Up And Away

Quick Take: No Bias. Uncertainty remains, though you can’t fight the Fed. 

Never count out American optimism. People want to get back to normal. Rockets and riots aside, this market continues to find buyers. 

The S&P 500 rose 3% for the week and is 11% off its 52-week high. The Nasdaq rose 1.77% and is down less than 4% from its high in February.

Scores of setups from growth stocks with new highs from top earners and issues ready to breakout to new highs. Forecasts from companies benefiting from the changed economy are bright. 

All of this upside has happened with a Sell Bias, which has now turned Neutral.  Uncertainty over the true economic damage as well as the future course of the coronavirus keeps vision cloudy.  

Clearly, the government stimulus is looking like a savior at this juncture. The big question is will the money outlast the coronavirus?

Dow stocks paying good dividends were in favor this week as subtle profit taking from tech stocks took place. 

Surprising economic data with consumer confidence up for April, as were new home sales. Personal savings also rose a record 33%. 

President Trump won’t likely want to risk letting the stock market to flounder in an election year. Though tensions with China, and potential interference with trade remain a major threat to the market. 

LEADERSHIP

FAANG Stocks keep their leadership intact with strong, bullish chart patterns, though none hit new highs for the week. 

New highs are just a shot away with basing patterns from Apple (AAPL), (GOOG) and Microsoft (MSFT)  

TECHNICALLY SPEAKING

  • The S&P 500 regained its 200-SDMA with a solid four closes above the mark for the week. 
  • All sectors were positive for the week.
  • Advancing volume ruled for the second week in a row for the NYSE and Nasdaq.
  • A touch less broad than last week, the rally experience just a little fewer advanced and new highs. 
  • Near 52-week highs and relatively strong since the March lows are Gold (GLD, -0.18%), Healthcare (XLV, +3.40%) and Technology (XLK, +1.53%) Sectors were well bid. 
  • Sectors lagging below major moving average with relative weakness are Real Estate (XLRE, +5.96%) and Industrials (XLI, +6%. s)

GROWTH STOCKS

Novavax (NVAX, -0.15) stays alive with its breakout. Sell-volume has been lighter than buy-volume, giving hope to this stock that’s doubled since we first mentioned it a few weeks ago. 

Many believe we could see multiple coronavirus vaccines ready by the end of the year as more than 100 vaccines are in development.  

Though any success with a vaccine might not mean the end of the coronavirus. Vaccines for the flu only work half the time. 

BREAKOUTS

Biomarin Pharmaceutical IncBMRNPharmaceuticals
Charter Communications IncCHTRMedia & Publishing
Acushnet Holdings CorpGOLFLeisure Products
Cloudflare IncNETSoftware & IT Services
Pool CorpPOOLLeisure Products
Atlassian Corporation PLCTEAMSoftware & IT Services
Williams-Sonoma IncWSMSpecialty Retailers

BASES

A. O. Smith CorpAOSMachinery, Equipment & Components
Avantor IncAVTRHealthcare Equipment & Supplies
TopBuild CorpBLDConstruction & Engineering
Beyond Meat IncBYNDFood & Tobacco
Deckers Outdoor CorpDECKTextiles & Apparel
D.R. Horton IncDHIHomebuilding & Construction Supplies
DaVita IncDVAHealthcare Providers & Services
Epam Systems IncEPAMSoftware & IT Services
GoDaddy IncGDDYSoftware & IT Services
J B Hunt Transport Services IncJBHTFreight & Logistics Services
Manhattan Associates IncMANHSoftware & IT Services
Microsoft CorpMSFTSoftware & IT Services
SiteOne Landscape Supply IncSITEFood & Tobacco
Thor Industries IncTHOLeisure Products
Ubiquiti IncUICommunications & Networking
UnitedHealth Group IncUNHHealthcare Providers & Services

TOP 10 ETF’s As Ranked By New 52-Week Highs

First Trust Cloud Computing ETF (XNAS:SKYY)
Invesco Dynamic Software ETF (ARCX:PSJ)
First Trust NASDAQ Cybersecurity ETF (XNAS:CIBR)
Invesco Dynamic Networking ETF (ARCX:PXQ)
Amplify Online Retail ETF (XNAS:IBUY)
VanEck Vectors Video Gaming and eSports ETF (XNAS:ESPO)
Invesco NASDAQ Internet ETF (XNAS:PNQI)
Global X Social Media ETF (XNAS:SOCL)
Global X Future Analytics Tech ETF (XNAS:AIQ)
SPDR S&P Health Care Equipment ETF (ARCX:XHE)

This weekend’s launch of the combined SpaceX and Nasa rocket marks a turning point in the space industry where the private sector becomes involved. Perhaps as pivotal as when the government handed over the Internet to the private companies. 

