Markets
Could This Stock Gain From Enhanced Child Tax Credit?
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Inflation is rising, yes.
10 Year Treasury Yields are trading lower, yes.
The US Dollar is trading higher, yes.
What does this mean?
The bond market is saying the opposite than what the news headlines are saying.
The news is saying inflation but, Treasury yields are selling and the Dollar is rising.
So that brings us to a question, Are We Headed Into A Deflation Period?
Regardless of deflation or inflation there is one stock that continues to perform in great economic conditions and bad economic conditions.
Costco Wholesale Corp [NASDAQ:COST]
Costco is the first stock featured in this report. As it may look over extended in the near term with a RSI above 70 it has made this report because of the potential demand that can come inside the stores due to the Enhanced Child Tax Credit.
Child Tax Credit
On July 15th the United States Enhanced Child Tax Credit started to hit families direct deposits of around 35 million families. In fact according to As.com the IRS did confirm that yesterday around 35.2 Million families have been sent a direct payment.
In the past only people who earned enough money to owe income taxes would qualify for this credit but, now a average of $423 per month will be hitting families direct deposit account.
“The IRS and Treasury said it sent payments for almost 60 million children on Thursday, totaling $15 billion. Almost 9 of 10 payments were sent via direct deposit, the agencies said.”- CBS News
How does this potentially benefit Costco?
- Costco is a family experience. Families go together to Costco and shop and with more money coming into families pockets, more money could be spent at Costco.Here is a quote from CNBC article back in 2017, “I’ve spoken to a few consumers that have started their relationship with Costco not so long ago and several of them recall the Costco experience with their families — shopping trips, eating in the food court, items at home — and so for them to now go back and have their own membership also almost becomes a rite of passage,” says Hong
- Increased Memberships
Costco requires a membership to shop at their store. In fact, the majority of their items are sold in bulk so products are more expensive because you are buying more at once. Now that families are receiving on average $423 per month too as much as $1,000’s per month extra, it will be interesting to see if memberships do increase as families look to change their shopping habits.
With gas prices rising across the nation as inflation does rise, being a Costco member allows you to fill up your cars gas tank at Costco’s gas stations which are dramatically lower priced than the average gas station. This alone could cause membership demand.
To Summarize this section:
Things that could bring demand to Costco:
- Raised gas prices=more members to take advantage of Costco’s lowered gas priced
- Will more families become members to Costco with more income per family due to the Child tax credit?
- Will consumer shopping habits change and households start spending more money on groceries per household?
Will deflation impact Costco?
Costco has been called a “Recession Proof Stock” by many publications in the past. The ability for this company to thrive and stay alive during a contracted economy has gained the attention of many.
Costco’s customer base has a average household income of over a $100,000/year. With their customers in the middle class with steady income, they are not impacted as much by a contracted economy. This has allowed Costco to have stayed alive during past recessions.
INFLATION is GOOD
The news and headlines think of inflation as a bad thing for stocks. It may be for lower income per household stores but Costco has a customer base that are usually in strong financial standing.
With prices inflating Costco has already warned customers of possible price hikes for key goods.
Price hike are only bad if demand decreases. If demand increases or stays the same, price hikes will mean more money and revenue for Costco.
Now, as Costco is seeing their suppliers raise prices by as much as “double for containers and shipping” it could have a impact on margins in a negative manner.
The Trader
Costco’s monthly chart shows a few things worth mentioning:
- It is in a very strong uptrend since 2010
- It is currently trading near upper channel resistance
- The RSI is overbought above 70 but, it has been higher multiple times in the past
Looking at the monthly chart you are probably wondering, why this is on the powerhouse report.
- This is not featured as a Momentum stock but, being featured as a potential strong stock in a longer term portfolio.
Now for the momentum short term trader…
The Daily Chart
For short term traders…
Costco had a very bullish breakout over $388 which resulted in a additional breakout over $400. Now, it is trading in a range around $404 and $415.
The area to watch in my opinion is going to be around the $415 area. If it does breakout above the $415 area this stock can potentially continue to drift to the upside on momentum. As it continues to move higher with little consolidation, the risk is higher for a volatile pullback or shakeout so stops should be raised as price increases in my opinion.
Now for dip buyers..
Costco has yet to pullback and test $400 and confirm it as support. Often when a stock breakouts it will pullback at some point to a key level and test it and if it is strong will hold as new support. If it does indeed pullback, then around $400 or around $388 could be areas of support.
Warning: If Costco does fall below $388 which was the prior breakout level then it could attract supply and possibly cause more weakness so in my opinion, be careful.
