TRADE OF THE WEEK - DRI

Major Highlights from the Global Markets

Previous Week Results and Changes

• TTWO’s share rose 11.69% on Thursday as anticipated, as its quarterly sales beat the earnings and touched a high of $141.96, as indicated in our last mid-week updates.

• Similarly, our analysis of AMAT, as detailed in our last mid-week updates, indicated strength in the stock, and, in line with it, the stock gained 3.95% on Wednesday and 3.36% on Thursday, following its Q2 results.

• Alphabet Inc. (GOOGL), as suggested in last week’s action plan, reached the near-term target of $123, touching a high of $125.97.

   

Highlights of US Markets

• The mega-cap tech stocks rallied during the last week, with strong gains seen in stocks such as Meta and Google’s parent Alphabet Inc. as the share prices rose 5.06% and 4.47%, respectively, for the week. The chipmakers’ stocks, too, showed significant weekly gains, with stocks like Nvidia (NVDA) and AMD rising 10.32% and 11.09% during the week.

• The optimism over the debt ceiling deal fueled the market rally last Wednesday, with Dow Jones Index rising by 1.24% and the KWB regional banking index (KRX) rising by 7.29% for the day. However, on Friday, the regional banks declined, with the KRX index declining by 2.16% for the day after U.S. Treasury Secretary Yellen said that more mergers might be necessary due to a series of bank failures. Dow Jones closed at 33,426.64, up 0.38% for the week, while S&P 500 and Nasdaq closed at +1.65% and +3.47%.

• President Biden, who was in Japan for the G-7 summit, reiterated his stand of avoiding default and is set to return on Sunday to continue debt ceiling negotiations. Fed’s Jerome Powell stressed about high inflation on Friday before the Fed conference and bringing it back to their 2% target. However, he also stated that the rates may not rise as much as they would have following the recent banking failures.

• The dollar index gained 0.47% for the week to close at 103.192 as investors are pricing out near-term Fed rate cuts.

European Markets Highlights

• The pan-European STOXX 600 ended 0.72% higher for the week, while Germany’s DAX and France’s CAC 40 climbed 2.27% and 1.04%, respectively.

• The Eurozone industrial production declined 4.1% sequentially in March, while the industrial output declined 1.4% year-over-year after increasing 2% in the previous month.

• The European Commission has raised the eurozone economic projection with forecasts of a 1.1% GDP expansion this year and 1.6% in the next year, 2024, from earlier projections of 0.9% in 2023 and 1.5% in 2024. In addition, the inflation forecasts have been increased to 5.8% from earlier 5. 6% for 2023 and 2.8% in 2024, from earlier 2.5%.

• The UK’s unemployment rate in the three months through March rose to 3.9%, up from the previous 3.8% in the three months through February, while the wage growth data showed average weekly pay (excluding bonuses) rising to 6.7%, up from year-earlier 6.6%.
  

  Asian Markets Weekly Summary

• Japan’s main indices, Nikkei 225 and TOPIX, rose 4.8% and 3.1%, respectively, driven by strong domestic earnings, overseas buying, and yen weakness. Japan’s GDP expanded above expectations at a 1.6% annualized rate in Q1, driven by consumption revival. On the other hand, its core price index for April rose 3.4% year-on-year, in line with market expectations.

• China’s market ended mixed, with the Shanghai Stock Exchange Composite Index rising 0.34%, whereas the blue-chip index CSI 300 rose 0.17% for the week. Hong Kong’s Hang Seng lost 0.90% during the week. Home prices rose for the fourth consecutive month, with prices rising 0.4% in the month of April while slowing from 0.5% growth in March.

• Regarding Turkey’s general elections, incumbent president Erdogan and his main opponent Kilicdaroglu will face each other on May 28 in the second round as none of the candidates won more than 50% votes.

Major News/ Catalyst Events that were Market Movers

• The week’s released economic data showed retail sales rose 0.4%, below market expectations of a 0.8% increase, while industrial production saw a 0.5% rise in April month on month, much above expectations. In addition, the weekly jobless claims stood at 242,000, below the previous week’s figure of 264,000.

• The AI buzz has been keeping tech stocks high. The recent week saw Meta and Google’s parent Alphabet Inc. shares rise 5.06% and 4.47%, respectively. While other tech giants such as Apple and Microsoft ended the week higher with +1.5% and +3.03%. Nvidia rose 10.32% for the week as the company is set to announce its earnings on May 24 after market close, driven largely by AI enthusiasm which makes analysts expect better results.

• Foot Locker Inc. slipped 22.99% during the week as the company cut its forecasts for annual sales and profit. The warning also sent other stocks like Nike Inc. and Under Armour, Inc down by 4.53% and 3.82%, respectively, during the week.

   

  Bond Market Changes

• The U.S. 10-Year Treasury yield closed at 3.678%, while the U.S. 2-Year Treasury yield was at 4.270%. The bond market is experiencing volatility amid the U.S. debt-ceiling standoff.

  Commodity Market Changes

• Gold closed lower for the week at $1,977.80 per ounce amid the rising dollar, and silver closed at $23.857 per ounce.

• The Crude Oil WTI Futures - Jun 23, closed for the week at $71.67.

