The S&P 500 just reclaimed a key technical level that paves the way for a year-end rally, Fundstrat says

NYSE trader
  • The S&P 500 closed above its 50-day moving average on Friday, signaling that stocks will continue to rise.
  • “This is a sign of the resumption of the uptrend. And given the following constellation of factors, we see stocks surging into year-end,” Fundstrat said Monday.
  • With the S&P 500 back above its 50-day moving average, the next level to watch is its record high.
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The S&P 500 reclaimed a key technical resistance level on Friday when it decisively closed above its rising 50-day moving average.

The near-1% surge on Friday ended an almost three-week consolidation period that sent the S&P 500 below its 50-day moving average amid a period of weak seasonality for the index. And while stocks opened lower Monday, the S&P 500 held above that key support level.

Now the only remaining resistance level for the S&P 500 is its prior record high, representing potential upside of about 2% from Friday’s close.

Fundstrat’s Tom Lee thinks the stock market can rise even higher into year-end as a number of bullish factors begin to line up.

“The S&P 500 managed to close [above] its 50-day moving average last Friday. This is a sign of the resumption of the uptrend. And given the following constellation of factors, we see stocks surging into year-end,” Lee said in a Monday note.

Those factors include third quarter earnings showing continued margin growth, supply-chain disruptions easing, technicals improving, COVID-19 cases falling, and the Federal Reserve remaining supportive of risk assets via its monthly bond purchases and near-zero interest rates, according to the note. The Fed has signaled it will start tapering bond buys this year though the process will last into next year.

And the move higher in stocks comes despite ongoing bearish positioning among investors and the nonstop tendency for pundits to call a top in the stock market this year, according to Lee. “For basically all of 2021, the S&P 500 has risen in the face of deep skepticism, particularly from market pundits.”

Those worries that made some think stocks would continue to fall included higher oil prices, the third wave of COVID-19, soaring commodity prices like lumber, and a surge in interest rates, among others. But the stock market has a tendency to climb a wall of worry, which was no doubt in place in 2021.

Lee previously has put a 4,700 year-end price target for the S&P 500, representing potential upside of 5% from Friday’s close.

S&P 500 price chart
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Beijing expands regulatory crackdown to brokerages that give Chinese investors access to US stocks

china chinese stock market traders investors screen
  • Beijing’s regulatory crackdown that began last year is now spreading to Chinese brokerage firms.
  • China’s personal data privacy law that takes effect on November 1 could lead to violations and compliance risks for brokerages.
  • Shares of UP Fintech and Futu Holdings fell 24% and 15%, respectively, in Thursday trades.
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The year-long regulatory crackdown from Beijing has now spread to Chinese brokerage firms that give mainland investors access to trade US stocks.

The state-run People’s Daily newspaper said Chinese online brokerages could face violations and compliance risks once a new data privacy law takes effect on November 1, according to Reuters. They give Chinese investors access to securities that trade in other markets like the US and Hong Kong.

This latest regulatory crackdown follows an ongoing trend of Chinese authorities going after different industries, from Jack Ma’s Alibaba and Ant Group, to private tutoring companies and video game firms.

The new data privacy rule will regulate the export of personal information, which would make compliance difficult for online brokerage firms that offer cross-border trading services.

Shares of UP Fintech and Futu Holdings fell as much as 24% and 15%, respectively, in Thursday trades. These Chinese brokerages don’t have licenses in mainland China, but allow Chinese citizens to open up accounts after submitting personal information derived from IDs, tax records, and bank statements.

The People’s Daily asked, “after personal information is collected, where does it go?”

If brokerage firms are unable to comply or adapt to the new privacy data law taking effect next month, they could be forced to cut off mainland Chinese investors’ access to trading US and other foreign stocks.

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Dow soars 403 points as jobless claims hit pandemic low and banks deliver strong results

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US stocks surged on Thursday after weekly jobless claims hit a pandemic-era low and third-quarter earnings results from banks beat expectations. The Dow Jones Industrial Average jumped by about 400 points.

Last week’s jobless claims hits 293,000, representing the lowest level since March 2020 and beating economist expectations of 319,000. Continuing claims fell to 2.59 million, besting forecasts as well.

