Is The Market Too Hot Right Now?

This week we’ve seen markets hit all time highs on numerous occasions, which raises the question, “Is the market too hot right now?

The term “melt-up” has also been thrown around in small circles and suggests that some think that the current market conditions are similar to what was seen back in January with the big momentum surge to start the year. So what should we really be taking away from all of this for the average investor?

Pay Attention To The Facts

A big proponent to the recent market expansion has a lot to do with the recent earnings season. Continual revenue beats from some of the more “luxury focused” companies like Tiffany’s (TIF) and today’s beat from Signet Jewelers (SIG) is a sign that the economy is feeling “good” right now. Furthermore, the lack of added interest rate hikes have continued to help the market.

 

You also have new luxury brands aiming to go public as well. Aston Martin, the British automaker best known for being James Bond’s car brand of choice, said on Wednesday that it planned to go public.

“Aston Martin Lagonda has been transformed into a luxury business focused on creating the world’s most beautiful high-performance cars,” Andy Palmer, Aston Martin’s chief executive, said in a statement.

Aston Martin will join the ranks of other luxury brands like Ferrari (RACE) and the makers of Maserati and Alfa Romeo, Fiat Chrysler (FCAU).

Looking Ahead

Many investors are looking at industries that are more progressive right now. Tech and, believe it or not cannabis are delivering solid gains right now. Canadian LP Tilray (TLRY) reported its first ever earnings as a public company this week and blew away most expectations.

Constellation Brands (STZ) upped its stake in Canopy Growth (CGC), another Canadian producer and it’ been said that alcohol juggernaut Diageo (DEO) will throw its hat in the ring with at least one Canadian cannabis company. Cronos Group (CRON), Zynerba (ZYNE) and Insys (INSY) are in the spotlight as the cannabis stock rally could be set to continue into September.

For tech, Apple Inc. (AAPL) continues to stretch its lead in the “trillion dollar market cap club” while Amazon (AMZN) may be close behind after surpassing the $2,000 per share mark in pre market trading on Thursday. Morgan Stanley (MS) raised its target price citing a $1.2 Trillion value for the company and sparked even more interest from investors. Other big tech companies like Microsoft (MSFT) and Cisco Systems (CSCO) were among the other big movers with gains north of 1% each.

Commenting on the markets’ August strength, JJ Kinahan, chief strategist at TD Ameritrade, told FOX Business that,“The market continues to do well with strong earnings boosting us to new highs, what’s surprising is that we’re doing so without the FANG stocks leading.  It’s impressive that we continue to see buying strength under any circumstance and hit new highs.”

And on the earnings side things will continue to be retail-heavy, with notable companies reporting Thursday expected to include Kroger (KR), Dollar General (DG), Dollar Tree (DLTR), and Ulta Beauty (ULTA) from the S&P 500. Other retailers reporting results are scheduled to include Abercrombie & Fitch (ANF), Sears (SHLD), and Perry Ellis (PERY).

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Earnings Season Continues To Surprise; New Market Trend Starting?

Strong Earnings: Some Stocks Shaky

Once again we are seeing another Friday of earnings reports.  Among some of the most active stocks reporting earnings, Foot Locker (FL), Buckle (BKE), Gap Stores (GPS), and Hibbett Sports (HIBB) are catching investor attention; some for not so good reasons.

The Good, The Bad, The Ugly

Just like we talked about yesterday, this earnings season has been interesting to say the least.  Companies are crushing earnings left and right and for many, last year’s same period figures have been dwarfed. But it hasn’t been all fun and games as many investors have seen.

  • Typically when a company beats earnings, you would assume prices would increase.
  • Typically when a company beats on things like revenue and EPS, you would assume prices would increase.
  • Typically when a company sees increases in things like same store sales year over year, you would assume prices would increase.

