Let’s put aside the elections. In my opinion that is what the stock market is doing right now.
I know elections are only a few weeks away, and contrary to popular opinion (as always), I don’t believe the market has decided on Biden in a landslide. I think the market is looking away from the election because anyone who is human is sick and tired and tired and sick of the long and drawn out ugly process it has become. So yes, the market will act violently for about a day, and then reset its course upward. Why I say that I will expand on my next piece which I’m already working on and should drop by Tuesday. Let’s leave that behind for now and follow the market’s lead. The market did not drop precipitously as the technicians called for (not me) in the last few and instead it has chosen to violently stay in place, vibrating like a tuning fork. This is a terrible time to be a casual trader, especially if you don’t have conviction. I have gotten hurt in some of my favorite names like Draft Kings (DKNG) though I’m holding fast to my call spreads, even adding to them. I advise writing calls against all your equity with November strikes since we are just a month away. Calls in many high beta names have very juicy premiums so avail yourself of well out of the money short calls to protect names that you believe in. How’s that for being tactical? I will give further news of my trading disasters in their usual place at the end of this piece. I must confess to you my loyal readers when I get hurt as often as I crow when I do some good.
There are two ways to digest gains, one is by falling to support and building back up and the other is to hold in place and consolidate over time.
Last week was not easy for me even though as I said the indexes have been holding up comparatively well. The new uptrend is still intact, and I will speak more on where we are and where I think we are going in the next few weeks in my next piece, with all the requisite charts and squiggles. As a respite I want to focus on what’s going to be a very exciting earnings season. I think a lot of names will surprise very strongly to the upside as compared to QoQ results. Meaning that in comparison to last year’s results some names may not look super duper (many will even outdo last year as well) but they will blow away estimates quarter over quarter and beating estimates is all the market cares about. This is the first real week of earnings that will inform how various sectors will perform so a lesser-known name doing very well might boost the share price of a stock you really care about.
Let me stick some caveats right here
It has become my practice to talk about stocks I bought or I’m going to buy, sometimes I say a stock is interesting and leave it up to the reader to understand what that means. In the list below I’m talking about over a dozen names, and that they may be bought for a trade or trimmed, or hedged. I’m not an investment adviser, and you should read this purely as insight to my thinking for entertainment or education and not investment advice. I’m hoping that you might adopt my practice of thinking about companies reporting earnings and what that means for other stocks, or the overall stock market or the stock that is reporting, by no means is that an endorsement that you make any decisions based on what you read here. I have said this before, never trade on tips. Especially from someone in passing. Do your own research and have conviction about what you put your hard earned money into.
Start thinking about your risk tolerance too
Also now is a good time to think about your risk tolerance. I will explore this in my next piece but it’s time to think about how you would feel if the stock market falls 20%-30% in three days again (Like in March). Will you be able to stomach that? If not think about your trading portfolio and don’t listen to me or anyone else about what you should buy. For heaven’s sake now is not the time to top-tick a stock and hope that you can sell it even higher to the next Schmo. If I’m right and we consolidate at a steady level over the next few weeks then many great names that are high beta will come off their highs and perhaps present a trading opportunity. I’m not looking for names that are going to new highs right now. More on that this week.
One last thing about the earnings list below
In no way is this a comprehensive list. I’m sure I missed some great stocks that are reporting. Don’t be offended if I missed one of yours. Of course that means you have to know that your stock is reporting this week. Oh, you don’t know about when your stocks are reporting? That’s a beginner’s mistake, kids. I use Yahoo Finance, there are probably better ones by now but I’m from the aol.com era, so I keep going back to the tried and true. Go to Yahoo Finance, there’s a tab for “Market” under that tab there is another tab for “Calendars” that is where you’ll find the earnings schedule.
Every Sunday in earnings season, consult this week’s roster, and figure out what to do. Do you want to hedge ahead of earnings? Maybe you want to take off a few shares. Whatever it is knowing is better than not knowing. Also everything that I talk about is from a trading viewpoint. Do not trade your investments. If you are an investor, and we all should have the majority of our savings in long-term investments, you should completely ignore the various blips and bloops of the market. You should be adding a few buckeroos every week or month into those long-term investments and be comforted in the knowledge that by averaging in shares over time and reaping those dividends your are building real wealth. Trading, if you become good at it, can be an important way to generate wealth but you can’t count on it. Long-term investment is the priority and you should not be selling a single share unless it’s 1999 and you own Kodak. Anyway, in the list below I will pick out stocks that I believe have a “tell” either about a sector, or the overall economy, or maybe that might be an interesting trade. Again, do your own research, don’t take anyone’s tip and just buy something you have no idea about.