Strong bank earnings results from Morgan Stanley, Bank of America, and Citigroup beat analyst expectations and suggested consumers remain on solid footing as provisions for credit losses continued to fall from their pandemic heights. The banks were trading higher by about 2% early Thursday.

Here’s where US indexes stood shortly after the 9:30 a.m. ET open on Thursday:

Cathie Wood’s Ark Invest put its name behind a bitcoin futures ETF that was filed with the SEC on Wednesday, signalling that the futures-based crypto ETF may be eventually approved by the regulatory agency.

Citigroup saw its profits surge 48% in the third-quarter following the release of loss reserves and a strong period for equity and fixed income trading.

Bank of America beat its earning estimates for the third-quarter, as record-high advisory fees and a $1.1 billion reserve release helped boost profits.

Morgan Stanley posted a strong third-quarter earnings report as growth in its investment banking and wealth management divisions bested estimates.

West Texas Intermediate crude oil rose as much as 0.92%, to $81.18 per barrel. Brent crude, oil’s international benchmark, jumped 1.13%, to $84.12 per barrel.

Gold jumped as much as 0.23%, to $1,798.80 per ounce.

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Plug Power jumps 13% after it partners with Airbus to study and develop hydrogen-powered air travel

Plug Power
Plug Power forklift system.

  • Plug Power surged 13% on Wednesday after the company inked hydrogen partnerships with Airbus and Phillips 66.
  • The hydrogen fuel-cell developer will work with Airbus on a hydrogen-powered airport feasibility study.
  • Plug Power also said it signed a MOU with Phillips 66 to collaborate on hydrogen business opportunities.
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Plug Power surged as much as 13% on Wednesday after the hydrogen fuel-cell developer said it inked partnerships with Airbus and Phillips 66.

The Latham, NY-based company partnered with Airbus to conduct a feasibility study of bringing hydrogen to future aircraft and airports. Airbus is working towards a goal of bringing zero-emission aircraft to market by 2035, and it thinks hydrogen could play a role in that goal.

Airbus will work closely with Plug Power to develop a joint study and roadmap that could deliver hydrogen to aircraft and the airport ecosystem in the future. Plug Power will build deployment scenarios for green hydrogen infrastructure at airports, while Airbus will provide insight on hydrogen aircraft characteristics.

“This partnership with Plug Power will enable us to leverage their expertise to decarbonize airports while preparing them for the arrival of hydrogen aircraft by 2035,” Airbus Vice-President Glenn Llewellyn said.

Separately, Plug Power signed a memorandum of understanding to collaborate on the development of hydrogen-based business opportunities with Phillips 66, a diversified oil refiner that also operates retail gas stations.

The companies will explore how to deploy Plug Power’s technology within Phillips 66’s operations, including scaling hydrogen into the industrial sector, advancing hydrogen fueling opportunities, and developing hydrogen-related infrastructure.

Also aiding to a boost in Plug Power’s stock on Wednesday is an upgrade from Morgan Stanley. The bank raised its price target on Plug Power to $40 from $35, representing potential upside of 34%, and upgraded it to “Overweight” from “Equal-weight.”

Plug Power stock price
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SEC rule meant to protect retail investors from pump-and-dump schemes ended up giving an edge to professionals

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  • A new SEC rule meant to protect retail investors from pump-and-dump schemes has also blocked access to thousands of over-the-counter stocks.
  • The new rule prevents brokers from providing price quotations on OTC stocks that don’t release up-to-date financials.
  • But the rule has also restricted individual investors’ ability to buy stocks of sound companies, giving professional investors an edge.
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A new SEC rule created to protect investors from pump-and-dump schemes has had the unintended consequence of giving professional investors an edge over individual investors since it went into effect at the end of September.

As most pump-and-dump operations take advantage of illiquid, over-the-counter securities that don’t provide current financial information, the rule sought to prevent brokers from providing price quotations on securities that don’t have up-to-date financials.

Technological advancements related to the rule change “enable us to require that information in the OTC market be more timely, enabling investors to make better informed investment decisions, and reducing fraud in these markets where retail presence is significant and, unfortunately, pump-and-dump and other frauds are too common,” former SEC Chairman Jay Clayton said last year.

