Preview of the week starting 1st Aug 2022 following the earnings of the big Tech

Public Holiday
Nil for Singapore, Hong Kong, China and USA

Earnings Calendar

There are few earnings that are of interest to me.  These include AMD, Occidental, Alibaba and Lucid.

AMD's outlook will lift the lid for the chip industry.  Following the earnings beat for both ExxonMobil and Chevron, we can expect oil players like Marathon and Occidental to do well too.  For the competitive industry of EV, we can look to the earnings of Lucid for their outlook.  Finally, Alibaba will share the earnings on Thursday following being "blacklisted" by SEC - Holding Foreign Companies Accountable Act (“HFCAA”).  It is interesting to learn how the earnings and prospects of "delisting" are being addressed. 

(The charts below are mostly taken from investing dot com.)

Occidental

Occidental's stock gained much interest and price increase following Berkshire's investments in the last few quarters.  Within one year, the price has risen 151.92%.  After hitting a 52-week high of 74.04, the price is around 65.75 now as it heads into the earnings week.

For the coming earnings, its forecast is 3.02 and 9.75B for her EPS and revenue accordingly.  Following the good news from ExxonMobil and Chevron, we can expect Occidental to do well too.  Are we too late to enter the market?  Currently, the heightened oil prices will help energy companies and this should continue to be favourable due to the Ukraine situation.

Alibaba

Alibaba has fallen back to a recent low after delisting risk was cited.  The stock has fallen 52.21% from a year ago.  Though the current price of 89.37 is still a distance away from the 52-week low of 73.28, it is interesting how the market will respond to its earnings due to the risks.

For the coming earnings on 4th Aug 2022, the forecast is 10.78 and 204.44B for EPS and revenue respectively.  Will Alibaba manage to avoid de-listing and rebound from the recent low?

Economic Calendar

Following a heavy week where FOMC announced a 75 basis point interest rate hike and Q2 GDP growth in the negative, the market has surged over the last few days.

In the coming week, we have a few new announcements that could sway the market:

• China's manufacturing PMI (July 2022) is 49.0 which is much lower than the 50.4 expected.  With cities such as Wuhan entering lockdown, we can expect production strains if there are more lockdowns announced.
• In the USA, we are expecting a strong JOLTs job openings for June and the unemployment rate for July will also be announced at the end of the week.  These will form part of the key consideration for the Federal Reserve as they tackle the raging inflation and manage unemployment.  There will also be initial jobless claims reporting on Thursday that will be part of the Fed's review
• The USA will also announce the ISM non-Manufacturing PMI (July) which can shed a glimpse into production sentiment.
• Last but not least, the crude oil inventories will also be a forward-looking indicator of the consumption of the economy in the coming months.

Personally, the market is not behaving irrationally following the earnings, interest rate hike and GDP negative growth.  Thus, it is possible that the realization sank in and would pull back the recent rally.  Let us not forget that the market can remain irrational longer than we can remain solvent and thus, I do recommend caution.  This could be a "dead cat bounce" before a bigger plunge.

News and my muse

China's city of Wuhan went into lockdown following new cases as they continue their zero tolerance.

There is no need to test the resolve of China toward Taiwan. You may have a carrier but know that the (computer) chips are NOT in your favor. We don't need a man-made crisis. Can US afford new battlefronts of military & economics? 

Screenshot from CNBC news about $930 billion credit card debt incurred by US

U.S. credit card debt hit a record $930 billion with younger Americans having the highest delinquency rate.

Notable challenges for humanity are in ageing, fuel, food, finances, fud, climate change & supply chain. Is it an Arab Spring in the making? When inflation boils over, unrest enters. Then, we shall witness the rise & fall of kings & kingdoms.

Inflation - too much money chasing too many goods. the coming inflation decline is due to weakening demand (from reduced disposal income) & drop in fuel costs. The supply chain that limited the supplies still needs to be improved.

Mr Gordon Johnson has shared his views about a potential collapse in Big Tech through a series of tweets.

The earnings of $MSFT & $GOOG surged post-market despite disappointing in both EPS and revenue.

The first rule of investing is not to lose money.

we do not have to buy every stock we like. for some businesses, it is best if we remain as customers and not investors. in some cases, we should invest and not be customers. in other times, we can be spectators and not investors.

Sometimes, the best trade is no trade.

A longer full shut-off of Russian gas to the whole of Europe would likely interact with infrastructure bottlenecks to produce very high prices & significant shortages in some countries, with parts of Central & Eastern Europe most vulnerable.

Market outlook (from 1st Aug 2022)

1D chart for S&P 500

From the 1D chart and technical analysis (from investing dot com) above, we can observe the following:

• The stochastic indicator is in the overbought region.  It is possible for the indicator to range in the overbought region as prices continue to surge.  Let us monitor the rally especially.
• The MACD indicator remains on an uptrend and thus, we can expect the rally to continue.
• For the moving average (MA) lines of 50 & 200, we can note that the MA 200 is on a "downward trend".  With the candles crossing MA 50, we can expect a "rally" in the short/mid term.
• For the exponential moving average (EMA), we can see a reversal into a bullish trend last week.

Technical Analysis of S&P500 (investing dot com)

From the technical analysis (from investing dot com) above, we can observe the following:

• Using the technical analysis (from investing dot com), both moving averages and technical indicators point to a STRONG BUY for the S&P500.
• From MA 200, the market is on a "SELL" recommendation.
• There is a support range of 4150 to 4200.  A breakout from this region can point to a longer rally.
• Of the 12 technical indicators, there are 3 that revealed "overbought" and one which is ATR (14) implying less volatility.

Personally, here are my thoughts for the coming week(s):

• Usually, the market falls following an interest rate hike.  This usually leads to the market turning to value stocks instead of growth stocks.
• Usually, a second consecutive GDP decline implies a "technical recession" and with that the market exercises caution.
• Following the earnings, Google has not met the market forecast in both EPS and revenue.  However, the stock saw a sustained rally since the result was announced.
• As part of my diversification, I am investing in non-USA markets with a strong focus on Asia.
• Though the technicals seem to be in favour, the above "concerns" guide me to exercise restraint.
• This may mean that I would potentially miss out on opportunities to get stocks at good discounts.  However, I reckon that it is more appropriate to be prudent during such times. We are still able to make money for "short" trades but I do not plan to invest.
• With a "threat" of war between China and Taiwan, I think that we need to remain prudent as crude oil hit $100 per barrel over the weekend before retreating back to the region of 90+

Ukraine crop calendar

• Russia and Ukraine were working out a "safe" passage so that the grain can be exported out of Ukraine, to free up the silo to receive the grain from the current cropping - harvest due in about 2 months.
• Without Russian fertilizer due to March sanctions, it will be interesting to find out the impact that both war and the lack of fertilizer have on Ukraine's grain production.  It is widely expected to be much lower and thus, this will spill over into the commodity market. 
• For the USA, we need to monitor how the extreme weather is affecting their agricultural production - from fire in Yosemite, flooding in Kentucky, heat waves and more.  This will also cause greater strain on the supply chain, supplies, utilities, and infrastructure amidst surging Covid cases.
• Air travel has been challenging - with flight cancellations, missing luggage, and heightened fuel costs, this is one sector that struggled to cope with capacity.
• For stocks like Alibaba, I will probably wait till the earnings to continue my DCA.

I believe that we could be one of the brief rallies but a bigger dip is expected.  Thus, I recommend all to spend within our means, invest with what we can afford and save "cash for crash" to buy great companies at good discounts.