddit in the grand scheme of things.

We are long overdue for a correction. Corrections are healthy for markets and more common than most realize. Only twice in the last 38 years have we had years WITHOUT a correction (1995 and 2017).

Well, hello, we haven’t seen one since last March!

A correction could also be an excellent buying opportunity for what should be a great second half of the year.

My goal for these updates is to educate you, give you ideas, and help you manage money like I did when I was pressing the buy and sell buttons for $600+ million in assets. I left that career to pursue one where I could help people who needed help, instead of the ultra-high net worth.

With that said, to sum it up:

While there is long-term optimism, there are short-term concerns. A short-term correction between now and the end of Q1 2021 is possible. I don’t think that a decline above ~20%, leading to a bear market will happen.

Hopefully, you find my insights enlightening. I welcome your thoughts and questions and wish you the best of luck.

Four Days in a Row and Counting for the S&P 500…

Figure 1- S&P 500 Large Cap Index $SPX

Have you ever rooted so hard for a team that can frustrate and excite you at the same time? Rip off a 4-day winning streak, followed by a slump of losing 5 out of 6 games, then come back with another winning streak? Does it have you questioning if the team is outstanding or a mirage?

If I could compare the S&P 500 to a team, it would probably be the Philadelphia 76ers.

This index looks like a winner and seemingly rips off multiple-day winning streaks weekly. Now and then, though, it can show inconsistency, make you scratch your head, and go on a frustrating losing streak.

Two weeks ago, the S&P was hovering around a record-high. Its forward P/E ratio was the highest since the dot-com bust, and the RSI consistently approached overbought levels.

By the end of last week, it was nearly oversold.

Now, this week? Its RSI is back above 60, we’re at another record high, we’re on a four-day winning streak (which could be five if futures remain in the green), and we’re at a forward 12-month P/E ratio at nearly 22 and well above the 10-year average of 15.8.

I said before that once the S&P approaches a 3600-level, we can start talking about it as a BUY. Well, the index came pretty darn close to it last week, but it wasn’t enough for me. Despite this week’s rally, short-term concerns remain, with long-term optimism.

To me, because of the RSI and how the index has traded, it remains a HOLD. But we’re teet

A short-term correction could inevitably occur by the end of Q1 2021, but for now, I am sticking with the S&P as a HOLD.

For an ETF that attempts to directly correlate with the performance of the S&P, the SPDR S&P ETF (SPY) is a good option.

Thank you for reading today’s free analysis. I encourage you to sign up for our daily newsletter – it’s absolutely free and if you don’t like it, you can unsubscribe with just 2 clicks. If you sign up today, you’ll also get 7 days of free access to the premium daily Stock Trading Alerts as well as our other Alerts. Sign up for the free newsletter today!

Thank you.

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

Matthew Levy, CFA
Stock Trading Strategist
Sunshine Profits: Effective Investment through Diligence & Care

* * * * *

All essays, research, and information found above represent analyses and opinions of Matthew Levy, CFA and Sunshine Profits’ associates only. As such, it may prove wrong and be subject to change without notice. Opinions and analyses were based on data available to authors of respective essays at the time of writing. Although the information provided above is based on careful research and sources that are believed to be accurate, Matthew Levy, CFA, and his associates do not guarantee the accuracy or thoroughness of the data or information reported. The opinions published above are neither an offer nor a recommendation to purchase or sell any securities. Mr. Levy is not a Registered Securities Advisor. By reading Matthew Levy, CFA’s reports you fully agree that he will not be held responsible or liable for any decisions you make regarding any information provided in these reports. Investing, trading, and speculation in any financial markets may involve high risk of loss. Matthew Levy, CFA, Sunshine Profits’ employees, and affiliates as well as members of their families may have a short or long position in any securities, including those mentioned in any of the reports or essays, and may make additional purchases and/or sales of those securities without notice.


U.S. Market Wrap and Forecast for Friday

Major index benchmarks added to weekly gains ahead of the January Non-Farm Payrolls report. The Russell-2000 small cap index outperformed blue chips, lifting more than 2% to an all-time high. Chip stocks added a few points after Wednesday’s reversal while the 30-year Treasury bond stuck its nose above 2.00% for the first time since March 2020. Fintech issues shined after another strong quarter from market leader PayPal Holdings Inc. (PYPL).

Banks Get Bought

Speculative favorite DraftKings Inc. (DKNG) spiked into October resistance, completing the last leg of a 60-point round trip. High short interest small caps continued to deflate, signaling the demise of last week’s biggest story, which doesn’t seem too important in retrospect. Gamestop Inc. (GME) fell another 42% into the low 50s, marking the lowest low since Jan. 22. More importantly, the stock has dropped 89% off the Jan. 28 peak, trapping many Kool-Aid drinkers.

Dow component JPMorgan Chase and Co Inc. (JPM) surged into a test of January’s all-time high but the stock hasn’t broken out yet because it’s still dealing with tough resistance at the 2020 high above 140. This should be a great year for commercial banks worldwide, with the early stages of an inflationary environment widening the yield curve while generating the strongest tailwinds for the financial sector in more than a decade.

Heading Into the Weekend

Wall Street is looking for Friday’s report to add about 50,000 new jobs, much lower than the 174,000 jobs reported in Wednesday’s ADP release. The divergence between expectations and reality is more important than actual metrics at this juncture because everyone knows that millions are still out of work, waiting for restaurants, fitness centers, and travel destinations to rebuild their businesses after the pandemic runs its course.

Major benchmarks hovered around bull market highs at Thursday’s close, raising the potential for breakouts in coming sessions. The Biden administration may need to pull a few legislative tricks to pass the gigantic stimulus bill but the odds are good and Democrats don’t want to make the same mistake they made at the start of the Obama administration. Specifically, the last president made it clear there’s no advantage in seeking ‘unity’ with the other side of the aisle.

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