Of the more than 12,000 securities that trade on the OTC Markets, more than 2,000 of them are currently subject to the price-quotation limitation.

But while the rule change might make it harder for schemers to inflate stock prices with false or misleading information and then dump shares on unwitting investors, it also makes it nearly impossible for retail investors to buy OTC securities of profitable, dividend-paying businesses that don’t post updated financials.

That has led to a drop in demand for many OTC securities, resulting in sharp declines in stock prices. Retail investors that hold an OTC stock that now falls under the new SEC rule are only left with the option of selling their security, not buying more.

One OTC security that saw a big drop after the rule went into effect was Canandaigua National, an upstate New York community bank that is profitable and offers a 4% dividend yield. The stock, which barely traded hands even before the rule change, saw its price fall 27% virtually over night.

“We find ourselves in a situation where there are real opportunities sitting in front of us, but we can’t take advantage of them!” retired investor Dave Wetzel told The Wall Street Journal.

But professional investors can still buy OTC stocks that fall under the SEC rule, which is meant to protect individual investors who may have access to less information.

And David Waters of Alluvial Capital Management is doing just that. “It’s created an opportunity for professionals at the expense of retail investors. It’s an unfair transfer of value,” Waters told The Wall Street Journal.

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An SEC rule meant to protect retail investors from pump-and-dump schemes ended up restricting access to markets, giving an edge to professionals

nyse trader
  • A new SEC rule meant to protect retail investors from pump-and-dump schemes has also blocked access to thousands of over-the-counter stocks.
  • The new rule prevents brokers from providing price quotations on OTC stocks that don’t release up-to-date financials.
  • But the rule has also restricted individual investors’ ability to buy stocks of sound companies, giving professional investors an edge.
  • Sign up here for our daily newsletter, 10 Things Before the Opening Bell.

A new SEC rule created to protect investors from pump-and-dump schemes has had the unintended consequence of giving professional investors an edge over individual investors since it went into effect at the end of September.

As most pump-and-dump operations take advantage of illiquid, over-the-counter securities that don’t provide current financial information, the rule sought to prevent brokers from providing price quotations on securities that don’t have up-to-date financials.

Technological advancements related to the rule change “enable us to require that information in the OTC market be more timely, enabling investors to make better informed investment decisions, and reducing fraud in these markets where retail presence is significant and, unfortunately, pump-and-dump and other frauds are too common,” former SEC Chairman Jay Clayton said last year.

Of the more than 12,000 securities that trade on the OTC Markets, more than 2,000 of them are currently subject to the price-quotation limitation.

But while the rule change might make it harder for schemers to inflate stock prices with false or misleading information and then dump shares on unwitting investors, it also makes it nearly impossible for retail investors to buy OTC securities of profitable, dividend-paying businesses that don’t post updated financials.

That has led to a drop in demand for many OTC securities, resulting in sharp declines in stock prices. Retail investors that hold an OTC stock that now falls under the new SEC rule are only left with the option of selling their security, not buying more.

One OTC security that saw a big drop after the rule went into effect was Canandaigua National, an upstate New York community bank that is profitable and offers a 4% dividend yield. The stock, which barely traded hands even before the rule change, saw its price fall 27% virtually over night.

“We find ourselves in a situation where there are real opportunities sitting in front of us, but we can’t take advantage of them!” retired investor Dave Wetzel told The Wall Street Journal.

But professional investors can still buy OTC stocks that fall under the SEC rule, which is meant to protect individual investors who may have access to less information.

And David Waters of Alluvial Capital Management is doing just that. “It’s created an opportunity for professionals at the expense of retail investors. It’s an unfair transfer of value,” Waters told The Wall Street Journal.

Read the original article on Business Insider

Facebook stock is testing a key 200-day support level after whistleblower allegations help spark 17% sell-off

Facebook CEO Mark Zuckerberg (left) and former Facebook employee Frances Haugen.
Facebook CEO Mark Zuckerberg (left) and former Facebook employee Frances Haugen.


Facebook stock fell more than 2% on Tuesday, extending a month-long decline that has been accelerated by allegations from whistleblower Frances Haugen that the social media firm put profits before its users’ well being.

