Earnings Season Highlights

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A collection of noteworthy post-earnings reactions
Published on Jan 25, 2021 at 11:10 AM
  • Analyst Update
 
Published on Jan 25, 2021 at 10:45 AM
  • Analyst Update
 
Published on Jan 25, 2021 at 10:42 AM
  • Buzz Stocks
Today's options pits are seeing also leaning heavily bearish. Already, 218,000 puts have exchanged hands -- five times the intraday average with overall volume pacing for the 99the percentile of its annual range.
Published on Jan 25, 2021 at 9:47 AM
  • Buzz Stocks

The shares of Merck & Co., Inc. (NYSE:MRK) are off 1.2% to trade at $80 this morning, following news that the pharmaceutical company is ending its COVID-19 vaccine development program. The firm said both of its vaccines generated inferior immune responses, and plans to shift its focus to pandemic research on treatment, adding that its expects initial data on its experimental oral antiviral to be due out by the end of March. 

The past 12 months have been quite choppy for MRK, though its most recent major pullback in December staged a bounce off the $78 mark, before running into trouble at the frequently resistant $86 level. Shares have once again pulled back to test their footing at the 200-day moving average, which has kept the security afloat numerous times during the past three months. 

Despite its volatility, analysts are optimistic on the stock. Of the 13 in coverage, 10 say "strong buy." Plus, the 12-month consensus price target of $96.60 is a 20.8% premium to last night's close. 

Option traders have taken a sunny outlook on MRK, too. This is per the equity's 10-day call/put volume ratio of 4.57 at the International Securities Exchange (ISE), Cboe Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX), which stands higher than 78% of all other readings from the past year. This means long calls are being picked up at a relatively quicker-than-usual clip. 

 

Published on Jan 25, 2021 at 9:24 AM
Updated on Jan 25, 2021 at 9:45 AM
  • Buzz Stocks
 
Published on Jan 25, 2021 at 8:36 AM
Updated on Jan 25, 2021 at 9:03 AM
  • Monday Morning Outlook

“…despite the headlines, some of which could have given the bulls pause, the SPX never breached the rising 20-day moving average, which sits below the first level of potential support on a pullback, which is the 2020 close of 3,756.07.”

          -Monday Morning Outlook, January 11, 2021

There remains little reason to disturb long positions, as the equity markets continue to trend higher.  In fact, the Nasdaq Composite (IXIC—13,543.06), Russell 2000 Index (RUT—2,168.76) and S&P 500 (SPX—3,841.47) carved out new all-time highs last week and are trading well above their respective short-term support levels. This is important, as the price action has given little reason for the growing number of optimists to unwind positions that are moving in their favor.

For example, in the SPX chart immediately below, a first level of potential support remains in the 3,745-3,756 area, which is the site of last year’s close. The rising 30-day moving average, which is currently sitting at 3,744, resides just below this level and has acted as intraday support twice this month (on a closing basis, the more popular 20-day moving average has held pullbacks).  

From this vantage point, it might take a move into the red, relative to last year’s close, or a sign that momentum could finally be swinging the other way -- using the 30-day moving average as a guidepost -- for the growing bullish crowd to hit the brakes.    

January 24 MMO Chart 1

While the RUT made an all-time high last week, the intraday high at 2,173 was intriguing, as this is a round 10% above its 2020 close. Long-time readers of this commentary are aware of the importance that I assign to levels that correspond to round year-to-date percentage gains or losses, as they are often hesitation or pivot points.

The first level of RUT support is at 2,065, the site of its rising 20-day moving average that marked the early January low. The 1,975-2,000 area marks another potential support level, but there is admittedly a lot of ground level to cover before this area is within view. The 1,975 level is the site of the RUT’s year-end 2020 close and roughly double the March 2020 closing low. Meanwhile, the round 2,000 millennium mark was the site of the December closing high. 

Per my comments in mid-December and again last week, small-cap equities, as represented by the RUT and the iShares Russell 2000 ETF (IWM--215) represent the biggest area of opportunity, with respect to the short-covering potential in these names relative to their larger-cap counterparts.

