Earnings Season Highlights

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A collection of noteworthy post-earnings reactions
Published on May 24, 2021 at 10:47 AM
  • Buzz Stocks
 
Published on May 24, 2021 at 10:38 AM
  • Earnings Preview
  • Buzz Stocks

The shares of HP Inc (NYSE:HPQ) are 1.8% higher this morning, trading at $32.24, following an upgrade from Citigroup to "buy" from "neutral." The analyst cited strong demand for PCs, adding that it doesn't see demand rolling "off to pre-pandemic levels once supply constraints ease." 

The security has seen a solid run higher during the past 14 months. In fact, HPQ just hit an all-time high of $36 on May 10, trouncing its previous peak touched over 20 years ago in April 2000. Though its cooled since then, the stock's 70-day moving average has helped contain most of this pullback, keeping the security at a roughly 90% 12-month lead. 

Analysts remain cautious, which could lead to even more bull notes, should HPQ maintain some of this upward momentum. Coming into today, just three analysts in coverage called the stock a "strong buy," compared to six that said "hold" or worse. What's more, the 12-month consensus price target of $31.69 is a 1.8% discount to current levels. 

A similar sentiment can be seen at the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX). HPQ sports a 10-day put/call volume ratio of 1.52, which stands higher than 92% of readings from the past year. This means long puts have been much more popular than usual of late. Echoing this, the equity's Schaeffer's put/call open interest ratio (SOIR) of 1.78 stands in the top-most percentile of its annual range, implying short-term option traders haven't been more put biased during the past year. 

It should also be noted that HP has its fiscal second-quarter earnings report due out after the close on Thursday, May 27. Looking back at the stock's post-earnings moves over the past two years, HPQ has enjoyed positive next-day sessions five out of eight times, though it did suffer a 12.3% drop this time last year. Regardless of direction, HPQ has averaged a next-day return of 5.1%, slightly lower than the 9.9% swing the options pits are pricing in this time around. 

Published on May 24, 2021 at 10:19 AM
  • Analyst Update
 
Published on May 24, 2021 at 9:22 AM
  • Buzz Stocks
 
Published on May 24, 2021 at 8:50 AM
Updated on May 24, 2021 at 9:05 AM
  • Monday Morning Outlook

 “… I see the round 4,100-century mark as a critical level. Not only is this level the site of the breakout above its channel in mid-April, but with the SPX’s 50-day moving average rising about 30 points a week, it is projected to be near 4,100 by week’s end, and that lower boundary of the channel will be at 4,104 on expiration Friday... Absent a spark of some kind to get the ball rolling back to the 405-strike, it is setting up to be quiet expiration week from an options perspective, with the SPY more than 11 points above the $405 level. But with $405 being touched just three trading days ago, the delta-hedge selling scenario is a worthwhile mention.”

          - Monday Morning Outlook, May 17, 2021

Expiration week was a mirror image of the previous week, with the S&P 500 Index (SPX--4,155) hitting its low for the week on Wednesday, following early in the week selling. In fact, buyers emerged around the same levels in the past two weeks, with the SPX’s trough at 4,057 two weeks ago and last week’s low at 4,061. 

Per the excerpt above, given it was expiration week, it was of utmost importance was that the exchange-traded fund (ETF) related to the SPX, or the SPDR S&P 500 ETF Trust (SPY--414.94), held above the put-heavy 405 strike. A break below this level would have made stocks vulnerable to accelerated selling, as put sellers at the 405 strike and strike prices immediately below here may have been forced to sell more and more S&P futures to hedge. 

Instead, on the heels of a bounce from the vicinity of the previous week’s lows, those put sellers likely unwound remaining short futures positions, generating a mirror-like rally compared to last week into the 4,150 area.

Per the chart below, on a closing basis, the 50-day moving average -- the lower trendline of a channel in place since mid-November, and the round 4,100 century mark where a breakout above the upper boundary of the channel occurred in April – all acted in concert as a support zone. Additionally, the intraday low at 4,061 was just a few points above the level that marks six times the 2009 low, which I have highlighted multiple times this year. 

Looking ahead to this week, I continue to see the SPX’s 4,100 level as a critical level of potential support, as this is the lower boundary of the channel at the beginning of the week and the projected site of the 50-day moving average midweek.  Additionally, as discussed earlier, it is the level from which a breakout above the upper boundary of the channel occurred in April. By week’s end, the lower boundary of this channel is projected to be 4,126. Resistance at the beginning of the week is at the upper boundary of the channel, or the 4,245 area, which coincidentally is around the intraday highs earlier this month. 

