| Tuesday, July 07, 2020 1. Retreat from high point signals concerns for quarterly earnings 2. Amazon holds above 3000 3. Walmart's membership program launch Market Moves Many stocks closed today's session on or near their lowest traded price. Investors showed their concerns for the state of the economy as they sold shares ahead of upcoming quarterly earnings reports next week. With earnings season just a few days away, benchmark indexes reflect both optimism and resistance.
The chart below shows how the price action of the CBOE Volatility Index (VIX) compares with that of the S&P 500 (SPX). While both are confirming an expectation of slightly increased volatility, one point worth mentioning is that yesterday's session showed both the SPX and VIX closing higher than they opened. This reflects the conflict going on in the heads of investors between optimism and concern.
Next week several bellwether stocks will report their results. Three among them are shown in the chart below. This chart gives an indication of how these three market-moving stocks are poised for the action next week. Unsurprisingly, Netflix (NFLX) shows a stronger trend than JP Morgan Chase (JPM) or Citigroup (C), which makes sense because banking stocks are thought to be hurt by the pandemic situation and Netflix is likely to have been helped. However, the reality, once reported, may be different from what investors expect. That possibility is why the VIX has risen strongly in anticipation of earnings season.  Amazon Holds Above 3000
While there is no way to know for certain where the price will go next, the chart below gives some useful clues. Over the past two years Amazon has closed above the upper band of the Keltner channels twice. The most recent occurrence was yesterday but the previous time before that was two and a half years ago. Prices moved higher after that first close, however they later came back to this level.
In the lower panel of the chart, Amazon's absolute price-to-earnings ratio is charted. Over the past years the company's P/E ratio has increased after each earnings report, meaning that investors have paid more for the shares than the increased earnings would warrant. However, in the previous five years before that, this happened only once. Amazon's P/E ratio score has now returned to a level above 140, where it hasn't been for over two years. This would suggest that investors may be getting ahead of themselves right now. 
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Walmart's Membership Program Launch There is another reason for would-be Amazon investors to be concerned. Amazon is facing something it isn't used to seeing: potentially significant competition. Walmart (WMT) announced its intention to launch its Walmart plus program (similar to Amazon's prime membership) this month. Investors were enthused enough to send the stock nearly seven percent higher.
The chart below compares the price action today between the two companies. It is worth taking note that Walmart moved, and held, significantly higher on a day when the market benchmarks retreated a bit. This suggests that investors are persuaded that this program will have significant revenue impact for the company.  The Bottom Line Stocks closed lower on the day as investors tempered their enthusiasm from yesterday's strong buying. With earnings only one week away, investors are showing mixed reactions. Meanwhile the competition between Walmart and Amazon has heated up, and may put price pressure on AMZN shares going forward.
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Tuesday, July 7, 2020
Earnings Anticipation
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