Ivanhoff Capital

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One earnings report can drastically change the price trajectory of a stock and its industry. Take Snapchat for example. SNAP had a big earnings surprise (over 100% above estimates) and reported a notable acceleration in revenue. It gapped to new all-time highs and had the strongest week in its history, gaining 50% on record volume. Snapchat also projected a significant improvement in digital advertising conditions which boosted the stocks of FB, TWTR, PINS, GOOGL, SPOT.

Small caps outperforming and setting up for a potential breakout with a potential pivot at 164.25. It is not only about the new stimulus. We saw a big spike in interest rates which pushed banks and basic material stocks higher while it pressured homebuilders.

The market is acting as if the new $2 Trillion stimulus (it hasn’t been approved yet)  will only help the worst-hit by COVID sectors. The amount of money is significant. It’ll eventually trickle down to the balance sheets of the most profitable companies in Big Tech. This is why I think the dips in AMZN, AAPL, FB, GOOGL, MSFT will continue to get bought. QQQ is setting up for a potential bounce just before the biggest earnings week this season.

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There are still plenty of stocks that are holding well and building new bases in various sectors and market caps. In the meantime, the 30% drop last week in a momentum flagship like Fastly is likely to act as a wake-up call for many. This might lead to profit-taking in other momentum high flyers which have been on a hot run most recently – PTON, TTD, Z, etc. No one wants to get caught in a big post-earnings drop. Add to the mix the constant gyrations due to new stimulus package stimulations, the typical pre-election volatility, the rise in COVID cases, and you have a range-bounce market that might not be very easy to trade.

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The big catalysts that move the stock market remain the same:

• There’s a second COVID wave under way and many of the so-called social distancing stocks continue to ramp up, especially software;
• A second COVID wave means more stimulus. More stimulus is positive for stocks in general but more so for small caps. Russell 2000 went up 10% in the past two weeks;
• The pre-election period tends to be volatile as it often brings a large number of surprising turns. Clean energy stocks have accelerated their upside ascent in expectations of the changes that a new administration might bring. Cannabis-related stocks might be the next ones to rally.

The next week is also the start of a new earnings season. Financials are the first ones to report followed by tech a couple of weeks later. I would not be surprised to see pre-earnings rallies in strong stocks (mostly in tech) as many speculators try to front-run earnings reports. 

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Disclaimer: Everything I share is for educational and informational purposes only and it should not be considered financial advice.