Yesterday’s Commentary shared Walmart’s outstanding earnings report and reviewed its surging share price from a technical basis. Despite being a head-to-head competitor of Walmart, Target is heading down a completely different path. Walmart beat EPS and revenue expectations easily, while Target was short. Target reported EPS of $1.85, well below estimates of $2.30. Unlike Walmart, which raised forward guidance, Target lowered its annual EPS outlook by approximately $1 per share. Target blamed their weak earnings on discretionary products like apparel and home goods. Walmart credited market share gains and grocery items for their earnings beat.

As we noted yesterday, Walmart shares are up nearly 100% this year. Conversely, Target shares, including yesterday’s drawdropping 20+% decline, are down 15%. Moreover, they have gone nowhere in the last five years. Target is much cheaper than Walmart, with a P/E of 12 and a P/S of .53. The charts on the left below show the SimpleVisor average fair value for both stocks. Walmart trades about 40% above its fair value, while Target is about 5% below. Purely from a valuation perspective, Target appears to be much cheaper. However, Wall Street is certainly voting that Walmart is the better of the two stocks.

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What To Watch Today

Earnings

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Economy

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Market Trading Update

Earlier this year, the Technology/Artificial Intelligence chase was on, with the largest names in the technology-heavy Nasdaq surging higher. Over the last few months, stocks like Microsoft, Nvidia, and others have cooled their heels, working off the more extreme overbought conditions. While we usually focus on the S&P 500 in our daily market trading update, I thought looking at the Nasdaq, using the ETF as a proxy (QQQ), would be a change of pace.

Like the S&P 500, the Nasdaq is currently on a short-term MACD sell signal, suggesting that price momentum is under pressure in the near term. While not oversold, the index is holding support at the 20-DMA, with the 50-DMA just below. Notably, the money flow index is trying to turn positive, which should give the index life into year-end if that occurs. While the Nasdaq did break out to a new all-time high following the election, the index again holds resistance at the previous highs from July. The rising trend line from the August lows has continued to be strong support, so a move above the July highs should catalyze a move higher into year-end. However, a break below that rising trend line will suggest a larger corrective move towards the 100-DMA.

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The risk/reward seems evenly balanced, so adding additional risk exposure does not seem prudent until we see a confirmed break of the current trend channel, either above or below. Continue to manage risk, and look for a technical confirmation before making your next move.
 

Options On Bitcoin ETFs

On Tuesday, the Nasdaq started trading options on BlackRock’s iShares Bitcoin ETF (IBIT). According to Bloomberg, 350,000 contracts were traded, with about 80% of them being bullish options. Options already existed for Bitcoin via the futures market traded on the CME. However, most futures traders are institutional-based. The options on IBIT will certainly introduce many more retail traders to the options markets. The new Bitcoin options are likely to boost Bitcoin’s volatility further. As shown below, the implied volatility on IBIT puts and calls is around 65. In other words, options traders think IBIT will move by +/- 65% over the next year, with 68% certainty. Compare that to the S&P 500, which is around 15%

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Trump Tariffs Are Inflationary, They Claim

• Mark Cuban Says Trump’s Tariff Proposals Will Ramp Up Prices- Business Insider
• Fed’s Kashkari Says Trump Tariffs Could Reheat Inflation If They Provoke Global Trade War- CNBC
• Blanket Tariffs Would Be Incredibly Inflationary, Says Strategist- CNBC
• Treasury Secretary Janet Yellen Warns “Sweeping Untargeted Tariffs” Would Reaccelerate Inflation- CBS News
• Trump Tariffs Expected To Spike Inflation, Interest Rates- Business Insider

The headlines regarding Trump’s proposed tariffs and their inflationary consequences are undoubtedly worrying, but will they prove correct?

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