May 21 MMO Chart 1

I would like to revisit the rally from last week’s low and what might have been at work. At its lowest intraday point last week, the SPX was roughly 100 points below the previous Friday’s close and by early afternoon on Thursday, it had gone full circle, trading back near this May 14 close. But the rally felt different from the prior week, in terms of the type of equities that were rallying. 

Therefore, using www.finviz.com,  I captured the sectors that had performed the best during expiration week as of Thursday afternoon. In the chart, I included each sector’s performance for the month.

Per the table immediately below, ordered by best sectors from the Friday, May 14 close into the Thursday, May 20 close, it is evident that sectors that led the rally from the SPX’s trough two weeks ago were not the leaders following the expiration week low. This month’s leading sectors declined last week, while those in the red this month were last week’s leaders.

May 21 mmo chart actually 2

I took the observation above one step further. Not only did expiration week potentially impact the SPY’s behavior, but this was clearly evident after observing the price action of individual components of the SPX. 

As the SPY held above heavy put open interest strikes, the subsequent rally was likely helped along by the unwinding of some short positions related to the put open interest.  

Likewise, those stocks that were trading at or just above heavy put open interest entering expiration week were likely beneficiaries of the unwinding of short positions related to those puts. One way we quantify this is by measuring daily the front-month gamma open interest put/call ratio (front month gamma SOIR). The higher the ratio, the more the put open interest relative to call open interest in the vicinity of the underlying. The lower this ratio, the more call open interest is relative to put open interest at strikes in the vicinity of the underlying. Such stocks were the weakest, and this could have been due to an unwinding of long positions related to those calls as expiration neared.

May 21 MMO Chart 3

I think this is notable because the rotation that we saw last week (tech leadership and basic material weakness) could have been driven by option expiration mechanics – an unwinding of short positions on equities coming into the week nearer to heavy put open interest in the May series, and an unwinding of long positions on equities nearer to heavy call open interest at the start of last week.  

This is a concept worth considering as you plan for the week ahead.

May 21 MMO Chart 4

There is another theme with respect to the impact of expiration last week. Wednesday morning was the expiration and settlement of May Cboe Volatility Index (VIX— 20.15) futures options. In that regard, the pop from the VIX’s half 2021 closing high at 18.60 to start the week was rather timely in that the May futures contract, with a settlement of over 25, caused numerous VIX futures put options to expire worthless.

Per the observation that I made on Twitter, it used to be that call open interest dwarfed put open interest, and after a VIX spike in the days or weeks preceding a standard VIX futures expiration Wednesday, the VIX would sharply decrease just before expiation, and many calls would expire worthless.

So, it may be more than coincidence that the VIX peak last week was after Wednesday morning’s settlement. Also notable is the close below its 200-day moving average. But as long as the VIX remains above its half 2021 closing high at 18.60, it could be indicative of a choppy, volatile grind higher within its channel during the early summer months.

May 21 MMO Chart 5

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

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Published on May 20, 2021 at 10:53 AM
Updated on May 24, 2021 at 7:25 AM
  • Earnings Preview

Retailer Buckling Down in Its Run-up to Earnings

by Schaeffer's Digital Content Team
 
Published on May 24, 2021 at 7:03 AM
  • Buzz Stocks

Today's Stock Market News & Events: 5/24/2021

by Schaeffer's Digital Content Team

This week investors will continue to have a deluge of economic data and earnings releases to parse through. Though there's a couple bare days ahead this week, the sessions where economic data is scheduled are absolutely packed. Due out this week is the S&P CoreLogic Case-Shiller home-price index, more initial and continuing jobless claims data, and highly anticipated core inflation data. Earnings are still pouring in too, featuring reports from  AutoZone (AZO), Costco (COST), Dell (DELL), Dollar General (DG), Dollar Tree (DLTR), and NVIDIA (NVDA).

Today will be free of any economic data, but there are some earnings to be sure to check out after the close.

The following public companies are slated to release quarterly earnings reports today, May 24:

Agora Inc. (NASDAQ:API -- $41.44) provides Real-Time Engagement Platform-as-a-Service (RTE-PaaS). Agora will report its Q1 earnings of 2021 before the bell today.

Lordstown Motors Corp. (NASDAQ:RIDE -- $9.58) operates as an original equipment manufacturer of light duty fleet vehicles. Lordstown Motors will report its Q1 earnings of 2021 before the bell today.

Luminex Corp. (NASDAQ:LMNX -- $36.67) develops, manufactures, and sells proprietary biological testing technologies and products. Luminex will report its Q2 earnings of 2021 before the bell today.

Nordson Corp. (NASDAQ:NDSN -- $201.83) engineers, manufactures, and markets products and systems to dispense, apply, and control adhesives, coatings, polymers, sealants, biomaterials, and other fluids. Nordson will report its Q3 earnings of 2021 before the bell today.

