Dow Jones futures rose modestly Tuesday night, along with S&P 500 futures and Nasdaq futures, as Amazon.com (AMZN), Google parent Alphabet (GOOGL) and Chipotle Mexican Grill (CMG) headlined key earnings.
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The stock market rally continued to regain momentum Tuesday, amid improving coronavirus trends, hopes for a substantial Biden stimulus deal and as hot money continued to shift out of GME stock and other short squeezes. But once again the Nasdaq is looking extended, raising some near-term concerns.
GameStop (GME), AMC Entertainment (AMC), Express (EXPR) and Koss (KOSS) plunged Tuesday, as the short-squeeze plays seem be running out of steam. GME stock dived 60% and AMC stock 41%. EXPR stock lost 32% and Koss stock 43%.
Hot money shifted back into growth stocks. Online sports betting leader DraftKings (DKNG), cybersecurity specialist Palo Alto Networks (PANW), business software giant ServiceNow (NOW) and profitable pot REIT Innovative Industrial Properties (IIPR) broke out or cleared buy points.]
Amazon CEO Jeff Bezos Stepping Down
Amazon CEO Jeff Bezos will step down in Q3 2021, becoming executive chairman. Amazon Web Services chief Andy Jassy will take over as CEO, reflecting the importance of the cloud-computing business. Amazon earnings more than doubled in the holiday fourth quarter, blowing out views. Revenue growth and revenue guidance also topped estimates. AMZN stock rose a fraction overnight after clearing some early entries Tuesday.
With earnings out of the way, Amazon stock could be a buy.
Google earnings were much better than expected. Google stock jumped overnight. GOOGL stock cleared a mini-consolidation on Tuesday, still in buy range from a prior base.
Chipotle earnings missed views while sales were in line. CMG stock fell modestly in extended trade after moving past a mini-consolidation above a prior base.
Other notable earnings: Electronic Arts (EA), FireEye (FEYE), Match Group (MTCH) and PerkinElmer (PKI). All of these stocks fell in overnight trade.
DKNG stock, IIPR stock, Chipotle and ServiceNow are on IBD Leaderboard. NOW stock is on IBD Long-Term Leaders. Palo Alto stock, ServiceNow and IIPR are on the IBD 50.
Dow Jones Futures Today
Dow Jones futures edged up 0.2% vs. fair value. S&P 500 futures rose 0.3%. Nasdaq 100 futures climbed 0.5%, with Google stock lifting tech futures.
Remember that overnight action in Dow futures and elsewhere doesn’t necessarily translate into actual trading in the next regular stock market session.
Biden Stimulus
Expectations are growing once again for a sizeable Biden stimulus following a “productive” meeting late Monday between President Joe Biden and 10 Republican senators who proposed a $600 billion new stimulus, focusing on vaccination spending and more-targeted aid for needy families. That’s far less than Biden’s proposed $1.9 trillion.
Getting 10 Republicans on board would mean a Biden stimulus deal could get 60 votes to override a Senate filibuster.
Even as stimulus talks continue with the GOP centrists, Democrats are pushing ahead with a possible go-it-alone strategy via budget reconciliation. A budget reconciliation bill only needs a bare majority in the House and Senate, so Democrats could push a much-larger stimulus package. However, with razor-thin majorities, Democratic leaders likely would still need to pare back the stimulus price tag from $1.9 trillion.
Also, the reconciliation can only be used once a year, and must be budget neutral after 10 years. Democrats would like to save reconciliation for a longer-term spending package that includes infrastructure and health care, paid for by big tax hikes on corporations and capital gains. Those tax hikes could be negatives for the stock market rally.
Join IBD experts as they analyze actionable stocks in the stock market rally on IBD Live.
Coronavirus News
Coronavirus cases worldwide reached 104.39 million. Covid-19 deaths topped 2.26 million.
Coronavirus cases in the U.S. have hit 27.02 million, with deaths above 457,000. New coronavirus cases are falling sharply, down to three-month lows. Hospitalizations also have tumbled in the past couple of weeks with deaths also rolling over.
The Biden administration reportedly will start shipping 1 million coronavirus vaccine doses per week directly to pharmacies as a test run. Many experts argue that pharmacies would do a better job at speeding up inoculations. U.S. vaccinations are running at one million or more a day, but getting that to two million, three million or more would reach the vast majority of Americans months earlier. That would save tens of thousands of lives and allow for a full economic recovery.
Stock Market Rally Tuesday
The stock market rally extended Monday’s strong gains.
The Dow Jones Industrial Average rose 1.6% in Tuesday’s stock market trading, regaining its 50-day line and its 21-day exponential moving average. The S&P 500 index popped 1.4% above its 21-day line. The Nasdaq composite rallied 1.6%.
Among the best ETFs, the Innovator IBD 50 ETF (FFTY) climbed 1.7%, while the Innovator IBD Breakout Opportunities ETF (BOUT) gained 2.4%. The iShares Expanded Tech-Software Sector ETF (IGV) rose 2.6%. The VanEck Vectors Semiconductor ETF (SMH) advanced 1.4%.
