February 7, 2021
STOCKS – AMZN, SNAP, SQ, BAC, UBER
MACRO – SPY, VIX
- T.W.A – Trying To Find A Way To Make Stocks Look Cheap
- Midday- The Circle Of Life
- Morning Note: Where Did Everyone Go?
- Midday – Here We Are Again, The Top And Bottom Of The Range
- MORNING NOTE: RATES AND THE DOLLAR ARE HEADING HIGHER
- Midday Note: This May Be The Top End Of The Range For Stocks
- Morning Note: Back To The Grind
- Earnings Analysis: Amazon’s Stocks May Struggle As AWS Disappoints
Of course, today is super bowl Sunday. I’d like to see Tom Brady win today. I think it would leave many to wonder if it was Bill Belichick’s brilliance or the arm of Tom Brady that won all of those super bowls for the Patriots. So I’m gonna say that Brady pulls a rabbit out of the hat once again and leads the Bucs to a 37-34 win over the Chiefs, with the winning touch down coming in the final 2 minutes of the fourth quarter, because that’s what Brady seems to do regularly. I’m a Buffalo Bills fan for full disclosure.
Stocks rose by more than 4% last week, recouping all of their previous losses. A giant volatility crush with the VIX collapsing sent the S&P 500 sharply higher. Whether that can continue this week is the question because the VIX is now back 20, and it is going to take a break of 20 to get the VIX moving lower. The VIX hasn’t been below 20 since this time last year, and unless something changes with implied volatility levels across the market, it doesn’t seem likely the VIX will fall below 20. As I explained in this free article on Friday, The VIX May Hold The Key To Where The Stock Market Goes Next.
If the VIX can break through 20 this week, then there could be an epic melt-up in the S&P 500. If it can’t, this week will likely lead to a lower reversal after a strong showing last week.
Additionally, I noted some interesting futures trading activity in the VIX and S&P 500 among levered funds and asset managers in this week’s premium video for members of Reading The Markets – T.W.A – Trying To Find A Way To Make Stocks Look Cheap – You can the first two-weeks free to try it out.
S&P 500 (SPY)
There is a rising wedge pattern in the S&P 500 that broke the last week of January. The index rose back to 3,890 this past week, bringing the index back to the wedge’s bottom, retesting the breakdown. If the index fails to get beyond that trend line, it could signal a rocky week for stocks. There is also an unfilled gap down at 3,780.
Bank of America (BAC)
This past week, I noted that a rising interest rate environment should help lift the bank stocks. Bank of America is one of the potential winners with a chance to rise back to $34.25. (Should be free to read- Higher Rates Can Drive Bank Of America’s Stock Up)
During the week, I noted that based on Amazon’s guidance, it appears their margins may come under some pressure next quarter. Meanwhile, AWS appears to be facing some competition headwinds based on stalling operating income. Is this to say that Amazon’s long-term prospects are in trouble? No. This is simple to say that the stock may struggle over the short-term until investors can get another look next quarter.
It means the stock may remain range-bound between $3,065 and $3,400 for a bit longer. (Should be free to read – Amazon Stock Faces Massive Challenges As AWS Disappoints)
Uber will report results this week, and one can only wonder how much money they lost this quarter. It appears as if the stock has already completed a 5 wave pattern and is now in a corrective wave, which suggests its falls back to the trend line over the short-term to around $53.
On February 4, the open interest for the February 12 $60 calls rose by around 5,300. These contracts were traded on the bid and likely sold for around $1.60, which would suggest that Uber is trading below $60 by the expiration date.
SNAP has a similar pattern to UBER in that it has also completed a 5 wave pattern and is now potentially in a corrective wave, with the stock likely falling back to the lower end of the trading wedge at $52.
Square has been trading between its trend line in recent weeks, and now the stock appears to be gaining some bullish momentum again, with a break above $250, creating an opportunity for the stock to rise to the upper end of the range towards $280. However, if the stock breaks the uptrend around $210, it likely triggers a decline to around $190.
Have a great super bowl Sunday!
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