June 1, 2021

STOCKS – ZM, AMD, HD

MACRO – SPY

Mike’s Reading The Markets (RTM) Premium Content – FREE 2-WEEK TRIAL

• RTM – Waiting On Big Economic Data
• Tactical Update: The Equity Market Faces A Growth Risk In The Second Half Of 2021
• RTM MORNING – GE Breaks Out, And The Dollar Surges
• RTM Morning Note- Ford Next To Head Lower?
• RTM – Betting Silver Rises And Micron Falls
• RTM: Big Inflection Point For Stock On Turnaround Tuesday
• RTM – Strong Technical Trends
• RTM Tactical Update – Lower Stocks And Higher Yields May Be Coming

Reports Now Available On-Demand: The Equity Market Faces A Growth Risk In The Second Half of 2021

Stocks started the week higher but were quickly rejected, with a mighty sell-off. The S&P 500 finished down 5 bps. The ISM manufacturing index came hotter than expected, even though the prices paid were slightly weaker. The data may have had a minimal effect on stocks overall. Today’s weakness just seemed to be a continuation from last week’s market, which was stuck.

S&P 500 (SPY)

The S&P 500 seems to be very tired. It feels like the S&P 500 is very much waiting to break lower. There appears to be a clear battle taking place at the 4,210 level, with 4,200 offering support. The bulls tried to gap the market higher today and just failed. The same thing has literally happened a few times now since May 25, with the same result. The bulls cannot rally this market despite strong openings, which cannot be viewed as a sign of strength and should be viewed as a sign of weakness. The index was down nearly 80 bps from the morning high into the close.

Additionally, we have once again closed below the 2020 March uptrend. At some point, the S&P 500 will break away from it meaningfully, and I think it ultimately results in a trip back to 3,900ish, if not lower. As I noted in this week’s tactical update that the index is worth less than 3,600 if multiples should begin to contract, and there plenty of reasons for multiples to contract. 

Zoom (ZM)

Zoom delivered better than expected first-quarter results and provided better than expected full-year guidance. The company expects to earn $4.56 to $4.61 per share in 2021, which is better than the estimated $3.79. But let’s face facts, this is a stock with a $98 billion market cap and trades for roughly 70 times this year’s just-announced guidance. To get the multiple down to something like 35, the company will need to see earnings of more than $9 by, say, 2024. That is a lot of growth. Hey, maybe it can happen.

Currently, analysts see the company earning $4.39 per share in 2024. Let’s assume those estimates rise now, as they should. Let us estimate and say analysts raise estimates for 2024 by 40%; given that the company raised its guidance for 2021 by 21% versus estimates, it comes to only $6.15 in 2024.

$340 has been clear resistance, $275 clear support.

Home Depot (HD)

Home Depot remains on watch. The stock has struggled and continues to hang on to support at $316.  A break of support at $308 could be rather devastating to this stock, as there could be a big drop ahead.

AMD (AMD)

AMD had a strong showing; it is just that stock failed right at resistance. I’m not sure that it is ready to break resistance; it still has a lot of negative momentum built into it.

Have a good one.

-Mike