On that note, and for what it is worth, I noticed that a trendline that I have drawn through higher lows on the RUT from March through August 2020 is sitting around 2,120 -- the site of Friday’s low. In late August, the RUT broke below this trendline, preceding months of underwhelming performance. The RUT moved above this extended trendline earlier in the month, which could be signaling an accelerated advance in the weeks ahead and could be driven by short covering.

January 24 MMO Chart 2

At risk of sounding like a broken record, there is a lot of optimism among market participants, and the optimism is growing. For example, the weekly survey from the National Association of Active Investment Managers (NAAIM) showed the second highest reading of all time, with respect to participants’ equity exposure. 

Furthermore, the 10-day, equity-only, buy (to open) put/call volume ratio hit an extremely low reading of 0.32 last week for the third time since early September.  When this ratio hit 0.32 on September 2, the SPX was trading nearly 10% lower three weeks later. The ratio hit an extreme low of 0.32 again on December 17, and the SPX was flat three weeks later. It remains to be seen what will follow this time after another 0.32 reading last week. As you can see on the chart below, a 0.32 has been the floor in this ratio in recent months and marks an all-time low since we have been tracking.

January 24 MMO Chart 3

The optimism on display remains the biggest risk – are we on the verge of a correction like that of September, or another consolidation like we saw to end 2020?

From a technical perspective, the opportunity is clearly playing the market’s momentum, which is higher. Investors should do so with the sentiment-based risk in mind, whether that means taking advantage of cheap options to hedge long stock positions or buying call options in lieu of stocks to reap the leverage that options afford you, which allows for less money at risk. In other words, the playbook has not changed from prior weeks.

Finally, in the event the momentum does continue higher in the weeks or months ahead, I spent time looking for where the next real big hurdle for the SPX might be as we progress into 2021. As we are in uncharted territory, one cannot use past highs or lows as a point of reference. 

Therefore, I used a monthly graph since early 2009, or the financial crisis bear market low, as a point of reference. The chart below is likely one that long-time readers of this commentary have seen before. 

The horizontal lines mark levels that coincide with 2x, 3x, 4x, 5x and 6x the 2009 closing low. Note that in all instances, the SPX either hesitated for a lengthy period or experienced significant drawdowns immediately after touching these corresponding levels relative to the 2009 closing low. While I may be getting ahead of myself, the 4,056 area is the next big level to watch from this perspective, as it is six times the 2009 closing low. With the SPX 5.5% below this level, there is room to run before this next big hurdle comes into play.

January 24 MMO Chart 4

Todd Salamone is Schaeffer's Senior V.P. of Research

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Published on Jan 25, 2021 at 8:38 AM
  • Buzz Stocks
 
Published on Jan 22, 2021 at 2:40 PM
Updated on Jan 22, 2021 at 3:10 PM
  • 5-Minute Market Rundown

Coming off last week's losses, it has been a positive holiday-shortened week for the major indexes. Tuesday started off strong with upbeat bank earnings, as well as optimism regarding further stimulus and a faster vaccine rollout. The United States Presidential Inauguration of Joe Biden arrived before we knew it, highlighting a very busy Wednesday. All three major indexes scored new intraday highs as well as record closes, as a slew of upbeat earnings boosted the market. Furthermore, Wall Street's "fear gauge" -- the CBOE Volatility Index -- registered its biggest drop in nearly two weeks.

Thursday brought earnings from several Big Tech names, and all three benchmarks once again hit fresh intraday highs. By the end of the day, the S&P 500 Index (SPX) and Nasdaq Composite (IXIC) left the faltering Dow Jones Industrial Average (DJI) behind to nab even more record closing highs. Still on track for weekly wins, stocks pulled back today amid doubts over Biden's Covid-19 rescue plan.

Earnings Season Highlights Dow Stocks

Despite the shortened week, the headlines were jam-packed with blue-chip earnings. To start, Goldman Sachs (GS) announced a wildly upbeat fourth-quarter earnings report, though the stock shifted lower after comments by the CEO. Travelers Companies (TRV) stock hit an annual high ahead of its quarterly report, which came out on Thursday.

