The Snowman Report For 1/26/2021

Summary

• WallStreetBets stocks continue to rally as the bears get crushed.
• Major Tech companies beat on Revenue and Earnings, down to mildly up in after hours trading.
• Market breadth continues to weaken.
• Economic Indicators continue to come in strong and consumers expect a good economy a few years out.
• Demand is King, long live the King.

THE SNOWMAN REPORT FOR 1/26/2021

DAILY DATA DUMP: REDBOOK, CASHE-SHILLER HOME PRICE INDEX, FHFA HOUSE PRICE INDEX, CONSUMER CONFIDENCE, RICHMOND FED MANUFACTURING INDEX

• REDBOOK: Same store sales were UP 3.9 percent year over year. Graph looks good, trending up and staying positive. What more can you ask for?
• CASHE-SHILLER HOME PRICE INDEX: Looking at this chart it is clear housing prices are much higher than last year. 20-City unadjusted are up 1.1% month over month but year over year 20-City unadjusted is up 9.1%. That’s a huge jump this month above the average amount. Housing prices are going up, its confirmed (if you didn't know already). Mainly due to easy money, low interest rates, ability to work from anywhere and low unemployment for those who are able to buy a home. Suburban areas are going to feast on tax revenue over the next few years with this type of demand as a tailwind.
• FHFA House Price Index: Up 11% Y/Y while month over month prices were only up 1% - a decrease in momentum from the previous three months. More data to support high home prices. Who wins from this? Homeowners, Zillow, brokers, local governments with residential properties, homebuilders, home depot – the list goes on and on. If you aren’t able to afford a home though this is not that great but to be honest you weren’t going to buy a home anyway if an increase of 1% M/M is the determining factor.
• CONSUMER CONFIDENCE: Key to this report but may be overlooked – there are less bulls in the stock market and more bears than previous months. I think this is another sign of a coming pullback – people realizing that maybe things are a little too good to be true. Numbers came in .8 above consensus at 89.3 with people looking forward to a good job market and things getting better (6 months out). Short term they feel there is more of an uncertain job market but we don’t buy and sell stocks based upon what is going to happen in one month, we buy and sell based on what is going to happen in one to ten years.
• RICHMOND FED MANUFACTURING INDEX: Prior was 19 (this is an index that runs on a median of 0) and this month was 14. Still expanding! Employment growth was up 3% signaling our wonderful economy is chugging along for the little guy. On the inflation front prices paid by businesses were greater than prices received so expect some inflation going forward as businesses increase price to bridge that margin gap. And businesses across the board are optimistic – how wonderful is that!

EARNINGS: AMD, MSFT, SBUX AND TXN

• AMD: Beat on Revenue, Beat on Earnings which doesn’t matter much for this stock and raised revenue forecasts to 37% for 2021. They were down after hours so something went wrong but those revenue figures and continued earning expansion is a great sign. I’m holding any shares I have and buying more on dips below 89$.
• MSFT: Great earnings, 50% revenue growth in azure cloud services as well organic growth in all other departments. Initially rose much higher AH but pulled back as the market digested all the information (still in the green, just not a huge amount). Some interesting points; 1 - Advertising market is gaining traction 2 - Linkedin continue to grow revenue 3 - Microsoft teams continues to kill it with up to 16 million DAUs on mobile. 4 - Record revenue and unit sales in gaming. This has been common with tech stocks that have beaten earnings and pulled back or traded sideways so maybe this is the market consolidating over the next few weeks.
• SBUX: COO is leaving the company to run Walgreens and she’s good at her job. company is down after hours on lower revenue and earnings across the board for this quarter. Either than that the company is forecasting 2.50$ in net eps and 29bn in net revenue for 2021 which is very good. Worldwide they expect sales to be up somewhere between 18 and 23%. If their 2022 earnings and revenue growth is anywhere close to that this might actually be a value at these levels. Should be a good long term buy on any large pullback.
• TXN: Just like AMD, beat earnings and revenue growth and continues to increase organic sales over the following years. Still dipped after hours so that trend in semiconductor beating on revenue/earnings and dropping after hours continues. I wonder what this portends for our friend Nvidia?

WHAT DID WE LEARN IN THE MARKET TODAY, MR. SNOWMAN?

• We learned that supply and demand still is the most important part of market dynamics. Some people think fundamentals, sector, technology, research and development or momentum are but that is wrong. It is demand. And when thousands of people choose to demand a stock for a reason the reason does not matter – the demand does. And when the supply has not been increased what do you expect? The security price is going to skyrocket. You can call the demand artificial, you can say it doesn’t make sense or that it is not tethered to reality but it DOES NOT MATTER. Demand is demand is demand and until that demand is gone you better get out of the way of this rocket ship.

MAP SUMMARY:

• When I look at this heat map my eyes are naturally drawn to the middle where a lot of red is hanging out. But if you meander over to the top right you’ll notice consumer defensive is up across the board today. Could be investors starting to move towards more defensive names with a pullback in mind? The big cap tech continues to gain value but momentum continues to decrease relative to previous trading sessions. They are this current market’s fuel source and if they sputter out we are going to start stalling. Microsoft’s earnings today show there is less to fear but even with high revenue growth in all the right areas Microsoft did not rally hard after hours. We’ll see what the future brings but this heat map and the reaction to earnings tonight does not make me more bullish but more cautious.

BUY, HODL, SELL:

BUY: CHWY, SQ (less confident), BB (speculative)

HODL: Nothing has changed, if you own it hodl.

SELL: If you have no conviction, sell that bad boy.

Disclaimer: This was written for the sole purpose of leading a meaningful life while gainfully unemployed so take what you want and leave the rest. I do not claim to be a financial advisor, understand the markets, understand stocks, know how to write, know how to write well or in anyway understand why anyone would listen to me so please keep insults and compliments to a minimum.