Good morning and Happy Saturday! Welcome to our Weekly Digest. It has been one of the busiest and noisiest weeks in the year so far on Wall Street. The Big Tech companies reported their quarterly results in an atmosphere of extreme euphoria in the markets, with the $SPY and $QQQ near their all time highs. As expected, their reports were priced for perfection, and the slightest miss or hint at lower guidance took them tumbling down. One after the other, $AAPL, $GOOGL, $FB, $MSFT and $AMD posted impressive quarters helped by comparisons to last year’s quarter. The growth story is impressive for all these companies but there are important headwinds to take into account when we look for the longer term. Talks of increased inflation, bottlenecks in the global supply chains, new regulations imposed by the White House and the end of stimulus checks will all weigh in on their future reports. As a result, only $GOOGL and $AMD managed to either hold initial gains ($GOOGL) or commence impressive new active sequences above their all time highs ($AMD). The one stock that disappointed with its earnings report was $AMZN. Despite impressive growth in its cloud services business, $AMZN could not raise to its standard as it is showing signs of peak performance, as this was one of the huge winners of the pandemic economy. With people starting to take control of their lives back, they tend to spend their excess money on going out, planning vacations, rather than spending incessantly on goods and services from home. The best earnings report came from $GOOGL which is a winner of the new post-pandemic economy as their ads business grew at an impressive 69% rate.
We kept emphasizing before earnings that the market feels frothy and that any miss or hint at lower guidance will take these big tech stocks lower. As a result, we did not take any of these stocks into earnings and saved ourselves a lot of money. We were engaged in all the earnings reports only through option plays, and our biggest winners were $GOOGL for a double and $AMD for 6x the profit. Another big winner this past week for our portfolio was been $TSLA which woke up on Thursday and started a new active sequence as it is attempting to get above the recent channel. A break above 700 in the coming weeks will put this EV stock back into pole-position for being a market leader as it happened in 2020. Bitcoin has been our third big winner of the week. Please see below our play for this crypto.
What is next for the markets is difficult to predict at this time. From a technical perspective, we have lost some momentum especially in the $QQQ, and the $SPY are just holding by a thread above the 8EMA. From a fundamental perspective, if tech has reached its peak given the new post-pandemic economy, which sectors can contribute to the recent rise in the indices? As day traders, we have to quickly adapt to a very different market from 2020 and find the new sectors to which new money will flow into. One such sector can be the EV, while cyclicals, value and financials look also in better shape. For next week, we will closely watch the tech sector to see if any of the names that already reported can show some relative strength and keep tech afloat, or if we need to take a step back from this sector which has been so good to our portfolio, and allocate money to new sectors. We continue to stay on our toes, as we expect volatility to increase as we head into a month of vacations, low volume and more drastic moves in the market. The FED decision to keep interest rates low is beneficial for the market in the short term, but it is clear that this will change course soon, probably before the end of the year. At that point, analysts will reconsider their estimates for price/earnings ratio and will take into account several other factors before giving away upgrades to already frothy sectors. At this point in time we are neutral for the tech sector, cautiously bullish for the EV sector and cautiously bearish for the overall market. We expect a period of sideways action, which may require investors to take a step back, enjoy the summer holidays and maintain their hard earned money for better set-ups.
Please find below the charts of our best trades of this week and a quick explanation:
We expected $GOOGL to post impressive quarterly numbers boosted by its ads business given the new post-pandemic economy and we were right in our assessment. As a result, we bought a call spread before earnings 2720/2750 for $1000 which we quickly sold the day after the report for $2000. This is a perfect time of earnings play, in which you know the exact amount of money that you are risking and the potential profit. We hope you followed from our Morning Game Plan section.
AMD has been a great pre-earnings and post-earnings play for us. We went long some $95 call options into earnings and managed to sell them for 6x the profit by the end of the week, as $AMD breezed through its previous high to 107. As this stock showed particular relative strength, we also bought common shares on Thursday and added on weakness on Friday to complete a great trade.
We re-engaged this favorite 2020 stock on Thursday as it showed the potential for a DAY1 type of candle. We added more on weakness on Friday and also sold some puts for next week to be further involved. As we exited our common stock above 690, we bought a call spread for the middle of August 700/720 to remain engaged with this name for a longer period.
Bitcoin has been a big winner for us as it managed to get above the recent downtrend following the ‘B’ word conference. We bought futures in anticipation of this event around 29K and rode this asset all the way back to 42K. It is showing impressive relative strength and we are still involved as we believe, from a technical perspective that it can continue to run up to 46K before it meets further resistance. We will use 38K as a stop for our remainder.