This week in earnings
BMO=Before Market Opens, AMC=After Market Opens
International Business Machines (IBM) AMC
My take: Better to take the money you want to put into it and make a bonfire of it. At least you’ll be warm from it before it turns to ashes.
Halliburton (HAL) BMO
My take: I’m out of the energy sector, having been hurt too many times. The price for WTI seems to be tightening up and maybe HAL has tightened its belt drastically enough that there are sustainable cash flows, but if Biden wins say goodbye to any alpha in this sector for a while. Still a healthier energy sector feeds into the notion that industrials are doing better.
Steel Dynamics (STLD) AMC
My take: Materials are supposed to be the rage. I’m not a buyer or a seller but it would be interesting to hear what their take is on the economy. With names like Caterpillar (CAT) going to all-time highs, a smaller fish might tell us where the wind is blowing in infrastructure and construction
Lennox (LII) BMO
My take: This is a decent albeit small brand in HVAC. Excuse the pun but industrials in the housing space has been hot. Look at the United Tech spin off Carrier (CARR). If LII reports well it might be an excuse to reload on CARR. Interestingly Trane (TT) which is at a bigger market cap than CARR reports on Wednesday. You may consider a trade of TT going into earnings. Both of these names already are up strongly so this would either be a fast money trade or at least be mindful that market participants are likely to already be expecting fantastic news. CARR reports on Thursday so that gives you a bit more time to affect a trade on Tuesday. Again these names may just have anticipated super hot earnings. If CARR sells off I might be tempted to trade it after earnings. I’m looking at them for what they say about housing overall.
My Take: I feel obligated to inform you that they all report but I have no special knowledge or trading opinion to impart. These are great companies, and probably good investments but I don’t see a trading angle. RTX would be interesting once travel opens up and they can start selling more jet engines. From here on in I’m not going to list companies that are reporting but I feel don’t provide any market moving or trading intelligence on. This weekend’s exercise is to set up a plan for this week. My not having a take is not a judgment on a stock’s inevitability. It’s what it is.
SNAP (SNAP) AMC
My take: This name is very interesting. The latest reports are saying that app downloads for Snap are leaping, and DAU is one of the main ways this name is valued. With all the crazy stuff going on in TikTok, Twitter (TWTR), and Facebook (FB) this name is very interesting. I think its earnings will be very well received
Netflix (NFLX) AMC
Netflix has had so many upgrades going into earnings that I would rather hedge it or take some profits than to get long with fresh money. It’s possible that unless they really blow away the numbers this name could lose ground. At that point it could get interesting to buy the bounce.
Teradyne (TER) AMC
My take: TER is practically a small cap, so why is it interesting? It’s in the Automated Testing equipment business for electronics but focusing on its chip testing business it is a “Canary-Coal-Mine” type stock as it is a very necessary business for new chip development and ongoing manufacturing. If you are building more chips you need their stuff and if you are developing brand new chips you need even more. If TER has righteous earnings then it means that KLA (KLAC), Lam Research (LRXC), and Applied Materials (AMAT) probably do too, that is perhaps a trading opportunity
Autonation (AN) BMO
My Take: The auto sector has made a monster move in recent months and I think they have further to run. Auto manufacturing took a hit as factories shut down and they are now working hard to make up for lost time, especially in the truck segment. As such, the used car market has been booming and prices for used cars are going ever higher. If you have a clunker that you are not using now is the time to sell it. That aside AN is not only new dealer chain, they sell a lot of used cars. My interest here is how their earnings report will affect the online used car sellers, the big name in this space is Carvanna (CRVA), I’m in Vroom (VRM) currently, a recent IPO there also is a tiny new SPAC sourced name called Shift which I think is a very interesting little startup, regional player. They have two things going for them: 1) They buy and fix up used cars older than seven years and 2) they will bring a car to your house for a test drive. CVRA and VRM aren’t doing that. They have a good percentage of test drivers becoming buyers so I like this. The other piece a little less easy to replicate is this older car sale, even thought the ticket price is lower the profit market is much bigger. I have my eye on it, that’s all. The other big retailers in used cars are Lithia Motors (LAD) (it reports Wednesday), and Carmax (KMX). There might be other players, I’m not an expert in this space, I come at it from the DTC, cloud first retail angle. Even so I strong number from AN may propel me further into this space.
Align Tech (ALGN) AMC
I rarely talk about names that I hold for the long term, and ALGN is a long-term speculation for me. I intend to hold on to ALGN for as long as the epidemic is going on and then for another 6 to 12 months thereafter. Most people are avoiding their dentists because of infection fears. Also dentists are very likely to have less throughput due to all the precautions, so this space is not reaching its full potential. I suspect that ALGN will meet their targets but be cautious on forward guidance. That’s fine with me since I’m building my position in ALGN slowly over time. I think that even though it is near its high, I think it will go way higher as people start thinking of socializing, and looking after their appearance elective medical and dental services will come roaring back. Most of these procedures have been delayed, not lost. One day I will do a piece on my healthcare speculations and investments, it’s a pretty long list.
