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RECAP OF LAST WEEK AND RESULTS:
Aurinia Pharmaceuticals: We were looking for this stock price to move to $35+ on an FDA approval, however, it reached $20. We still think this one will bounce back and reach $35 by March when they report earnings.
Palantir: From its price of $32.50, We called this stock to move to $38+ per share. They reached $40 per share on Monday.
Our option calls went up 70% in value when they reached $38.
Apple & Tesla earnings: From Apple’s price of $140, We called Apple to go to $148, however, it reached $144 and fell down after earnings. If interested, this a good time to buy in this week for a delayed increase in price. This is the first quarter it ever made 100 Billion dollars in revenue and we are expecting it to go up after the broader market corrects.
From Tesla's Price of $840, we called it to go over $850, and it went to $880, before coming down after earnings.
IN THIS ISSUE
The Reckoning of Billionaire Hedge Funds vs the Retail Traders
After notifying subscribers, we believe this will do well and run up into earnings. They have a growing subscription service that will rival Netflix!
Earnings on February 9th which may define the direction it trades because we will get a closer look at its revenues
Hedge Funds vs. Retail Traders
Normally we only talk about what stock picks that we want are looking at however, we think it is necessary to address this as it is and can potentially impact the direction of the broader stock market in general.
Recently there has been this phenomenon called a short squeeze that has impacted the market in quite a few companies. GameStop (GME) has been overly shorted by Hedge Funds which is essentially betting the stock will go down. In fact, they bet so much against the stock that all of the shares were taken by these hedge funds. The hedge funds borrowed over 150% of the outstanding float of the stock. Redditors on a forum called Wallstreetbets found an exploit in these companies by realizing that if they bought en masse, the price of the stock would increase over 1000%. This started back in November when they realized GameStop could be turning around and it was overly shorted. Here’s an article on the history of how this has unfolded.
After last week there have been a lot of controversies as a few hedge funds went bankrupt from this because they took positions that were extremely risky. Billions were lost.
Brokerages such as Robinhood and TD Ameritrade were the first to stop their users from buying the stocks that were heavily shorted. This sparked a wide controversy because it is essentially manipulating the market by limiting buying of a certain stock. Many argued that billionaires have manipulated the market for a long time and now that the billionaires are getting hurt, they are trying to regulate. This has sparked a movement that may be here to stay. Retailers are banding together to push back on the large market makers.
The caveat to this situation is that there may have been inefficiency in the market due to the “over” shorting of the stocks. There is an intermediary between brokerages called a clearinghouse which takes two days to settle funds. Due to the rapid price escalation, there could have been no shares to buy since the hedge funds were unable to buy out the shares that they borrowed.
What you need to take from this:
If hedge funds go under, then they will have to liquidate their positions in the market which could make the whole market go down. Also, another thing to watch out for is that if the market is halted for a long period of time by the SEC, the hedge funds that have not closed out their large losses will be paying interest on the amounts that they owe. The number of interest payments that they may have to pay would be absurd and could cause a domino effect on the market as all the money starts to be pulled out since they have to pay back their losses.
The stock market has a high potential to come down from its highs in these coming weeks. We could see a small crash, (not as large as the pandemic scare) but we could definitely be in for a large market correction.
Be cautious on your position sizes this week and maintain some cash. There may be plenty of buying opportunities in the coming weeks, which we will keep you notified of by our premium subscription.
Disney is a world-known business that has been known for its movies, parks, and products that it produces that give children and adults alike the chance to dream. Recently they have been growing one of their services in streaming which is competing with another streaming company Netflix. They have subscription services that people can buy to watch Hulu, ESPN+, and the main service, Disney+. After the recent earnings of Netflix for their explosion of subscription growth over the holidays. We are expecting Disney+ to do even better. Investors will be watching this week as Disney reports their earnings on February 11th and will give updates on how their streaming services are doing. We have seen that they have many new shows coming onto their platform that is exclusively owned by Disney. This will increase their growth substantially. For more information that dives into the details of how we are correlating Disney’s growth with Netflix, click here.
Another aspect that has stunted Disney is that they shut down their theme parks due to the novel COVID-19. The parks are now open and are also looking to see how they perform as more people start to go back to vacations when the pandemic concerns start to wane.
Current Price: $167
One Week Target: $172
One Month Target: $189
One Year Target: $250
Due to the nature of the broader market this week, we expect this stock to stay near its price or go down before coming back up. If interested, you might look to buy if it does drop. We think that its earnings will positively impact its stock price.
Airbnb is a vacation rental company that allows individuals to rent out their living spaces to others. It functions as a hotel, but instead, you get to stay at some pretty cool houses and other living spaces. You can select options like getting the entire house to yourself, or only get a portion of the house to cut the price down. They allow you to travel and stay at places that feel like home. Airbnb IPO’D Dec. 9th and opened at a price of $146. The price has moved up since then to a little over $200. Seeing the potential of this company is driving up the price.
They report their first set of earnings on February 9th. This will be a huge indicator of where this stock will go. In the middle of a pandemic, people have stopped traveling as much to these big cities and staying at hotels that are crawling with people. Instead, they have decided to go to less populated places and stay at individual houses which pose fewer concerns than a hotel would. With that being said, we are still uncertain how well this earning report will be. A lot less traveling will ultimately result in less income for Airbnb.
Current Price: $183.25
One Week Target: $178.00
One Month Target: $195.88
One Year Target: $250
We will approach Airbnb carefully this week and next as we watch what happens with the rest of the market. Overall market movement can play a large role in what stocks are going to do. I will be watching Airbnb’s movement ahead of their earnings, but, we will wait to see how they report before entering into any positions on it. However, we think long term this stock will be huge. We think it completely changes the way we travel for the better. Not to mention the other side, which allows people to turn their houses into a business which brings in additional income.
This is a stock we will be watching closely and could be a potential long-term buy.
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Until next week,
and the Optifinancial Team
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