On the earnings docket next week is Microsoft (MSFT), and it looks like option traders are ramping up their activity ahead of the event. Today, two stocks in particular are dragging the blue-chip index lower. Intel (INTC) and IBM (IBM) both plummeted after their quarterly reports

Solar Stocks Making Moves

Solar stocks have enjoyed the spotlight lately, and will likely remain on investors' radars alongside the renewable energy sector. One stock in particular, First Solar (FSLR)pulled back to a bull signal which could bring it closer to its recent nine-year highs. Meanwhile, Morgan Stanley initiated coverage on Solaredge Technologies (SEDG) with an "overweight" rating, and price target of $354. The firm called the company a "world leader in the solar photovoltaic inverter market" -- which is what converts solar energy into usable currents.

 

First Month of 2021 to End With a Bang

Plenty of earnings are on deck for next week, as well as a slew of economic data. The Federal Housing Finance Agency (FHFA) home price index, amongst other notable indexes are due out on Tuesday. Midweek, there will be a press conference with Federal Reserve Chairman Jerome Powell, and another fresh batch of jobless data is due out. A plethora of data is slated for Friday, including the latest Chicago Purchasing Managers' Index (PMI). In the meantime, take a look at how contrarians should handle extreme market optimism, according to Schaeffer's Senior Quantitative Analyst Rocky White.

Published on Jan 22, 2021 at 12:10 PM
  • Buzz Stocks

Six Marijuana Stocks Stay Hot During a Short Week

by Schaeffer's Digital Content Team

Welcome back to our weekly series, Schaeffer's Cannabis Stock News Update, where we recap what happened in the world of marijuana stocks over the past week, and look ahead to how the cannabis industry will develop in the new year.

Investor interest in the cannabis industry is growing at an explosive growth rate, and the leading players continue to break through legal barrier after legal barrier, especially in the United States. More than 40 U.S. states legalized recreational and/or medical marijuana by the end of 2020. Now, more and more companies are starting to see the opportunity in cannabis cultivation, marketing, distribution, and technology.

After the Senate runoff elections tilted the favor of the Senate towards Democrats this month, there is continuously growing anticipation that the prospects of cannabis legislation can now find some footing in Congress. While full-scale legalization may be out of reach, smaller reforms tied to police and banking could positively impact the cannabis industry. 

As the cannabis sector continues to grow, investors can anticipate many more marijuana stock initial public offerings (IPOs) on the horizon for the cannabis industry.

Here is a quick roundup of major cannabis stock news this week (Jan. 18 through Jan. 22):

The president and CEO of Arena Pharmaceuticals Inc (NASDAQ:ARNA), Amit Munshi,  sold100,000 shares of ARNA on Jan. 19 at an average price of $80.19 per share. The total sale of shares totaled $8 million.

Aurora Cannabis Inc. (NYSE:ACB), the Canadian company defining the future of cannabinoids worldwide,  announced on Jan. 21 that it has entered into an agreement with a syndicate of underwriters led by BMO Capital Markets and ATB Capital Markets, under which the underwriters have agreed to buy on the bought deal basis 12 million units of the company, for $10.45 per unit for gross proceeds of approximately $125 million.

GW Pharmaceuticals plc (NASDAQ:GWPH) insider Volker Knappertz sold 6,000 shares of GWPH stock in a transaction that occurred on Tuesday. The shares of his stock were sold at an average price of $11.67, for a total transaction value of $70,020.00.

On Jan. 21, HEXO Corp. (NYSE:HEXO) announced that, following a two-year process, its trademark "Powered by HEXO" has been registered with the European Union Intellectual Property Office.

Village Farms International, Inc. (NASDAQ:VFF)  announced on Jan. 20 that it had closed its previously announced registered direct offering with certain institutional investors for the purchase and sale of an aggregate of around 11 million common shares at a purchase price of $12.40 per unit for gross proceeds of approximately $135 million before placement agent fees and other offering expenses payable by Village Farms.

