Stocks Climb Ahead of Big-Tech Earnings

Jul 24, 2022 | What will earnings be for big-tech?

Stocks Notch More Gains

This week was another strong one for the markets, as all major indexes continued to trade green. With the Dow closing up nearly 2%, the S&P advanced roughly 2.5%, and the tech-heavy Nasdaq led the way, jumping over 3%.

Stocks might have seen even more significant gains this week if not for a heavy day of selling to close the week on Friday.


Snapchat Weighs Down Everybody

Banks always kick off earnings season, and most key players have already reported. As we previously noted, stocks were green all week until Friday. Friday's selling can be attributed to Snapchat's disappointing earnings. After positive earnings and a more-upbeat investor outlook, traders have been eyeing the Technology sector as the following significant players to begin reporting earnings. 

Traders were looking for positive news from Snap, but an earnings miss saw the stock implode, taking significant losses. Snapchat lost over 40% of its stock price on Friday alone! The stock was trading hot going into earnings, jumping over 10% in the days leading up to Friday. Down nearly 85% this year! But a big earnings miss now has the stock trading at new one-year lows. 

Snapchat remains unprofitable, and the earnings miss led to higher than expected losses for the social media platform. Snapchat noted several instances currently working against the stock, despite gaining nearly 20% more active users in the past year. 

The first cited the economy (as everyone continues to do). Still, they also noted slowing demand from advertisers, increased competition from TikTok, and the changes to Apple's privacy policies as some of their biggest challenges. The loss in advertising dollars has been seen as especially concerning for investors. This triggered a selloff in all tech, with the Nasdaq taking the worst of it on Friday. 

Other social media and communication stocks saw significant one-day losses thanks to the Snapchat report. Meta Platforms, Pinterest, and Google Shares all feel 7.6%, 13.5%, and 5.6%, respectively. 


What We're Watching This Week

Big tech takes center stage for earning this week, as many of the largest companies on Earth will all be reporting. Microsoft, Apple, Alphabet, Amazon, and Meta Platforms report this week. In total, more than ⅓ of the entire S&P 500 will share their earnings this week. 

Additionally, numerous critical economic reports will also be released this upcoming week. The second quarter GDP, or Gross Domestic Product, will be released on Thursday. The Fed has new inflation data to report, due out on Friday. And we'll all get some insights into recent home sales and consumer sentiment. These reports will clarify the growing fear of an impending recession, while some may argue we're already in one! 

What it Means: Many investors view this upcoming week as highly vital for the stock market. While Snapchat tried to spoil the party last week, we continue to see a positive uptrend for stocks as traders try to assess whether we've 'bottomed.' After months of prolonged selling, we've seen winning weeks from all the major indexes. 

Some of the most influential companies around the globe will all report their earnings this week. If tech continues to trend primarily positive, this could be another intense week for stocks. But be mindful of all the critical economic data due to drop out this week. Inflation hasn't gone anywhere, and the Fed could easily cap the recent rally within the stock market. 

This Week’s Picks

EDR (Endeavor)

August 14, 2022

Entry Price:

24.50

Stop Price:

23.35

Target Price:

26.46

Time Frame:

3 Week Hold

EDR has been in a channel pattern over the last few weeks. As it approaches the bottom band, after a some mid-week volatility, look to make enter the trade off the rebound. As noted in KMX, keep a trailing stop loss and close the position quickly should the market turn.

KMX (Carmax)

August 14, 2022

Entry Price:

101.85

Stop Price:

96.45

Target Price:

109.15

Time Frame:

4 Week Hold

KMX, along with most of the market, has been rebounding off June lows. We've seen strong momentum and a crossover of our long-term MAs. Watch for a market pull-back and keep a trailing stop loss. We're riding strong tailwinds, so get in and out quickly

McDonald's and Chipotle Keep Getting Fatter

As inflation continues to soar to levels not seen in decades, two of the most dominant players in the fast food game keep getting bigger. As families have become more judicious in spending habits, you may be surprised to know fast food continues to thrive.  As prices continue to rise for just about everything, McDonald's and Chipotle are still widely considered low-price alternatives. Although each restaurant has been slowly raising the price of items on their menus, this is. Each menu is over 7% more expensive than last year's. Have you noticed? 


Rising Costs

Large corporations are certainly not immune to inflation. As we reported in last week's newsletter, rising costs have been eating into the profitability of these companies. Thus lowering their total revenue and future projections. Mcdonald's CFO recently noted that "food and paper increases, as well as labor inflation, and the competitive environment" have forced McDonald's to start raising their prices. 

Foot traffic has stayed consistently high over the last several months. This has little to no impact on the overall number of people willing to eat there. While eating at McDonalds & Chipotle is getting more expensive, many customers still prefer these options over other more expensive dining options. Visitors to the Golden Arches have jumped over 16% in the last year. Meanwhile, Chipotle saw its traffic increase by 14.5% compared to a year ago. 

What it Means: Through inflation, everything, including food, is more expensive than it was a year ago. Chipotle and McDonald's have been slowly increasing their prices, but consumers don't seem to care.  Foot traffic has increased as they've established themselves as low-cost alternatives to eating out. The food and beverage industry should continue to have positive momentum as long as inflation stays hot. 


Tesla Sheds Bitcoin

We've talked extensively about Elon Musk and his love of crypto. In the past, when Musk would tweet about Bitcoin, it would routinely send the asset soaring. This week, we learned that Tesla (who made headlines for investing so much into Bitcoin last year) had sold over 75% of its BTC holdings. Crypto has been down for months with the broader market as interest rates and rising electrical costs have slowed enthusiasm. And now Musk, one of Bitcoin's greatest spokesmen, has even started selling crypto. Tesla previously held over $930M worth of Bitcoin. 

Upcoming Economic Reports

Market Performance- Week of 08.14.2022

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Weekly Watchlists

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Weekly Review

Market Performance- Week of 08.14.2022

Recent Winners

CF (CF Industries)

CF (CF Industries)

Entry Price:

87.40

August 14, 2022

Price at High:

105.10

Return for Members:

16.84%

Timeline:

4 Week Hold

CF is a manufacturer of fertilizer and other farming products. Similar to our thesis on oil last week, we're expecting more global tensions to arise over the coming months. Although not directly related, CF should appreciate if adverse events occur. Technically speaking, we're seeing a bounce off the 180MA. However, there is negative momentum so be careful with entering too early.

MRNA (Moderna)

MRNA (Moderna)

Entry Price:

168.85

August 7, 2022

Price at High:

197.33

Return for Members:

16.86%

Timeline:

1 Week Hold

We're starting to see a reversal take place. Watching the 50 day moving average cross over the 100 day. Saw some weakness to close this week, so wait for upward momentum before jumping in.

X (US Steel)

X (US Steel)

Entry Price:

20.15

July 31, 2022

Price at High:

23.75

Return for Members:

17.86%

Timeline:

1 Week Hold

Stark momentum shift from the lows on this one. Tracking our moving averages on the 2-hour time chart. Looking for an early entry and quick trade.

Recent Watchlist Winners

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