In previous quarters, that has been the case but today’s spoiled investor is now getting down to the nitty gritty as higher than usual earnings expectations have left the market open to big pitfalls.  Today, for instance FootLocker beat on all fronts except same store comps.  Even though this number was up, it didn’t quite hit the higher expectations of the street.  The company beat on all other fronts but due to this one key factor not meeting or exceeding the street, Foot Locker has suffered a strong pullback during pre market hours.

Foot Locker Mixed

Estimates for Foot Locker had earnings per share expected to jump 13% to 70 cents. Revenue was seen rising 4% to $1.763 billion. Same-store sales are expected to rise 0.7% overall, with store comps up 0.9% and direct-to-consumer comps up 6.5%, according to Consensus Metrix.

Results showed Foot Locker earned 75 cents a share. Revenue climbed nearly 5% to $1.78 billion. Same-store sales edged up 0.5%.

However, the outlook for Foot Locker showed the company aiming at stronger same-store sales later in the year.

Read More: Key Trading Strategy To Play Earnings 

Companies are no longer in a simple revenue beat mode.  Now the focus needs to be on streamlining operations and continuing to hit on all cylinders during this huge economic expansion period. This has brought a bit of unease for some as they think this could signal shaky ground for future quarters.  Needless to say, other companies mentioned: Gap Stores and Hibbett both got slammed on earnings misses.

The shining star today: Buckle (BKE)

Shares of the accessories company ran during pre market hours after strong earnings. Estimates had analysts expecting Buckle earnings to jump 29% to 31 cents. Revenue was seen ticking up 3% to $201 million. Results also showed that Buckle earnings came in at 32 cents, with sales up nearly 3% to $201.1 million. Same-store sales rose 1.4%.

The Best Retail Earning Quarter In Eight Years Continues To Unfold

– Ken Perkins, Retail Metrics President

Retail Metrics President Ken Perkins said this week Tuesday that “the best retail earnings quarter in eight years continues to unfold.” Buckle, which has more than 450 stores across the country, offers both brand names and private-label apparel.

According to analytics from Zack’s, the sustainability of the stock’s immediate price movement based on the recently-released numbers and future earnings expectations will mostly depend on management’s commentary on the earnings call.

Some Traders Saw All Of This Coming & Follow A Specific Strategy To Make Profitable Trades Every Time, Details Here

What’s Happening With Children’s Place, L Brands & Williams-Sonoma?

Everyone’s excited about the retail sector and with companies like Williams Sonoma (WSM) and Children’s Place (PLCE) posting earnings beats with upbeat guidance, you would expect the surge in retail to continue. But for some companies, all of this may not be enough.

L Brands (LB) has echoed this sentiment as profit forecasts have been slashed after a tough second quarter. In July, Victoria’s Secret sent its stocks tumbling when it announced that weak sales during semi-annual sale forced it to extend the event by two weeks and offer steeper discounts. The lingerie player has struggled under the pressure of new competition from millennial-focused brands like American Eagle’s Aerie division, Adore Me and ThirdLove among others.

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Earnings per share was 36 cents, adjusted, vs. 34 cents expected and revenue was $2.98 billion vs. $2.93 billion expected. In addition, fiscal second-quarter net income of $99 million, or 36 cents per share, down from $138.9 million, or 48 cents per share a year earlier.

“We believe this all means the brand is broken,” wrote Jefferies analyst Randal Konik.

But for others, this quarter’s earnings came in strong. Williams Sonoma for example posted Q2 2018 revenue of $1.275 Billion up 6.1% from $1.202 Billion at the same time last year. GAAP net income came in short by 2.3% and was down to $51.7 million compared to last year’s $52.9 million & GAAP earnings per diluted share increased by 1.6% from $0.61 in Q2 2017 to $0.62 this quarter.

Today, we are announcing another quarter of strong results with topline growth at the high-end of guidance, gross margin significantly above last year and a substantial EPS outperformance. Our powerful multi-channel, multi-brand platform, together with our strong execution of our strategic initiatives in digital leadership, product innovation, retail transformation and operational excellence are having a positive impact on all parts of our business. Given the results in the first half and the momentum our initiatives are creating, we are raising our full-year guidance for net revenues, comp revenue growth, operating margin and EPS.