Haugen testified to Congress last week that Facebook’s engagement-based algorithms have helped fuel civil discord and that the company doesn’t do all that it can do to remove hateful and false content from its platforms. That, combined with an hours-long outage of Facebook properties including Instagram and WeChat last week, have sent shares tumbling.

Shares fell to a key support level that hasn’t been tested since early March: the rising 200-day moving average. As of Tuesday afternoon, the average stood at $317.14, while Facebook stock hit an intraday low of $317.37.

Moving averages are a lagging trend-following indicator that technical analysts use to smooth out price movements and help identify the direction of the current trend.

Traders view the the 200-day moving average, which is the average daily closing price of a stock over its previous 200 trading sessions, as a benchmark that often represents areas of significant support or resistance for a security.

If Facebook stock manages to decisively hold above its 200-day moving average, investors will likely look to the shorter-term 50-day moving average as the next key resistance level to be tested. The 50-day moving average currently sits at $358.40, representing potential upside of 11% from current levels.

Shares of Facebook are nearing bear-market territory, being down 17% from its record high reached on September 1, and investors are now hoping that the share price will stage a rebound at this crucial support level. The rising slope of the 200-day moving average would suggest to traders that the direction of the trend will remain up.

But Facebook has work to do in assuring investors that the company will be able to navigate Haugen’s testimony, the recent Instagram outage, and ongoing headwinds from Apple’s recent iPhone privacy update, which has hampered the reach of its advertising clients.

Facebook stock price
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General Motors could surge 46% as it transitions vehicle software to a recurring subscription model, Wedbush says

2024 GMC Hummer EV SUV
2024 GMC Hummer EV SUV.

  • General Motors’ 10-year plan will see the company transition to a profitable software subscription model, according to Wedbush.
  • The research firm said in a Monday note that recurring revenue from its software business will drive 46% upside in GM stock.
  • “The software and services business attached to the EV shift represents a potential gold mine for the company,” Wedbush said.
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General Motors is poised to capitalize on its transition to electric vehicles through the sale of value-added software that will enable autonomous driving capabilities, according to a Monday note from Wedbush.

That should help drive General Motors’ stock price to record highs, with Wedbush backing its “outperform” rating and an $85 price target, representing potential upside of 46% from Monday’s close.

Wedbush analyst Daniel Ives said General Motors’ aggressive 10-year growth plan laid out at its analyst event earlier this month is “clear and hittable.” The automaker said it expects to double its revenue from $140 billion to $280 billion by 2030.

That growth will be driven in part by a software subscription for vehicles, which would enable autonomous and assisted driving capabilities. Ives expects General Motors to realize $2,000 in annual recurring revenue per vehicle from its software offerings.

“The software and services business attached to the EV shift represents a potential gold mine for the company, bringing in $20 billion to $30 billion of incremental services and software [revenue] we see over the next 5 to 7 years,” Ives said.

And as the demand for autonomous driving increases, General Motors will have considerable pricing power and be able to raise its software subscription prices throughout the decade, according to Ives. General Motors has been developing its own autonomous driving technology through its 2016 acquisition of Cruise.

While General Motors’ autonomous driving software subscription model is still under development, most important to the company’s stock price going higher is a re-rating from Wall Street. That will hinge on the automaker’s ability to convert its existing vehicle base to electric.

“The Street for obvious reasons remains skeptical and the Chevy Bolt fiasco and chip shortage have combined cast a dark shadow over the stock and thus kept many investors at bay,” Ives explained. But the automaker can shift the narrative among investors as it lays the groundwork to capitalize on a “golden opportunity,” according to Ives.

Ives expects General Motors to convert 20% of its customer base to electric vehicles by 2026, and 50% by 2030. That EV base is what will help drive an explosion in software growth for the 113 year-old company.

Shares of General Motors traded up 1% in Tuesday trades, and are up about 40% year-to-date.

General Motors stock price
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Palo Alto Networks could rise 22% on the back of increased government spending to combat cyber threats, Wedbush says

Air Force cyberattack cyber-defense cyber
Tech. Sgt. Noe Kaur, a cyber-defense supervisor with the 1st Combat Communications Squadron, launches cyberattacks as part of an exercise at the US Air Forces in Europe Regional Training Center at Ramstein Air Base in Germany, March 8, 2019.