Lam Research (LRCX) AMC
My Take: I expect them to report good earnings, especially if TER has good news. This is a very solid name in the chip manufacturing equipment space. They also provide equipment for DRAM manufacturing so I want to keep an eye on it for what it says about Micron (MU), lately doing much better. I regret getting out of MU so good news here would encourage me to get back in MU.
Tesla (TSLA) AMC
My Take: What can be said about TSLA that hasn’t already been said? At this point, I have no angle on the stock itself. I love the cars, and I do think they are ahead of everyone on battery electronics – power management. That’s another leg to their business – the power industry that may not be fully valued. On the other hand, they have failed miserably on the solar side which should have been a big growth area for them. Even so, even if these two areas were running perfectly, I think TSLA is at least fully valued, and probably won’t exceed their recent highs significantly for several years at least. So what do the earnings mean? If they can show free cash flow from actually selling cars and not emissions credits that will probably keep the shares afloat. If they are building cars and selling them not showing positive cash flow, but breaking even, that would be bad but not terrible. If they are burning cash, I think that may cause a rerating of the shares, and could have a negative effect on the overall tech sector. So, I’m not trading TSLA here, and I would not be telling anyone to put fresh money into TSLA. I’m very interested on where TSLA is as per revenue and cash flow. I also want to see them get close to the 500K cars delivery, just from a fanboy perspective. I think that given the pandemic it’s unfair to hold them to that commitment. I have complicated feelings about TSLA, love the cars, admire Musk, TSLA is great for American spirit. However, I think the stock is way overpriced, it kills me to say it, especially since that is the conventional thinking. Still TSLA bears watching as it is an influence on overall sentiment
Xlinx (XLNX) AMC
My Take: XLNX is in a very interesting situation with Advanced Micro Devices (AMD). XLNX is a specialized chip manufacturer in FPGA – field programmable gate arrays. They are mooted to be the market leader in this space. Intel (INTC) bought the other major player in this space Altera a few years ago. I expect Dr. Lisa Su, CEO of AMD, to be a better steward of this technology if a deal can be made. This is a less trodden area of chip technology, it’s generally used is high speed communications and other high performance areas. Now, it’s being looked at for high performance computing for AI and big data in the data center. I suspect that XLNX will not break out to new highs, and that it has been affected by the pandemic and perhaps the 5G roll out, which long-time readers would be remember that I have been as still am a skeptic on how fast 5G will be adopted. All that said, I’m excited that AMD is going to be a consolidator in the chips space, though I think Micron (MU) makes more sense, or at least as much sense as XLNX. If XLNX meets expectations I suspect it will have little effect on AMD, if it beats expectations I think AMD goes up. Owners of AMD have faith that Dr. Lisa Su will not overpay for XLNX. Lisa is girding for battle with NVDA, and leaving INTC in the dust.
AT&T (T) BMO
My take: MEH
Coca Cola (KO)
My take: They are making moves, getting rid of old brands like Tab, and getting into spiked seltzer – alcoholic beverages for the first time in their history. I think KO is a good investment vehicle, well run, and if they can get things right the operating leverage on colored bubbly water chemicals is huge. For my purposes I think KO could be a very interesting tell on how the cheaper dollar is affecting corporate earnings. I don’t know if it has enough beta for a trade, but if I was a long-term investor I might look to write calls on it after earnings, since I have a feeling the weak dollar will boost earnings ahead of estimates. That would also change my analysis for other stocks that have international sales.
Tractor Supply (TSCO) BMO
My take: This name might be an interesting trade. I think it could beat expectations because so many people are moving to exurbia, and are keeping chickens, or just have a vegetable and corn patch in the back of the house for bragging rights. I wouldn’t bet the farm on it (ha ha). Seriously though, if they do report stronger sales that confirms the exodus from the big city and housing plays, which again is losing its seasonal aspect. More on that at the end.
Intel (INTC) AMC
My Take: Double Meh. Thinking of trading this name, or investing? Why? That’s my answer, Just why? Wake me up when they kick that CFO turned CEO to the curb, He woke up and found himself in the CEO seat and is just winging it. Also, will some activists please come along and kick the entire board in the pants please? What are they doing? How many times will they rearrange the deck chairs and play the violin while the Titanic is sinking and Rome is burning….
