GameStop Update:

Last week, the r/WallStreetBets subreddit launched an extraordinary trading war with Wall Street hedge funds who were shorting shares of GameStop. Today, the GameStop phenomenon continues to ripple through the investment community, sparking retail investors to target other high short interest stocks. During Monday's trading session, shares of GameStop fell over 30% to $225.00. S3 Partners, an analytical firm that specializes in short selling data, had said more than half of short positions on the stock last week have now been eliminated. We fully anticipate GameStop’s downtrend to continue, especially after one of the most volatile weeks in market history. We are also expecting shares of GameStop to fall back to their original "pre-squeeze" levels below the $50 range. Our overall outlook remains bullish on GameStop in the long-run, and believe they will have added support in the transformation of their business model.  

Silver:

Silver has begrudgingly got higher in price action as futures topped $29 an ounce. This was also considered a trade made forth by the Reddit community: Wall Street Bets. This is their commodity bet of choice. Coincidingly, Silver's technical setup is incredibly bullish, implying a price move far beyond the $30 level. Furthermore, the demand & consumption levels of Silver have been reaching unprecedented levels for a few precious metal firms in the United States.  

We also want you to think about it on a personal level. How many times have you walked into a store to purchase something with cash only to learn you must have the exact change due to a national coin shortage? That translates to a shortage of Silver currently, not even mentioning that the demand for silver bars has increased significantly. Could this be the start of a liquidity crisis?

When the demand starts to rise above the supply, premiums go up, and so does Silver.  The BlackRock ETF iShares silver (SLV) hit a high of $29 after closing at $25.25 on Friday. Many people say that this is the beginning of the great "silver squeeze"; however, it is unreasonable to think that the same group of people has the power to take down an entire commodity instead of GameStop: a dying company. Perhaps the recent boom on Silver is nothing more than a distraction to divide the wall streets bets community and make it even harder to keep GameStop at its levels. After all, GameStop closed down 30% alongside AMC, BBBY, and BB, who also suffered a similar demise proportionally. Dogecoin is a contributor to this notion of a distraction as well, as it has as much value as people give it. Tomorrow will be a big day to decide where the movement is going. Investors also need to consider that the people pulled their money out of Robinhood on Friday and need to rewire their money into brand new trading accounts. This, of course, takes time and could have a chain effect that could eventually creep back up on Wall Street when they least expect it. Perhaps Silver and GameStop will begin to alternate patterns if more restrictions are imposed on other trading platforms when people try to reallocate their profits back into GameStop down the road. After all, if Silver was to become restricted from retail investors due to the GameStop short squeeze... It would equate to pure chaos for the entire economy.   

Earnings:

Amazon (AMZN) | Tuesday:

Analysts have already indicated that Amazon is expected to beat market estimates with EPS of $7.17 and sales of $119 BN. An already profitable year is expected to get even better as a successful Prime Day in October, followed by a strong holiday shopping season. It is forecasted to have added to the revenue of the e-commerce giant. Third-party sellers surpassed $3.5 BN in sales on Prime Day, an approximate 60% YoY increase. Amazon could expand the Prime Day event to over 19 countries in 2020 and has been looking forward to increasing revenue through the holiday season. Additionally, a rise in the adoption of AWS (Amazon Web Services) has elevated AWS to the largest and most profitable public cloud platform. It has dramatically subsidized a cut-throat online retail business.  

Interestingly, AWS only made up for 12.1% of Amazon's total revenue in Q4; however, it was 57% of its total operating income. While some analysts have pointed out that Amazon's revenue is rising at a diminishing rate, it is vital to pay attention to the growing operating and gross margins of the AWS segment. As reported by Canalys, AWS makes up 32% of the worldwide cloud infrastructure services, with its biggest competitor Azure (a Microsoft segment) trailing with 19%. At a similar market share, AWS is forecasted to generate roughly $160 BN in revenue by 2023. This revenue can translate into large gross and operating margins for the company. The cloud is an emerging industry with high margins, which will be reflected in the rising net income. Wedbush analysts have claimed that Amazon's guidance for sales between $112 BN and $121 BN is too conservative, and the company will beat these estimates. 

UPS (UPS) | Tuesday:

Every earnings report for UPS will be interesting after Carol Tome took over as CEO back in June. Currently, no one is pricing in nearly enough improvement in operating margin or free cash flow. Looking forward, UPS has the potential to generate over $11 BN of free cash flow by 2023, implying UPS shares are headed to $300 in the next 1-2 years. As we navigate this pandemic, shipping is becoming more and more critical, and UPS has the foundation to stay as the leading player in this space. Pair UPS' name recognition with Tome's new "Better not Bigger" strategy and we see a lot of upside in UPS' short-term horizon. UPS will be focusing on profits, not scale, which will accompany short-term demand to yield strong EPS. 