  • Palo Alto Networks stock could surge 22% from increased government spending on cybersecurity, Wedbush said in a Sunday note.
  • Analysts said internal checks on spending are tracking higher after recent high-profile attacks.
  • “We believe federal cybersecurity spending is tracking to be up 20% to 25% year-over-year for 2021 with consistent growth into 2022,” Wedbush said.
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High-profile cyber attacks against Solarwinds and Colonial Pipeline have ignited increased spending in cybersecurity that is set to benefit Palo Alto Networks stock, according to a Sunday note from Wedbush.

Wedbush raised its price target on Palo Alto Networks to $600, representing potential upside of 22% from Friday’s close. The investment firm cited internal checks on cybersecurity spending that are tracking strong for the third quarter.

“Our September quarter checks have been robust for the cyber security space as deal flow is clearly accelerating into year-end on the digital transformation shift among enterprises and governments,” Wedbush explained.

Much of that spending is being driven by the government, as civilian and defense agencies “are laser focused on protecting data/endpoints/infrastructure” amid an ongoing surge in cyber attacks.

“We believe federal cyber security spending is tracking to be up 20% to 25% year-over-year for 2021 with consistent growth into 2022 as the Biden cyber security standards and recent high profile attacks are accelerating larger deals,” Wedbush said.

Deal activity for Palo Alto Networks is tracking ahead of Wedbush’s expectations with momentum building into year-end, according to the note. And some of that business is coming from the private sector, as executive decision makers green light more cybersecurity spending in hopes of not becoming a news headline in a future attack.

Growth from the private sector should continue as a shift to the cloud continues. “We believe there is a $200 billion growth opportunity in cloud security alone ‘up for grabs’ over the next few years for those vendors that have the solution sets to protect critical cloud deployments,” Wedbush said.

The positive internal spending checks and a strong growth outlook give Wedbush “high conviction” in owning secular cybersecurity stocks like Palo Alto Networks. Other cyber security stocks Wedbush is bullish on includes Tenable and CyberArk.

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Bank of America outlines what could make or break an investor’s ability to generate positive stock-market returns over the next decade

NYSE trader
New York Stock Exchange.

  • The buy-and-hold investment strategy that has worked so well may be at risk over the next decade, Bank of America said in a Friday note.
  • The bank forecasts a flat return for the stock market over the next 10 years, unless dividends are reinvested.
  • “The simple act of reinvesting dividends could yield a total return equivalent to the S&P 500 at 6,000 in 2031,” BofA said.
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Investors conditioned to buy stocks and hold for the long-term may be in for a decade of pain if Bank of America’s outlook proves correct.

Led by equity and quant strategist Savita Subramanian, the bank highlighted that its valuation model is currently forecasting a flat return over the next decade for stocks – or 0% – according to a Friday note that cited supply-chain woes and peak globalization.

“COVID-related supply chain issues have spread beyond consumer goods. And longer-term signs of global friction are easy to find. But risk premia barely reflects this,” Subramanian explained.

To combat the potential 0% returns over the next decade, BofA says the number one thing an investor can do is reinvest their dividends.

“The simple act of reinvesting dividends could yield a total return equivalent to the S&P 500 at 6,000 in 2031, assuming long-term average growth and payouts,” the note said.

Hitting that mark in the next 10 years would represent a total return of only 36% for the S&P 500, or an annualized gain of about 3%. That’s just a fraction of the past decade’s return of 360%, representing an annualized return of about 16%, according to data from Koyfin.

But with stocks expensive on nearly every metric, “double digit gains from the benchmark may be hard to repeat,” Subramanian said.

While BofA’s outlook is much bleaker than recent history, it would continue a decades-long trend of dividends driving much of the stock market’s return. Since 1970, 84% of the total return of the S&P 500 can be attributed to reinvested dividends, according to data from Morningstar and Hartford Funds.

To enable dividends to be automatically reinvested, an investor can contact their broker or enable the option online. And if fractional share trading is allowed, investors can manually purchase fractional shares whenever a dividend is paid to their account.

For example, every time Apple pays its quarterly dividend of $0.22 per share, an Apple investor will automatically buy .0015 shares of Apple. Then, compound interest will do the rest of the work.

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