It’s a crying shame, of what was once the pride of American manufacturing know how, there should be an engineer in that CEO chair, not some glorified CPA. The board should collectively go with hat in hand and beg Brian Krzanich to come back.
Dow Inc. (DOW) BMO
My take: Dow gives a really nice dividend and should be considered for any long-term investment portfolio. Whatever happens to the green new deal, petroleum with be a necessary building block for chemicals for at least the next 50 years. Natural gas will remain a resource as well, and I can’t imagine we as a country will be so stupid as to have an outright ban of fracking. In any case, I have my eye on Dow to see if this materials play which is gathering enthusiasm has legs. Also, does dollar weakness goose earnings here as well.
Freeport McMoran (FCX) BMO
My Take: Another materials name. “Dr.Copper.” Copper will tell us whether the industrials are really coming back. Copper is in machinery and housing. I will be paying attention to FCX and using that to apply to a trade that I am thinking of putting back on. More on that in my “My Traders” section…
Pulte Group (PHM) BMO
My take: I believe this is the first housing name this coming week and as such will have influence on the housing sector writ large. Since housing names are filling valued right now. I suspect that market participants might sell it off, and take a lot of the other housing names with it. I think that is an opportunity.
American Express (AXP) BMO
My Take: This is the only name of note reporting on Friday. Since this name is very associated with travel it has not been able to get out of its own way. Its down like 40% from it’s recent highs. They bought Kabage in the small business lending sector. AXP has been casting about for direction for a long time. Long ago they spun of their investment advisor business which is now such a coveted corner of the financial industry. I feel like this is a name that could shine in more able hands, like Goldman Sachs, which is trying to grow it’s consumer services business. They already power Apple Pay, why not buy AXP and really get after it?
My trades: Now is the time for confession. I generally got killed in trading last week. I was buying more Draft Kings (DKNG) thinking it was breaking out and continuing to new highs. I held on to these extra expensive shares until it fell to $50 and then I started cutting my losses. I still own all of my call spreads, but I need to keep cash available going into the election. So I took some losses on those high-priced shares and kept my older in-the-black shares for appreciation. What did I do wrong there? Simple, I got too emotional about that name. I also realized that I was over trading. Trading because it’s fun to trade, and not because I’m weighing the data, and making a logical decision to make a trade. To me letting emotion creep into my trading decisions is the killer. Also, I was up very nicely on my Lemonade (LMND) shares this week, it popped double digits percentage wise and I took profits early. As LMND continued to go higher, I had sellers remorse and bought back in at way too high a level. Again, I got emotional and got whacked. The other trade that I may have let emotion rule was Palantir (PLTR) – I fessed up on this one already and so far it’s holding up. Perhaps it will work out. I’m taking a longer view, and building a position in both options and equity. Here perhaps it’s more about looking at the information at hand, and not letting emotion rule. Sometimes it is hard to tell. I will let you know if it works out in the end. The message is, check your emotions at the door when trading. Ask yourself, why are you making a trade, is it because you are upset, or overly greedy, or overly fearful? Do you have conviction? Do you really know the underlying economics of the company and its prospects? Are you buying a stock because everyone is buying that stock (please don’t). I’m long Vroom (VRM) in calls and I hope the positive news flow on demand for cars will push VRM higher. I’m invested in Align Technology (ALGN) as a long-term speculation and intend to add to that position over the next few years. My Advanced Micro Devices (AMD) trade took a hit from the XLNX rumors but that only gives me an opportunity to add more Call options (spread). I have high conviction on AMD and believe it will be a triple digit stock in 2021.
Possible trades this week. I have referenced the materials sector several times, and if I can confirm that this sector has legs I’m considering going long SLV. If the dollar stays at the current level or goes lower silver with both industrial applications and its status as a precious metal at around 21 or under looks interesting. I’m still interested in the housing sector, something that I referenced several times. I have my eye on Zillow (Z), it’s off its all time high by more that 10%, as it falls lower I want to build a position in it for a trade. If CARR falls hard I see that as a possible opportunity. My reasoning for both is that housing is strong and it’s likely to be unseasonably strong this year, creating an opportunity for good speculation in this space. Also I own Rocket (RKT) in call spreads, and a confirmation in the housing area would give me comfort.
I have not yet decided to go long SNAP, I don’t usually like to take a position going into earnings but I think this may be an exception, I just haven’t made up my mind.
Okay ladies and gentlemen, please remember to check your emotions at the door when trading. Don’t trade angry…
Disclosure: I am/we are long PLTR. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.
Additional disclosure: I am long in DKNG *stock and options), PLTR, (sotcks and options) ALGN (stock), VRM (options), LMND (stock and option), RKT (options). I am considering SNAP and SLV as a trade