Here's a deeper dive into USP's EPS. In the past, UPS Freight was barely able to break even. Tome made a pivotal decision to offload the dead weight to TFI International for $800 M. The transaction is set to close in Q2 of 2021, but with that said, it's reasonable to expect them to guide up their consensus estimates, which will likely create bullish price action if the technical align and if there is no near-term systemic market risk. It's also important to note that the Cass Freight index rose 6.7% in December to accelerate from the 2.7% gain in November. These higher volumes will yield higher profits.  

On a technical basis, UPS appears quite oversold. Let's see if it can break above $160, which will be pivotal to defining a stock's bullish trend. But just on the surface, this stock is trading at the same levels post earnings in October of 2020. Do you really think UPS hasn't grown beyond Wall Street's expectations during the holiday season in which there was a pandemic that forced people to utilize services like UPS? We didn't think so. Something's not right here. Either way, UPS is undervalued, and we need the technical analysis to line up. But bearish price action with the excellent news is incredibly bearish. It seems like it has been moving in large part with the S&P 500 over the recent days, so for a bullish outcome on their earnings calendar, we would expect a hard break above 162.50 and potentially 164.74 as well. It's our hope that so much muck surrounding the market has depreciated this stock. Its short interest is less than a percent, so there's no firm resistance to the upside. If they have a seemingly bullish event, I could foresee a potentially bullish rally in UPS stock price. See the attached and annotated Chart Below.  

ExxonMobil (XOM) | Tuesday:

For the most part, we are long everything oil, especially with Chevron (CVX) calling back on debt structures. They have tons of cash, and oil is going through the roof. Oil companies are making a massacre of the international markets. The price of crude oil has had a precipitous increase in cost per barrel since the onset of the Biden presidency, dating back to early December, and Chevron recorded a Q4 loss last Friday despite the rebound in crude oil prices. In addition, Exxon has reported four straight quarterly losses, and we fully expect earnings to be on the lower side with the cost of natural gas being so low. Low prices tend to open markets for uses of natural gas. This causes the demand for natural gas to increase at various pricing points as natural gas displaces more costly competitors. https://oilprice.com/oil-price-charts/ 

Exxon is currently trading at $48 from their low of $30 back in October 2020. The oil giant is working hard to bring aboard very profitable projects. Additionally, Exxon is well-positioned to shift to a more carbon-footprint-friendly model with over $250 BN in assets on the balance sheet. XOM maintains the most extensive portfolio of approved reserves and production in North America and is the most significant oil and gas producer in Europe. Our analysis assesses the risk of the company's diversified business profile in volatile, cyclical, and capital-intensive segments of the energy industry. The company also has a long track record of dividend enhancement, a strong balance sheet, and a management culture that focuses on long-term development. However, the industry also faces considerable regulatory risk and potential for ESG investing advocates for newer fossil fuel companies' investments. Our current outlook for Exxon is neutral-hold, with a 12-month price target of $60.  

Alibaba (BABA) | Tuesday:

Alibaba was a hotly talked about company over the past month after Jack Ma was reportedly missing in the wake of criticizing the Chinese government for regulating Ant Group, the financial affiliate company of Alibaba. Ant Group was going to launch as the largest IPO globally on Nov 5 but has since been delayed after claims of potential monopolistic behavior. Investors should see this as a positive note for the company as it challenges China's absolute power. We're bullish on Alibaba ahead of their earnings regardless of the controversy surrounding Ant Group IPO. However, they could have a somewhat short interest squeeze post-earnings due to the affiliate IPO's further delays. Over the past year, Alibaba has significantly improved from a balance sheet perspective relative to what will translate eventually from the Ant group deal costs. Unfortunately, the Ant group must redefine its business structure to be regulated as a financial institution instead of the once-promising fintech startup designation. Still, BABA is very aligned from a technical perspective since a large selloff directly correlated to their last earnings period.

Alphabet Inc. (GOOGL) | Tuesday:

Alphabet Is one of the biggest and largest internet technologies company that hasn't only survived the pandemic but generated a lot of revenue through the WFH domain and lack of outdoor activities. The Q3 results beat the expectations and aided in the rally of 19.6 % during the Q4 of 2020. With the estimated EPS at $15.98 and $52.86 B's revenue estimation, the story so far suggests that the stock is already on the winning trajectory. Two significant segments investors are excited about are Advertising and Cloud services. It will be the first time that the business of cloud services will be revealed. Last week, social media giant Facebook disclosed a beat in advertising revenue, raising the expectations for Alphabet.  

Another key indicator would be the future of the company, I.e., plans for 2021. The arrival of the vaccines and progress towards going back to regular continuous is significant to understand the company's growth plans. In terms of technical trading, Alphabet is showing some great signs to surge pre-earnings as the street are very optimistic about the outlook so far. There is a large trend "buy" signal with Bloomberg's 12-month price target at $2024.60.

