Friday Charts: Why Stocks Love Jobs and I Hate Zoom

By Lou Basenese, on Friday, November 20, 2020

When Friday rolls around, we roll out the charts in the Trend Trader Daily Nation.

After all, a picture is supposed to be worth a thousand words. So we figure, why not embrace it?

This week, we’re serving up a timely snapshot on unemployment and one work from home stock that’s (finally) showing signs of imploding.

Are you brave enough to step up and short it?

Take a look and be sure to let us know what you think!

Stocks Love Jobs

The latest news out of the Labor Department on the unemployment front hardly has anyone singing.

Initial jobless claims have been hovering around 1 million for weeks. Normally, we want to see that number south of 350,000 claims.

But we’re not living in normal times. So we have to reset our levels and focus more on the trend.

And the trend is undeniable. Take a look:

We’re way down from the peak of around 5 million claims in the early days of the pandemic.

Here’s the thing — stocks love jobs. In fact, the relationship between initial jobless claims and the S&P 500 is undeniable.

As claims go down, stocks go up (and vice versa).

This strong inverse relationship is one of my favorite leading indicators. So if you’re trying to figure out where stocks are headed next, look no further than weekly initial jobless claims.

Zoomsgiving and Bust

I’m so damn tired of Zoom calls and the crazy disconnect in valuation and market size for the company behind the technology, Zoom Video Communications, Inc. (ZM).

I won’t bore you with my reasons for the former, but the latter couldn’t be more straightforward.

IDC estimates the entire market for video conferencing will hit $43 billion. In 2022, mind you.

And yet, Zoom’s stock is currently trading at a market cap of just over $125 billion.

In other words, the valuation is fully baked and then some, as Zoom only has a fraction of that market size in current sales.

It appears investors are finally waking up to this reality, too — even as the company tries to encourage more and more usage by offering no time limit on calls over Thanksgiving, since so many families will opt for virtual get-togethers.

The stock’s down 25% from its all-time high, dropping below support at the 50-day moving average.

But there’s way more room for shares to fall.

If you have the stones to short it, now would be an ideal entry. If you’re a tad more risk-sensitive, consider some cheap put options expiring in January or June 2022.

By then, the coronavirus will be gone — and so will all the unnecessary Zoom calls. Can’t wait!

Ahead of the tape,
Lou Basenese
Lou Basenese

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