Financial Sector May Rally 11% - 15% Higher

The financial sector is poised for a very strong rally into the end of 2021 and early 2022 as revenues and earnings for Q4:2021 should continue to drive an upward price trend. The US Federal Reserve is keeping interest rates low. At the same time, the US consumer continues to drive home purchases and holiday shopping. Strong economic data should drive Q4 results for the financial sector close to levels we saw in Q3:2021. If that happens, we may see a robust rally in the US Financial sector over the next 45 to 60+ days.

The strength of the recent rally in the US major indexes shows just how powerful the bullish trend bias is right now. Some traders focus on the downside risks associated with the US Federal Reserve actions and/or the concerns related to inflation and global markets. I, however, continue to focus on the strength in the US major indexes and various sector trends that show real opportunities for profits.

Comparing Sector Strength

The following two US market sector charts highlight the performance over the last 12 vs. 24 months. I want readers to pay attention to how flat the Financial Sector has stayed since just before the 2020 COVID event and how the Financial Sector has started to trend higher over the past 12 months. This is because the shock of COVID briefly disrupted consumer activity. Yet, consumers are coming back strong, driving retail sales, home sales, and the continued strong US economic data. Therefore, it makes sense that the Financial sector should continue to show firm revenue and earnings growth while the US consumer is active and spending. Continue reading "Financial Sector May Rally 11% - 15% Higher"

Which Market Trends Will Drive Through To 2022?

Some interesting facts related to market trends and the global economy have come into play recently. After the COVID-19 virus event began, global central banks entered a phase of extended easing. This move was an attempt to transition through the economic concerns related to the immediate shutdown caused by COVID-19. These actions have translated into a new phase of market trending where the Consumer became hyper-active in the global economy while inflationary trends were somewhat muted.

COVID Shifts Global Cycles Faster and Broader Trends

Now that inflation is starting to rise, we may transition away from consumer and speculative market cycles. Over the next 6 to 12+ months, the markets may shift into a late-stage Bullish rally phase. My opinion is the COVID-19 virus and economic event process has resulted in a speedy, possibly 24 to 36 month, extreme cycle phase.

Take a quick look at the Stock Market & Economic Performance cycle example below. We can see that Financials/Transports, Technology, and Capital Goods usually lead a market rally after a bottom in cycle trends. This trend is generally followed by a rally in Basic Industry, Precious Metals, and Energy before we near a peak level in the stock market. Continue reading "Which Market Trends Will Drive Through To 2022?"

Is Zillow's Collapse A Warning Sign? - Part 2

In part one of this article, we discussed how the recent decline in Zillow, Redfin, and Opendoor share prices could reflect a concern that the risks involved in holding large home inventories while attempting to "flip houses" could present for these Real Estate firms. The recent 50% price drop in the share price levels should send a fairly strong warning to investors that these "flipping" processes contain a moderate degree of underlying risk and extended costs in a super-heated and potentially peaking Real Estate trend.

It has been reported that Zillow increased the purchase of homes for their Ibuyer program, from 86 homes in Q2:2020 to 808 homes in Q3:2020, to 3805 homes in Q2:2021. We’ll learn more about their Q3:2021 home buying efforts when Zillow announced earnings.

It has also been reported that Zillow sold more than $1 billion in bonds to investors to fund this operation that includes using their Zestimate algorithm to buy homes quickly, renovate/flip them, and put them back on the market. The super-heated Real Estate market has driven these firms into speculative trading of houses in an open and often hostile market environment. Taking a bigger leap is Opendoor, which purchased 8,494 homes in Q2:2021. This is a massive inventory of homes that may require many months or years to renovate/sell.

Zillow Collapse

Is this trend a buying opportunity for Zillow, Redfin, and Opendoor – or a warning? Continue reading "Is Zillow's Collapse A Warning Sign? - Part 2"

Is Zillow's Collapse A Warning Sign?

Watching Zillow (ZG) move from over $200 per share to recent levels below $90, reflecting a more than 55% collapse in price, while the housing market continues to rally may be an indication that traders/investors have already discounted the future peak in the U.S. capital markets and Real Estate assets related to the current market environment. Zillow is not the only symbol experiencing this broad price decline. Redfin (RDFN) has also declined more than 54% over the past 7+ months.

Is the peak in real estate flippers prices sending a strong warning for traders/investors?

The peak in these stocks happened near February 16-22, 2021. This date, interestingly enough, aligns with a peak in global capital markets using my proprietary Smart Cash Index and a very clear peak in the Chinese Hang Seng Index.

Recent news that Zillow halted the purchases of homes using its "Zestimate" and Ibuyer programs, which act as a purchase, renovate, flip-type of market service allowing home sellers to get an almost instant purchase offer from Zillow has raised questions in my mind related to the potential risks involved in owning large quantities of real estate assets in a shifting market.

This news article suggests Zillow has over 2800 US homes available for sale. We are not aware of how many homes have been purchased and are waiting for completed repairs/inspections before they go on the market. Continue reading "Is Zillow's Collapse A Warning Sign?"

$4550 Is Critical Resistance For The S&P 500

Two main factors are driving the rally in the US stock markets recently; retail traders buying the dip, and Q3:2021 earnings data is starting to shake away the concerns that resulted in the recent market rotation. Combine these activities with the start of the Christmas Rally phase (which usually starts sometime after mid/late-October and carries through into early January), and we have the making of a moderately strong potential price rally in the US major indexes over the next 60+ days.

The $4550 Level Is Critical Resistance For The S&P 500

I’m highlighting this ES Daily and Weekly chart pattern, below, to share with you how important it is to see the ES break above the $4550 level – the past high price peak. If the markets are going to start a new rally headed into the 2021 Christmas season, then we need to see the ES continue to rally and break above the $4550 level. It is critically important that price breach the $4550 level and attempt a strong move higher if this bullish momentum persists.

The ES has already broken above three previous Stand-out Highs, drawn in MAGENTA. This shows the strength of a bullish price advance and building bullish price momentum. Yet, the final price high, near $4550, is critically important from a technical standpoint. Continue reading "$4550 Is Critical Resistance For The S&P 500"