Spotify (SPOT) | Wednesday:

Spotify had a killer run up from their last earnings, and we think they should realistically consolidate after this earnings call. The numbers will be great, but it has already been valued as the stock went from $236 to an all-time high of $370 in roughly two months' time. Historically, demand has always been popular ahead of the new year for Spotify. Their users provide them free marketing on every central social media platform due to the well-thought-out statistics and their latest feature, which shows users how much of a "true" fan they are of their favorite artists. This provides an excellent net user retention rate and keeps the userbase loyal to the brand. However, enough people still use Apple Music that we think Apple is still a firm established competitor that's not going away. More price-competitive deals such as the college student deal that Apple has will be necessary for Spotify going forward.

Grubhub (GRUB) | Wednesday:

We're primarily bullish on Grubhub because their biggest competitor, DoorDash (DASH), just got hit with a lawsuit claiming they were over charging users. This will bode well for the future of Grubhub as they should remain the frontrunner stock to buy in the food delivery industry. We would keep an eye on how Grubhub plans to innovate their service in the future as many small restaurants begin to reopen if state governments allow larger indoor dining capacities. Regardless, this should be a strong quarter for Grubhub as online order demand has yet to deteriorate. Watch for Grubhub to break past the resistance of $84.50 and feel confident in it as an extended play considering their customer acquisition over this pandemic.

eBay (EBAY) | Wednesday:

eBay has efficiently exploited this pandemic as almost all portions of consumer spending have shifted to e-commerce websites. The stock has grown nearly 72% YoY. Other e-commerce companies like ETSY have created a competitive advantage with their renown for home and hand made products, enabling them to take over their section of the e-market. eBay does not seem to be taking advantage of its current growth from the pandemic to turn it into something more lasting as commerce shifts back to brick-and-mortar business over the next two years. They need long term sustainability. There seems to be an intermediate/long term resistance level of $59/60, and the price has been in a month-long uptrend towards this point. We believe they will continue to produce promising earnings into 2021 as the pandemic continues to drive e-commerce sales; however, we see significant future downside to its e-market share post-pandemic.

PayPal (PYPL) | Wednesday:

The season for PayPal is incredible, with cash payments going out of the way and E-commerce swinging it hard during the pandemic for online banking and payments. The Q3 results have been delightful for the investors, with Total Payment Value (TPV) growing at 38% YOY. Through the Xoom platform, international expansion provided with a much-needed global presence and increased the total number of accounts. Mobile payments and transfer application Venmo has shown promising signs in becoming a leading mobile-based platform for financial transactions. PayPal has added a new feature of buying, holding, and selling cryptocurrencies through its PayPal account. More data on this will be a crucial metric out of the earnings call on Wednesday. But until now, the news had a very positive impact on the company and the stock. Investors will be closely watching the TPV, total active accounts, and the data for cryptocurrency.

Peloton (PTON) | Thursday:

This is a vast earnings call for Peloton. Investors will get insight on whether vaccine rollout will shift demand away from home workouts and back to gyms in the coming months. Everyone is asking, is Peloton here to stay? The uncertainty behind stay-at-home gym equipment like Peloton and its rapid growth has caused a lot of volatility within the stock recently. Since mid-December, it has been trading between $140 and $170. The store has recently tested the support level of $140 and seems to be bouncing back from this recent downtrend. Of course, all focus remains on earnings, but if $PTON is to miss their earnings, their stock price could plummet to $130 or even a little lower. They won't have to miss by much for this to occur. $PTON was struggling to keep up with demand and deliver their bikes recently; some deliveries were taking up to 12 weeks. This past December, they acquired Precor, a fitness equipment manufacturer, to help them complete these deliveries quickly.    

Peloton is up over 400% in the past year and almost 32% in the last three months. However, this past month, it's down 3% as it has been consolidating during this time. We remain incredibly bullish on the stock; we think things will remain hopeful for $PTON into the summer months as they continue to bring in more subscribers onto their platform. The time to buy $PTON is now while they are in a downtrend and are near their support level of $140, but expect risk with this earnings report. Some on Wall Street continue to hold a price target well below its current trading price and have high expectations for results. Continued lockdowns in Europe amid vaccine shortages may continue to help $PTON capture more EU based customers. Some Americans will choose to go back to gyms if they are able, but others will decide to remain at home and use their workout equipment. Covid-19 has reshaped the world of fitness and exercise, and $PTON is capitalizing off it like no one else. (Even Biden has a Peloton!) 