Markets
The Impact of Aehr Test Systems’ Struggles on the Electric Vehicle Market
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Aehr Test Systems (NASDAQ: $AEHR), a key player in the semiconductor industry, recently made headlines due to its continuing trend of issuing weak financial guidance. This development raises significant questions about the potential repercussions for the electric vehicle (EV) industry, which includes giants such as Tesla ($TSLA), Lucid Motors ($LCID), NIO Inc. ($NIO), Nikola Corporation ($NKLA), Rivian Automotive ($RIVN), Fisker Inc. ($FSR), and Mullen Automotive ($MULN). The crux of the concern lies in Aehr Test Systems’ critical role in the production of semiconductor components essential for EVs, which suggests that its challenges could have broader implications for the sector.
Unpacking Aehr Test Systems’ Challenges
Aehr Test Systems has attributed its disappointing financial guidance to a slowdown in EV production, a key market for its testing solutions. This downturn is partly due to burgeoning inventories at several EV manufacturers, a situation exacerbated by a challenging macroeconomic landscape that has dampened auto sales. The semiconductor testing company’s recent earnings reports fell short of Wall Street’s expectations on both revenue and profit margins. Furthermore, a significant adjustment was made by analysts, with price targets for Aehr’s stock being slashed from $25 to $12, underscoring the market’s growing apprehension regarding the company’s performance and, by extension, its impact on the EV sector.
Analyzing the Ripple Effects on the EV Industry
The interconnection between semiconductor suppliers like Aehr Test Systems and EV manufacturers is critical. Semiconductors are the backbone of modern EVs, powering everything from battery management systems to advanced driver-assistance systems (ADAS). Any disruption in the supply of these components can lead to significant production delays and financial strain for EV companies.
The current challenges faced by Aehr Test Systems, therefore, pose a potential threat to the EV market’s growth trajectory. Investors and stakeholders within the EV space are keenly observing these developments, concerned about the potential for extended production delays and increased costs. Moreover, the EV industry, known for its rapid innovation and growth, might face hurdles in maintaining its momentum in the face of such supply chain challenges.
Looking Ahead: Is the EV Industry at a Crossroads?
While the immediate outlook might seem daunting for both Aehr Test Systems and the broader EV market, it’s essential to consider the industry’s resilience and capacity for innovation. EV manufacturers have historically navigated supply chain disruptions with strategic adjustments and are likely to continue doing so. Additionally, the global push towards electrification and sustainable transportation continues to provide a robust demand backdrop for EVs.
In conclusion, while Aehr Test Systems’ current predicament and its potential impact on EV production warrant attention, it may not necessarily spell doom for the industry. The situation underscores the need for EV manufacturers to diversify their supply chains and enhance their resilience to external shocks. As the EV market continues to evolve, its ability to navigate such challenges will be a critical test of its long-term sustainability and growth potential.
Markets
Fisker Inc.’s Abrupt End to Automaker Talks Sparks Industry Speculation
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In a surprising turn of events, Fisker Inc. (FSR), a prominent player in the electric vehicle industry, announced that discussions with a significant automaker have come to an abrupt end. This development, revealed after the market closed on March 22, 2024, has sent ripples through the automotive sector, raising questions about Fisker’s future strategies and its impact on the electric vehicle market.
A Sudden Halt in Negotiations
Fisker Inc., known for its innovative approach to electric vehicle design and manufacturing, had been in the spotlight due to its negotiations with a major automaker. These talks were anticipated to potentially culminate in a significant transaction, positioning Fisker for a new phase of growth and collaboration within the industry. However, the unexpected termination of these discussions has shifted the focus to the challenges and uncertainties facing Fisker.
Exploring Strategic Alternatives
Following the cessation of negotiations, Fisker Inc. is now thrust into a period of strategic reevaluation. The company is openly considering a broad spectrum of alternatives to navigate this setback. Among the options are in-court or out-of-court restructurings, various capital market transactions which hinge on prevailing market conditions, and potential refinancing strategies for existing debt. Fisker is also contemplating the issuance of equity securities, the sale of assets or business units, and other strategic maneuvers that could steer the company through this turbulent phase.
Market Reaction and Trading Halt
The market’s reaction to this news was swift and severe, with Fisker’s stock trading being halted due to pending news. Before the halt, Fisker’s shares had plummeted by 28%, trading at a mere 9 cents a share. This drastic drop underscores the market’s sensitivity to the negotiations’ outcome and the resulting uncertainty surrounding Fisker’s future.