The following companies reported quarterly earnings on Friday, May 21:

Booz Allen Hamilton Holding Corp. (NYSE:BAH -- $82.06) provides management and technology consulting, analytics, engineering, digital, mission operations, and cyber solutions. Booz Allen Hamilton reported $0.89 earnings per share (EPS) for the quarter, topping the consensus estimate of $0.83 by $0.06. The company had revenue of $1.98 billion for the quarter, compared to the consensus estimate of $2 billion.

The Buckle Inc. (NYSE:BKE -- $39.87) operates as a retailer of casual apparel, footwear, and accessories for young men and women in the United States. Buckle reported $1.16 earnings per share (EPS) for the quarter, topping analysts' consensus estimates of $0.43 by $0.73. The business had revenue of $299.10 million for the quarter, compared to analyst estimates of $197.90 million.

Deere & Co. (NYSE:DE -- $355.22) manufactures and distributes various equipment. Deere reported $5.68 EPS for the quarter, topping analysts' consensus estimates of $4.44 by $1.24. The business earned $11 billion during the quarter, compared to the consensus estimate of $10.27 billion.

Foot Locker Inc. (NYSE:FL -- $59.70) operates as an athletic footwear and apparel retailer. Foot Locker reported $1.96 earnings per share (EPS) for the quarter, topping analysts' consensus estimates of $1.06 by $0.90. The business had revenue of $2.15 billion for the quarter, compared to analysts' expectations of $1.86 billion.

RBC Bearings Inc. (NASDAQ:ROLL -- $188.61) manufactures and markets engineered precision bearings and components. RBC Bearings reported $1.08 EPS for the quarter, beating the consensus estimate of $1.07 by $0.01. The firm earned $160.30 million during the quarter, compared to analysts' expectations of $158.97 million.

V.F. Corp. (NYSE:VFC -- $84.82) engages in the design, production, procurement, marketing, and distribution of branded lifestyle apparel, footwear, and related products. V.F. Corp reported $0.27 earnings per share (EPS) for the quarter, missing analysts' consensus estimates of $0.30 by $0.03. The business had revenue of $2.58 billion for the quarter, compared to analyst estimates of $2.50 billion.

Things will pick up a bit tomorrow, with the S&P CoreLogic Case-Shiller home-price index, as well as the consumer confidence index, and new home sales. All economic dates listed here are tentative and subject to change.

As a reminder to all traders, the U.S. stock markets are closed in observation of Memorial Day on Monday, May 31. The markets will reopen for normal hours from 9:30 a.m. ET to 4:00 p.m. ET on Tuesday to kick off the month of June.

Published on May 21, 2021 at 3:18 PM
Updated on May 21, 2021 at 3:18 PM
  • Earnings Preview

Can CRMT Accelerate Growth After Earnings?

by Schaeffer's Digital Content Team
 
Published on May 21, 2021 at 2:06 PM
Updated on May 21, 2021 at 2:06 PM
  • 5-Minute Market Rundown

This past week was a rocky one for Wall Street. On Monday, inflation fears persisted from the previous week's Consumer Price Index (CPI) reading, which weighed heavily on Big Tech, and investors continued to abandon growth stocks in favor of reopening plays. Tuesday, stocks pared their earlier gains to close lower amid worse-than-expected housing starts data, and the Dow finished down 270 points. Mid-week, bitcoin's dramatic selloff spooked traders, and provided no help to Big Tech's slump. Plus, investors eyed comments from Federal Reserve Chairman Jerome Powell as the possibility of adjusted fiscal policy came into view.

Thursday, the benchmarks snapped their collective three-day losing streak, thanks to a surge in tech stocks and upbeat jobs data, which showed first-time claims for unemployment benefits totaled a new pandemic-era low of 444,000 versus the 452,000 estimates. Friday, all three indexes are on track for daily wins, while the Nasdaq is the only benchmark eyeing a weekly gain. 

Retail Earnings in Focus

The retail sector stayed in the spotlight throughout the week, as plenty of quarterly reports came in. Both analysts and options traders chimed in on TJX Companies (TJX) stock ahead of the company's first-quarter earnings. Target stock (TGT) also saw a surge in options before earnings as it dipped slightly, popping to a record high the next day after posting a 23% pop in quarterly sales, as well as earnings and revenue that blew past analysts' estimates. Home improvement retailer Lowe's (LOW) announced an upbeat quarterly report as well, though the stock still continued its losing streak. Meanwhile, L Brands (LB) stock extended its previous session's bear gap despite an upbeat report amid spinoff buzz.