Snap Inc. (SNAP) | Thursday:

Snap has been on a steady rise in Q4 coming off the heels of a strong earnings report in Q3. With a closing price today of $56.65, Snap is entering their upcoming earnings up over 230% YoY. Although Snap's leap might be behind them after navigating the pandemic effectively, there is still a lot to be excited about as we enter Q1. Snap recently acquired the British startup Ariel AI. Expect Snapchat's camera system to become more intelligent as they hope to keep users engaged and off competing apps like TikTok. They are even becoming a force to be reckoned with in the retail space as their camera software can "try on" clothes and other items. Due to accumulated short interest and increasing operating expenses, there are also bearish outlooks to accompany bullish sentiment reflected in price targets across different bulge bracket banks. Ultimately, Snap has kept pace with FB to increase share value through this pandemic, and we see more of the same heading into Q1. Notably, investors should beware of a potential correction shortly after the explosion of share price in October.

Activision Blizzard (ATVI) | Thursday:

We believe this will be a big quarter for Activision because last quarter, the stock got crushed on substantial numbers. They were nothing special, but more so suffered from an overreaction. We believe the selloff was because the Call of Duty numbers was thoroughly unimpressive, and people thought they would be better due to the Warzone effect. However, with the launch of the new consoles and the rapid demand that comes with new gaming hardware, and the new COD being a day one drop, we should expect massive revenue numbers. While they've had a substantial run-up since their last earnings, they sold off a bit in the previous week and are poised for a mega run-up. Seriously. From a technical perspective, they have finally stabilized in the $80 range after three years. The stock tested an ATH of $95 only to go back down $91, again setting up Activision to have little to no resistance and be able to blow past $100 with even more heightened demand up top and weakened Fibonacci resistance levels. Apart from COD, their other segments, such as Candy Crush and Hearthstone, dominate the mobile phone game and currently have few competitors. World of Warcraft numbers should begin to decline slightly more, but the Buy and Sell-Side anticipated this after a rough launch of a new expansion in October.  

Activision Blizzard Inc. is a leading entertainment software company that dabbles in designing, publishing, and distributing video games for consoles, PC’s, and even mobile devices. ATVI's portfolio includes many well-diversified and established franchises such as Call of Duty, World of Warcraft, Diablo, Destiny, Candy Crush, and Overwatch. We see Activision as a leader in an increasingly oligopolistic industry that provides strong top-line tailwinds. A possible re-rating of ATVI could be justified at these levels as digital downloads become the new standard for video gaming. One of the biggest drivers for ATVI lies behind the decreasing competition within the industry, which gives the video game producers more bargaining power as opposed to relying on traditional distribution channels like GameStop or Walmart. Nonetheless, by comparing the old "brick & mortar" business model versus the new "digital" distribution model, we can highlight game developers' ability to optimize their margins in maintaining control over larger percentages of total revenue. I am bullish on ATVI with a mid-term PT of $103 and a 12-month PT of $120. 

Economic Outlook

Jobless Claims remain ambiguously high as the market continues to point to the fact that we are entrenched deep in a pandemic that has continuing effects on the economy. Robinhood got called on margin, or kind of / no one knows. Vlad Tenev pleaded the fifth all over the news, so it's tough to tell what was going on. However, it is entirely plausible that Vlad got a call from the SEC for depository requirements instituted by the Fed is failing to maintain their reserve ratio. Yet, this problem is indeed precipitated by the policies in place at Robinhood. It is a problem when young kids are getting 4k on margin with First Communion money. They should not have access to the markets, but if you can't apply for a credit card, why should you be getting a call option on margin. The WSB community and us here at CSS diverged from the narrative. We exploited this underlying system to emphatically flip the tables in profit flow in the overarching markets. That's epic.  

 According to economist surveys done via Wall Street Journal, the Ten-Year yield has continued to be in an uptrend with it projected to be $1.24 Jun 21'. The reported value in December 2020 was 0.92%. If the Ten-Year note rises (i.e., our debt becomes more expensive), it can indicate increased inflation rampant in the economy coupled with an over-extended monetary supply. Furthermore, economists place a 21% probability for a Recession to occur via the same survey pool from the start of Jan 1, 2021. It will be quintessential in our macro-investing thesis to track the probability indicator over the coming days, considering the political and market instability both fueled through online groupings.  

The items that make this market the most appealing are the amount of money that remains on the sidelines, waiting to pounce in either direction magnifying the trade direction. It will be something to keep attention to in the forthcoming months. Institutional Traders are buying our Playbook. It's up to us to not let them beat us at our own game. We need to trade as we always have, but precise and with limits, and if the Suits try to hedge against us, stay healthy. At City Street Strat and Wall Street Bets alike, we know the actual value of companies. Not like some sell-side research equity analysts, forced to underwrite mystical valuations for the prosperity of their in-house Sales & Trading Desks. Let's keep stops tight, trends mapped out, and take the emotion entirely out of it. There's no emotion in War. The institution leveraging their prowess and power to decimate the little man is fundamentally a declaration of War.