The shares of Aphria Inc (NASDAQ:APHA) pulled back after a price-target hike from Stifel to $15.50 from $9.80 after Aphria announced that its "recent results underscore the company's long-term prospects" along with their quarterly earnings and revenue report outperformance last week.

Published on Jan 22, 2021 at 11:18 AM
  • Intraday Option Activity
  • Buzz Stocks
  • Analyst Update
Options traders are ramping up their presence today. Already, over 124,000 calls and 84,000 puts have been exchanged so far -- total volume that's triple what's normally seen at this point. 
Published on Jan 22, 2021 at 10:56 AM
Updated on Jan 22, 2021 at 10:56 AM
  • Editor's Pick
  • Bernie's Content

We're three weeks removed from New Year's Day, a time when the weaker New Year's resolutions start to fall by the wayside. But there's still a "buzz" to 2021, thanks to President-elect Joe Biden's seamless inauguration and the ramped-up vaccine efforts many are hoping will come along with the new administration. The Dow, S&P 500, and Nasdaq all boast very muted gains to start 2021, yet, as we're about to see, investor optimism is filled to the brim. To help articulate the current investing climate, some context was needed to help frame just how hopeful investors are for the coming year.

Let's take it back to December 31, 2019, the last trading day of the year. Major benchmarks were at record highs, the coronavirus was but a whisper, and the U.S. economy was chugging along. Per the table below –courtesy of Schaeffer's Senior Quantitative Analyst Chris Prybal -- the 10-day buy-to-open equity-only put/call volume ratio sat at 0.42 at the International Securities Exchange (ISE), Cboe Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX). That's a reading that registers in the lower rungs of the last four years. There was no reason to believe 2020 would be any different than 2019.

Fast forward to December 31, 2020, a year later –even though it felt like a decade -- and that ratio sat at 0.35, after earlier bottoming off record low levels. So even after all of the volatility, the economic collapse, and a V-shaped rally, investor optimism ended 2020 at even higher levels than it did a year ago. The Options Clearing Corporation (OCC) all-exchange, equity-only, 10-day option put/call volume ratio was also lower year-over-year. As 2020 ended, this ratio even dipped below 0.50 for the first time ever. In short, options traders have been picking up calls at a rapid rate heading into the new year.

COTW 2019-2021

It's not just options traders though; short interest has tapered off year-over-year, while the U.S. 10-year treasury yield has shed an entire percentage point in the last 12 months. The only increase in the past year has been the Cboe Volatility Index (VIX), which went from a snooze-worthy 13.78 to a more apt 22.75. So, even as the "fear gauge" hints at greater volatility, investor optimism is ramping up compared to last year.

The last column should raise eyebrows. The S&P Growth/Value ratio sat at a middling 1.5 as 2019 came to a close. An unprecedented and highly publicized 12 months then occurred for growth stocks, which saw the ratio balloon alongside the SPX, but then roll over and seemingly limp into 2021, even while the SPX retained its strength. While it's still modestly above its December 2019 reading, the G/V ratio now appears stuck between that 1.5 and 2.0 channel, but in danger of testing that lower rung. With investor optimism rising, this ratio will be a fun one to, watch in 2021.

SPX gv ratio

One last note regarding investor optimism. Yesterday the National Association of Active Investment Managers (NAAIM) weekly survey came in at 106.76, the third-highest reading of all time. For context, the highest reading 2020 earned all year came in at 106.74. As Schaeffer's Senior Market Strategist Matthew Timpane pointed out, the two highest readings came in October and December of 2017.

You can hardly fault investor optimism for rising the way it has, given the year we all just endured. But as Timpane noted, we've been through these peaks and troughs before. The best course of action is to acknowledge the optimism, not get swept up into it. This is done by letting price action guide your decisions and utilizing options that put less dollars at risk relative to equities.

Subscribers to Bernie Schaeffer's Chart of the Week received this commentary on Sunday, January 17.

Published on Jan 22, 2021 at 10:49 AM
  • Analyst Update
 

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