BlackRock Under the Microscope, Gold Surges and Walmart Eyes the Nasdaq 100

TD Active Trader Live - Summary (January 18, 2024)

Key Concepts:

• S&P 500: A stock market index tracking the performance of 500 large-cap companies in the United States.
• Core Inflation: Inflation excluding volatile food and energy prices.
• NASDAQ 100: A stock market index comprising 100 of the largest non-financial companies listed on the NASDAQ stock exchange.
• BlackRock: The world’s largest asset manager.
• Aladdin: BlackRock’s risk management and portfolio analytics platform.
• ETF (Exchange Traded Fund): A type of investment fund traded on stock exchanges.
• Break of Structure (Technical Analysis): A key technical analysis concept indicating a potential trend continuation after a price breaks through a previous high or low.
• Fibonacci Retracement: A technical analysis tool used to identify potential support and resistance levels.
• PPI (Producer Price Index): A measure of the average change over time in the selling prices received by domestic producers for their output.
• Capex: Capital Expenditure - funds used by a company to acquire, upgrade, and maintain physical assets.

1. Market Overview & Economic Data

The S&P 500 was exhibiting a lack of clear direction mid-day, influenced by mixed economic data. Core inflation in the US came in lower than expected, raising hopes for potential Federal Reserve rate cuts. However, corporate earnings reports were creating a counterbalancing force. The heat map showed Nvidia underperforming while AMD, Intel, and Google were showing gains. Financial services were down as bank earnings season began.

2. Individual Stock Updates

• Delta Airlines: Experienced a 5% drop initially, followed by a partial recovery due to mixed quarterly results – a slight beat on earnings per share but a miss on revenue. Bullish projections for the year are providing some support.
• JP Morgan: Declined in early trading despite topping both earnings and revenue expectations for Q4. A one-time charge related to the Apple credit card loan portfolio takeover and disappointing investment banking results contributed to the decline. Potential unfavorable credit card policies from the Trump administration were also cited as a factor.
• Walmart: Is transitioning from the New York Stock Exchange (NYSE) to the NASDAQ, becoming part of the NASDAQ 100 on January 23rd. This move is expected to drive index-linked demand for the stock. Walmart recently partnered with Google to integrate Google Gemini and AI chatbots into its shopping experience, allowing customers to make purchases directly within the chat interface.

3. Technical Take: Gold & Silver

Gold and silver prices reached new record highs, driven by several factors:

• Safe Haven Demand: Geopolitical tensions (Iran, Venezuela) and rising political pressures are fueling demand for safe haven assets.
• US Dollar Weakness: A weakening US dollar is providing a tailwind for precious metals.
• DOJ Investigation of the Fed: Concerns about the Federal Reserve’s independence following a Department of Justice investigation are contributing to investor uncertainty.
• China’s Gold Reserves: China continues to add to its gold reserves, having increased them for the 14th consecutive month, reaching 319.45 billion at the end of December.

Technical Analysis of Gold:

• Gold broke through a previous high of $2,600 (corrected to $2,640 during the show) and is currently retesting that level as potential support.
• A “double bottom” bullish reversal pattern formed previously.
• A “break of structure” occurred when the $2,600 level was surpassed, indicating a continuation of the bullish trend.
• As long as the upward trendline holds, further gains are expected.

4. Banking Sector & Credit Card Regulations

Proposed regulations capping credit card interest rates at 10% for one year, announced by President Trump, are causing concern in the banking sector. This could:

• Reduce profitability for credit card issuers, particularly those with customers having lower credit scores (e.g., Capital One, Synchrony Financial).
• Potentially limit access to credit for individuals with lower incomes and credit scores.
• Force issuers to increase fees to offset lost revenue.

Technical Analysis of KBW NASDAQ Bank Index (BKX):

• The index is in a bullish channel, currently retesting the lower bound of the channel and sitting above its 21-day moving average (at 166).
• The 170 level remains a resistance point. Earnings reports could act as a catalyst for further gains.

5. BlackRock Debate: Bull vs. Bear Case

Bear Case (Jason Nak):

• Low Pricing & High Fixed Costs: BlackRock’s low-fee offerings come with substantial fixed costs, making it vulnerable if market growth slows.
• Fee Pressures: Management fees are under attack, with ETF fees down 30% over the past decade. Growth in AUM needs to be significant to offset fee compression.
• Market Risk: BlackRock’s revenue is tied to asset prices; a market downturn could significantly impact AUM and revenue.
• Technical Analysis: The stock has shown consolidation and resistance around the $1,120 level, with bearish candle patterns indicating potential selling pressure.

Bull Case (Amean):

• Market Leader & Scale: BlackRock is the dominant asset manager with $13.4 trillion in AUM, growing by $2 trillion year-over-year.
• ETF Leadership: BlackRock’s iShares ETFs have a significant market share (30% of the global ETF market).
• Technology & Innovation: The Aladdin platform provides a competitive advantage through its risk management and analytics capabilities. BlackRock is actively integrating AI into its operations.
• Strong Financial Performance: BlackRock has demonstrated consistent revenue and earnings growth, with a strong position in the spot Bitcoin ETF market.
• Technical Analysis: The stock is in an ascending channel, with a recent breakout above a key resistance level, suggesting further upside potential.

6. Options Strategies (Based on BlackRock)

• Bearish Strategy (Put Spread): Buy a put option closer to the money and sell a put option further out of the money to reduce cost and limit risk.
• Bullish Strategy (Call Butterfly Spread): Buy a call option at the money, sell two call options further out of the money, and buy another call option even further out of the money to profit from a moderate price increase.

7. Upcoming Economic Events & Earnings

• PPI Release: The Producer Price Index will be released tomorrow, providing further insights into inflation.
• Supreme Court Ruling on Tariffs: The Supreme Court will rule on the legality of Trump-era tariffs.
• Beige Book Release: The Federal Reserve’s Beige Book will be released, providing anecdotal information on economic conditions.
• TSM (Taiwan Semiconductor Manufacturing) Earnings: TSM will report Q4 earnings after the market close, with a focus on AI chip demand and guidance.
• Bank of America Earnings: Bank of America will report earnings on Thursday.

Conclusion:

The show provided a comprehensive overview of market conditions, individual stock updates, and in-depth technical analysis. The debate on BlackRock highlighted the company’s strengths and weaknesses, while the discussion of options strategies offered actionable insights for traders. The upcoming economic events and earnings reports will continue to shape market sentiment in the near term.