Technical/Fundamental Analysis of Mega Cap Stocks

Microsoft Corporation (MSFT)

The stock has been in strong bullish momentum, with both daily and weekly RSI just above 70 and trading at $318.34 above its 50 DMA at $290. Therefore, any correction toward its 50 DMA can be a good buying opportunity for short-term targets toward its all-time high of around $340.

The company’s third-quarter earnings beat the estimates last month, with its net revenue rising 9% YoY to $18.3 billion while its revenue had increased 7% YoY to $52.86 billion.

Taiwan Semiconductor Manufacturing Company Ltd (TSM)

TSM stock just crossed its 50-DMA last week, with the stock seeing a gain of 10.97% for the week. The daily RSI, around 68, suggests significant strength in the stock, and it may be approaching its near-term target of $100-102.

Its groundbreaking product lines, such as 7nm chips and 5nm chips, make up half of its revenue, and the company is in the process of ramping up its 3nm chips production, which offers 15% speed improvement, 30% power reduction and 70% logic-density gain over 5nm chips.

Amazon.com, Inc (AMZN)

Amazon is betting big on India’s fastest-growing economy as the company’s cloud computing segment plans to invest $12.7 billion before the end of the decade in India, which is estimated to contribute $23.3 billion to India’s GDP by the year 2030.

The stock has been trading at $116.25, with its daily RSI at 66.78. It broke out of its descending trendline this week as the stock rose 5.43% for the week, with its weekly RSI around 62, suggesting the bulls are gaining momentum.

The stock also broke out of its consolidation zone of $90-115 after more than three months and is on its way toward $122 and then $135, coinciding with the Fibonacci retracements of the previous downtrend at 0.38 and 0.50 levels.

Last Week and Upcoming Geopolitical Events

• 18 May 2023- Deadline for Black Sea Grain Initiative (BSGI).

• 19-23 May 2023- G7 Leaders' Summit.

• 24 May 2023-Quadrilateral Dialogue (Quad) Leaders’ Summit.

• 25 May 2023-Third anniversary of the killing of George Floyd.

• 28 May 2023-Local and regional elections in Spain.

  Upcoming Economic Calendar for the Week

  • Monday, May 22- 3-Month and 6-Month Bill Auction.

  • Tuesday, May 23- Redbook YoY, New Home Sales, New Home Sales MoM, S&P 500 Global Composite, Manufacturing and Services PMI Flash, and 2-year note auction.

  • Wednesday, May 24- MBA Mortgage Market and Refinance Index, 5-year note auction, FOMC minutes, and EIA Crude Oil Imports Change.

  • Thursday, May 25- GDP Price Index QoQ 2nd Est, GDP growth rate QoQ 2nd Est, Initial Jobless Claims, 4-week, 8-week bill, and 7-year note auctions.

  • Friday, May 26- Personal Spending MoM, PCE Price Index YoY and MoM, Michigan Inflation Expectations Final, and Baker Hughes oil rig count.

Companies Reporting Earnings for the Upcoming Week

Zoom Video Communications Inc. (ZM)

Zoom is set to announce Q1 earnings on May 22 after the market close. The company is expected to report a decline of 5% YoY in its net income, which is projected to be $300 million or $0.98 per share. Its revenue is projected at $1.08 billion. The company has failed to capture the return-to-office work trend and has been facing tough competition from tech giants such as Microsoft and Google. It needs to increase its R&D spending to match its competitors Google and Microsoft, who spent $11.5 billion and $7 billion last quarter on R&D, in comparison to Zoom, which is expected to have spent around $193 million. The company has been teaming up with AI startup Anthropic to integrate the startup’s Claude AI assistant into its own productivity platform.

The stock fell around 90% over the two and half years from October 2020 to touch a low of around $60 recently. It has failed to capitalize on its momentum and was unable to sustain above its 50 DMA in its previous two attempts. It is now trading at $69.37, just above the 50 DMA, with its daily RSI around 63. If the company produces better results than the estimates, then it could be heading toward its near-term target of $85.

Intuit Inc. (INTU)

The business software company is set to report its third-quarter earnings on May 23 after the closing hours. The revenue is estimated at $6.1 billion, an 8.2% increase YoY. The net income per share is projected to be around $8.48 per share, an increase from last year’s $7.65. The 2nd quarter earnings in February beat the market’s expectations for the fourth time in a row, as revenues were up 14% YoY.

The company has successfully navigated the economic cycles and technological shifts and is preparing its business to incorporate AI into its products. However, the tax business’s seasonal nature makes a part of its revenue cyclic, leading to the heavy fluctuation in its quarterly revenue and profits.

The stock has been trading in the range of $350-460 for over eight months now. Presently, its market price of $446.03 is just above its 50 DMA, with its daily RSI around 59. Therefore, the price sustaining above its immediate resistance of $460 can make it move toward $480 or even $490.

Bitcoin/ Ethereum Analysis

Bitcoin has been consolidating between $15,000-$30,000 for around a year now after the falling spree and presently trading below its 50 DMA. Further, the daily RSI at 41.38 suggests that it is currently lacking strength and could be heading toward $24,000-$25,000 in the near term.

Ethereum, similar to bitcoin, has been consolidating in the range of $1000-$2000 after the falling spree and presently trading below the 50 DMA. The daily RSI of around 44 suggests the coin is currently lacking strength and could be heading downward toward $1680-1650 in the coming days.

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