Navigating Uncertainties
The road ahead for Fisker Inc. is fraught with uncertainties and potential risks. The company’s admission that there is no guarantee of favorable outcomes from exploring strategic alternatives highlights the precarious position Fisker finds itself in. The electric vehicle market, known for its fierce competition and rapid innovation, may not afford Fisker much time to regroup and realign its strategies.
Implications for the Electric Vehicle Industry
Fisker’s current predicament is not just a standalone event but a development that could have wider implications for the electric vehicle industry. It raises questions about the sustainability and viability of partnerships and negotiations within this highly competitive sector. As companies vie for dominance and collaboration opportunities, Fisker’s experience may serve as a cautionary tale for other players in the market.
The Bottom Line
The termination of negotiations between Fisker Inc. and a major automaker marks a significant turning point for the company. As Fisker explores various strategic alternatives to overcome this hurdle, the electric vehicle industry and its stakeholders will be watching closely. The outcome of Fisker’s strategic reevaluation could provide valuable insights into the resilience and adaptability of companies within this dynamic market.
Markets
Navigating the Green Surge: Investment Opportunities in Germany’s Legalized Cannabis Market
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Germany’s recent legislative leap towards the legalization of cannabis, set to take effect on April 1, 2024, has sent waves through the financial markets, particularly exciting traders and investors within the burgeoning cannabis sector. The Bundesrat’s decision not only opens up new avenues for personal cannabis consumption but also signals a broader shift that could redefine the European cannabis landscape. This move has prompted a significant uptick in the stocks of leading cannabis companies, presenting a unique opportunity for traders to tap into this momentum.
Stock Movements and Market Sentiment
The immediate aftermath of the announcement saw a notable surge in cannabis stocks, with Canopy Growth Corporation’s stock skyrocketing by 68%, and MediPharm Labs Corp. enjoying a 19% uplift. Similarly, IM Cannabis Corp. experienced a 44% surge, while Village Farms International Inc. saw an 8% increase. These movements underscore the market’s optimistic outlook towards the future of the cannabis industry in Germany and, by extension, Europe.
Strategic Implications for Cannabis Companies
Traders should closely monitor companies like MediPharm Labs, which has strategically positioned itself within the German market through its subsidiary, Beacon Medical. With an expanded product approval portfolio and an exclusive supply agreement with STADA, MediPharm is poised for significant growth, potentially impacting its stock valuation and offering lucrative trading opportunities.
Canopy Growth’s strategic expansion, leveraging its Storz & Bickel vaporizer brand and medical cannabis offerings, positions it as a formidable player in the German market. The company’s focus on medical cannabis, buoyed by the reclassification of cannabis as a non-narcotic, could lead to increased patient engagement and market penetration, factors that traders should consider when evaluating Canopy Growth’s stock potential.
IM Cannabis’s robust growth in the German market, highlighted by its impressive sales figures and distribution capabilities, marks it as another key player for traders to watch. The company’s infrastructure and strategic partnerships could facilitate accelerated growth in the wake of the new legislation, potentially influencing its stock performance.
Curaleaf’s Expansion and Strategic Acquisitions
Curaleaf’s recent acquisition of Northern Green Canada (NGC) underscores its commitment to expanding its footprint in Germany. This strategic move, aimed at capitalizing on the anticipated growth in the German medical cannabis market, could present new trading opportunities as the company integrates NGC’s operations and leverages its market position.
Village Farms International’s Strategic Positioning
Village Farms International’s strong link to the German market, evidenced by its EU GMP certification and successful introduction of Canadian strains, positions it well to benefit from the legislative change. Traders should monitor Village Farms’ performance closely, as its strategic focus on Europe could yield significant returns in the evolving cannabis landscape.
Trading Considerations and Market Outlook
For traders, the legalization of cannabis in Germany represents a pivotal moment with far-reaching implications for the cannabis industry and related stocks. The initial stock surges post-announcement offer a glimpse into the potential volatility and trading opportunities within this sector. Moving forward, traders should closely monitor the strategic moves of key players, regulatory developments, and market sentiment to capitalize on the dynamic shifts within the cannabis market.
The Bottom Line, Germany’s foray into cannabis legalization presents a fertile ground for traders, with significant stock movements and strategic expansions offering a plethora of trading opportunities. The evolving regulatory landscape and the potential domino effect on other European markets further augment the allure of cannabis stocks in this new era. Traders adept at navigating the complexities of the cannabis sector could find themselves well-positioned to reap the benefits of this legislative milestone.
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