-Williams-Sonoma CEO Laura Alber

Williams-Sonoma is targeting revenue in the range of $1.355 billion to $1.38 billion, comparable-brand revenue growth of 3% to 5%, and adjusted earnings per share of $0.90 to $0.95.

For Children’s Place, the pre market has not been kind. Share plummeted from $148.5 to as low as $135.5 during this time. On Thursday the company reported fiscal second-quarter profit of $7.5 million. The results exceeded Wall Street expectations with the average estimate of four analysts surveyed by Zacks Investment Research was for earnings of 57 cents per share. The Children’s Place expects its per-share earnings to range from $2.97 to $3.07. Analysts surveyed by Zacks had forecast adjusted earnings per share of $2.98.

Ahead of These Earnings Traders Learned 5 Key Strategies To Make These Winning Trades, Here

JP Morgan: The Stock Market Is Doing Something Different

J.P. Morgan (JPM) is telling having conversations with its clients.  The word on the street: There is a strange miscorrelation to the performance, overall between the US and global stocks and how it won’t last.

As a result, the firm predicts international stocks will outperform the domestic market the rest of the year.

“The recent divergence in the performance of US Equities vs. the rest of the world is unprecedented in history. For instance, if one looks at price momentum – it is positive for US stocks and negative for Europe and Emerging markets across all relevant lookback windows [one month, three months, six months and 12 months]. This has never happened before,”

-Marko Kolanovic said in a note clients Tuesday.

The U.S. stock market has greatly outperformed emerging market stocks this year. The S&P 500 is up 7% year to date through Tuesday as compared to the iShares MSCI Emerging Markets ETF’s (EEM) 9% decline in the same time period.

Kolanovic a quantitative and derivative strategist,  also noted that because the relative moves between global markets are so unprecedented it will not likely continue.

“In other words, something will give – either the US will fall or EM and Europe equities will catch up and move higher,” he said, “We believe an escalation will likely be averted and that a trade resolution and weaker [U.S. dollar] will lead to a ‘risk on’ convergence,” the strategist said.

In a separate note Tuesday, J.P. Morgan’s Bram Kaplan explained the research team’s “risk on convergence” call, predicting emerging markets will outperform the U.S. stock market. He added that in this scenario the domestic stock market will still go higher, but not as much as international equities.

To take advantage of the prediction, the firm recommended Dec. 2018 call options on the iShares MSCI Emerging Markets ETF and buying derivatives that rise if the EEM outperforms the S&P 500 into year-end.

Are You Long EEM Yet? Click Here To See How You Might Be Able To Use Covered Calls To Maximize Profits

After Market Earnings To Watch – Stock Options In Focus

As earnings season winds down and the market shifts attention to the President’s “situation” today, a number of investors continue to look to the remaining companies left to report this week.  This morning we already saw Target (TGT) and Urban Outfitters (URBN) beat earnings while others like Lowes (LOW) came in under expectations, which pushed the stock lower during early market hours.

If there’s one thing that’s certain it’s this: the earnings season we’ve seen so far has been one of the most fickle. Companies are coming in with record earnings this quarter but still end up getting smashed.  The reason? Street expectations; and they have been high as of late.  The announcements of record revenues and “highest EPS ever” pale in comparison to what the Street wants to see and many times that has hurt the would-be bull runs of countless companies.

Today we look toward the post market to see who will report and what may be some of the most active earnings trades to make on Thursday. In addition, we will track unusual options volume to try and determine where the street is placing their bets for future cash out:

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Toward the end of the day, investors should also be paying close attention to who will be reporting earnings on Thursday morning before the opening bell:

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These could be giving opportunities to score big with options strategies. But what stocks will be watched after earnings season is over and what are the best options to trade?

Click Here To See The Top 50 Stocks For Trading Options