GME Stock
GME stock has now crashed 81% from its Jan. 28 peak of 483. AMC stock is 61% off its high. KOSS stock has tumbled 84% and Express stock 76%. While these stocks are still heavily shorted, many investors who bought GME stock 200, 300, 400 or more are now deeply underwater. Even now, GME stock is far above its pre-squeeze peak of 63.77 back in 2007.
Could AMC stock, GME and other squeeze plays go another run, even to new highs? Anything is possible. But buying frenzied momentum plays on the way down seems even riskier than on the way up. There’s trying to catch a falling knife, and there’s trying to catch a falling guillotine.
GME stock fell modestly in overnight trade.
The iShares Silver ETF plunged 8.3% on Tuesday, more than wiping out Monday’s 7.1% surge when it briefly became a Reddit investing fave.
New Breakouts
DraftKings stock jumped 8.55% to 55.31 on Tuesday, clearing a 56.08 cup-with-handle base in strong volume, according to MarketSmith analysis. DKNG stock, Tuesday’s IBD Stock Of The Day, is slightly extended from the 5% buy zone. The relative strength line is off its early October peak, but has rallied strongly with DKNG stock since the current market rally began in early November.
Palo Alto stock rose 7.2% to 387.36, above a 375.10 flat-base buy point. PANW stock rebounded bullishly from its 10-week line this week. The RS line hit a new high on the breakout.
ServiceNow stock popped 4.5% to 583.51, clearing a 566.84 flat-base entry. NOW stock also surged from its 10-week line this week.
Innovative Industrial Properties stock climbed 5% to 204.16, reclaiming a 199.45 buy point from a short consolidation. IIPR stock’s RS line is near a new high on a daily chart and at all-time levels on a weekly chart.
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Amazon Earnings
Amazon earnings surged 118% to $14.09 a share as revenue swelled 44% to $125.55 billion during a pandemic holiday quarter. Wall Street forecast Amazon earnings of $7.19 a share on sales of $119.7 billion.
The e-commerce giant reported adjusted earnings of $14.09 per share on revenue of $125.6 billion.
The big news is that Amazon founder Jeff Bezos is stepping down as CEO, but he’ll remain chairman and the largest shareholder. AWS chief Jassy is taking over.
While the bulk of Amazon’s business is still e-commerce, the AWS business has been hugely profitable, though growth is trending lower.
Amazon Web Services revenue grew 28% to $12.7 billion in Q4, still the market leader but less than expected. Microsoft (MSFT) said last week that its Azure grew 50% in Q4, while Google Cloud is more than doubling.
The e-commerce giant sees Q1 revenue rising 33%-40% to $100 billion and $106 billion, above views.
Amazon stock edged up a fraction in extended trade. Shares rose 1.1% to 3,380 on Tuesday, clearing early entries around 3,350-3,360. AMZN stock has an official 3552.35 buy point.
Amazon is currently actionable for those early entries, but not by much. How the market digests the stellar earnings and Bezos’ exit soon after Wednesday’s open will be telling.
Google Earnings
Google earnings rose 45% to $22.30 a share, with revenue up 23.5% to $56.09 billion. Analysts had projected Google earnings per share of $18.59 on revenue of $52.8 billion.
Google cloud computing revenue more then doubled in 2020 to $13.06 billion, but operating losses swelled to $5.61 billion from $4.65 billion in 2019.
Google stock popped 7.5% overnight. Shares climbed 1.4% to 1,919.12 on Tuesday, peeking out from a short consolidation to a new high. GOOGL stock closed still in range from a 1843.93 flat-base buy point.
Chipotle Earnings
Chipotle earnings grew 22% to $3.48 a share, ending a three-quarter string of declining profit. Revenue climbed 12% to $1.61 billion. Same-store sales xx%. Analysts expected Chipotle earnings of $3.70 with sales at $1.61 billion.
Digital sales grew 177% and accounted for 49% of sales. Same-store sales increased 5.7%
Assuming the pandemic doesn’t worsen again, Chipotle sees Q1 same-store sales growth in the mid- to high teens.
CMG stock fell nearly 3% overnight. Shares edged up 0.9% to 1,523.05 on Tuesday, moving above a mini-consolidation just above short pattern next to a prior base. Chipotle stock appears to be extended.
Stock Market Rally Analysis
After the Nasdaq fell 4.8% from Monday’s record high to Friday’s close, with the Dow Jones and S&P 500 index ending below their 50-day lines, the stock market rally shifted to “uptrend under pressure.” But the market rally has regained momentum to start this week, helped by Biden stimulus hopes and the exodus from GME stock into growth names.
The Nasdaq and S&P 500 are almost at record highs, with the Dow Jones not far off.
The only downside? The Nasdaq composite is back to 6.5% above its 50-day line. That’s once again above the 6% level that typically suggests it’s extended, though it’s below the Jan. 25 peak of 8.2% or the Sept. 2 peak at 11.6%.
So the odds of a pullback are once again rising, though it’s not yet at extreme levels. Investors should keep that in mind as they consider making new buys going forward.
Please follow Ed Carson on Twitter at @IBD_ECarson for stock market updates and more.
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