Vaccine Names Making Moves

Covid-19 vaccinations have stayed on investors' minds as economic reopening continues. This week, two stocks were highlighted in the midst of these conversations. First, AstraZeneca (AZN) was highlighted after the Financial Times reported that the company's Covid-19 vaccine works well as a third booster shot, according to a study by Oxford University, the vaccine's co-developer. Later on in the week, Moderna's (MRNA) vaccine was officially approved by Japanese and South Korean regulators, and there was word that the company was considering manufacturing its vaccines in Japan.

Looking Toward the Last Week in May

Next week, there will once again be plenty of retail earnings, but economic data will ramp up as well. Some of the big-name reports due out are AutoZone (AZO), Costco (COST), Dell (DELL), Dollar General (DG), Dollar Tree (DLTR), and NVIDIA (NVDA). In the meantime, check out this speculation from Schaeffer's Senior Quantitative Analyst Rocky White, exploring whether or not a spike in Cboe Volatility Index (VIX) can lead to a bullish stock move in the future. 

Published on May 21, 2021 at 1:18 PM
  • Editor's Pick
  • Bernie's Content

As we kicked off the new year, we highlighted several stocks for our Top Picks of 2021 special report. One seemingly random name was Callaway Golf Company (NYSE:ELY). Sure, golf was a great socially distant activity during the pandemic but picking a niche golf brand to excel after the pandemic seemed out of left field. Yet roughly halfway through 2021, ELY is up 41% year-to-date and as the rest of the broad market sold off this past week, the stock bucked the trend, turning in a weekly win of 9.2%. What can we learn from the ELY pick, and what does the company's success mean for the rest of the retail sector?

Callaway's first-quarter report drove --no pun intended – this week's bull gap, after the company reported adjusted earnings of 62 cents per share on $651.62 million in revenue, both of which walloped analyst expectations of 32 cents per share on $561.55 million in revenue. More important than the blowout numbers, the company's post-earnings conference call revealed two macro trends that investors could use as clues for spotting the next ELY-type winner.

First, the brick-and-mortar TopGolf acquisition exceeded expectations, allowing Callaway to increase its financial projections. On the conference call, Callaway noted it has three more venues on track for opening in 2021 – bringing the year-to-date tally to eight. It's not outlandish to say you can replace "TopGolf" with any other brick-and-mortar venue generator from a similar retail company, like Dave & Busters (PLAY), or casinos. As long as a company's venues and stores are reopening, the waning stages of the pandemic has created an "unprecedented" demand for in-person spending.

That's looking toward the future. To stay alive the past year though, retailers like Callaway had to adapt to pandemic life. Per the conference call: "For the last year, the hero of the soft goods and apparel segment is certainly e-com. This is a channel that was significantly strengthened by investments we made prior to the pandemic as well as us continuing to this day." The broader takeaway investors should have here is to look for retail companies that have heavily invested in e-commerce BEFORE the pandemic forced their hand. In a way, Callaway's earnings report is a roadmap for investors in finding the next big winner on the charts.

When we first named Callaway stock a top pick for 2021, Schaeffer's Senior Market Strategist Chris Prybal noted it had just formed a double-top formation that looked primed for a breakthrough, perhaps in the wake of a volatility event such as earnings. On the first trading day of 2021, a few days after our Top 21 report went live, Callaway stock closed at $24.28. On Tuesday, ELY hit a record high of $33.97 and crossed a $5 billion market cap. All the while, pullbacks in the last two months have found support at the shares' ascending 100-day moving average.

Prybal also cited an unwinding of pessimism among analysts and short sellers. Five months in, and those scales have yet to fully tip. Despite the avalanche of post-earnings bull notes earlier in the week, ELY's 12-month consensus price target of $36.20 was a slim premium to Friday's closing perch of $33.76. And among short sellers, short interest has begun to fall off in the last two reporting periods, yet the 10.95 million shares sold short still account for a healthy 11.6% of the stock's total available float. At ELY's average pace of trading, it would take shorts nearly six days to buy back their bearish bets; an ample amount of buying power that can unwind and fuel additional upside.

This pseudo-postmortem was not meant to just pat ourselves on the back. It's meant to show that when combined with fundamental and technical factors (a 3-tiered methodology we call Expectational Analysis®), sentiment becomes a powerful tool for analyzing stocks, sectors, or the overall market. It becomes especially potent during earnings season when one can sift through conference calls and pluck out pertinent information that may influence the next trading idea.

ELY COTW

 

Subscribers to Bernie Schaeffer's Chart of the Week received this commentary on Sunday, May 16.

Published on May 21, 2021 at 1:05 PM
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Published on May 21, 2021 at 10:42 AM
  • Buzz Stocks
 

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