SpaceX spent $400 million to develop its Falcon 9 rocket, about a tenth of what it costs Nasa. 

Stay safe,

Dan

Beach Ball

Quick Take: Sell Bias. Uncertainty in with a low Risk/Reward environment.

Dear Reader:

Stocks drifted higher for the week, like a beach ball catching a warm breeze of hope into the Memorial Day weekend.  

For the week, the S&P 500, +3.20% and the Nasdaq, +3.44% experienced broad-based buying on lighter volume, driven largely by some of sectors that have been the weekest from the past few weeks.

Trend Watch

COVID-19 is on the decline across the US, for the moment. New hospitalizations have dropped by 50% in the last 30 days, and deaths continue to decrease week over week. Though caution is due as the numbers have only plateaued for Los Angleles, Chicago and Washington DC.

States continued to re-open their economies at varied paces. Estimates are too fuzzy to take faith in. Most believe it will be another year for recovery of jobs and earnings lost.  

Pick your pattern: V-L-E-U-M-A. Stocks have put in a V pattern recovery off their bottom last month. The debate is wether or not it will mirror the economic recovery.  

Central banks around the world don’t have much room to lower rates. US Treasury Secretary Steven Mnuchin said the economy may experience “permanent damage” if quarantine rules stay in place for too long.

Chinese oil demand has returned. The leading commodity price index, the CRB, which includes oil, is down nearly a third since February. Economic bellwether Copper continues to weigh it down with low demand.  

Signs of commercial real estate weakness should be watched as the sectors deals with a changing economy. Stay-at-home workers may be the new trend, which if so, may lead to businesses wanting smaller footprints with their properties.  

So far, most commercial real estate REITs have reported being stable, according to trade group Nareit. Apartment REIT rent collections in May held at 95% to match April collections. Office real estate reported collections 92%, down 1% from April. 

Shopping center REITs have been the hardest hit as owners report collecting on just under half of their rents.  Grocery and drug stores have propped up free-standing retail REITs as the sector reported receiving 70% of rents for April and May. 

Four large retailers have declared bankruptcy during the pandemic: JCPenney, Neiman Marcus, Pier 1 and True Religion all declaring bankruptcy. 

Leaders

Amazon stock (AMZN, +1.12%) hit an all time high this week as its sales have ramped up during the quarantine. The Retail sector (RTH, +2.15%) closed the week just shy of an all time high, driven primarily from large online sellers like

Facebook (FB, 11.40%) hit an all-time new high after announcing its new online shop service, which will allow merchants to use their existing e-commerce sites into Facebook more easily. The company will collect on transaction revenue as well as more traffic for the company as its advertising has taken a blow. 

Companies that cater to the stay-at-home crowd with strong balance sheets are being rewarded. Big Tech market value now makes up 24% of the S&P 500 index, a gain of three percentage points higher than before the crisis. 

Fake meat maker Beyond Meat (BYND, +1.97%) reported its first-quarter revenue doubled from a year ago as the concept gains in popularity. 

The plant-based meat industry reported sales up 280% for March compared to a year ago. Sales are expected to double to more than $25 billion in the next five years. Still they only make up one percent of conventional meat sales. 

Major food makers including Tyson Foods (TSN), Kellogg (K) and Con Agra (CAG) have been developing their own products. 

Technically Speaking

  • S&P 500 Price action spent another week inching toward its 200-DMA
  • The 50-day SMA has turned north, though has a ways to go before any cross with the 200-day 
  • NYSE and NASDAQ action favored the bulls on all measures: volume, new highs, and advances.
  • Recently hot Biotech (IBB, +0.82%) slowed its pace, while Gold (GLD, -0.44%) and Gold Miners (GDX, -2.79%) pulled back from new highs for the week. 
  • Beaten sectors rallied Industrials(XLI,+7.37%) and Real Estate (XLRE, +5.55%) Energy (XLE, +6.92%)
  • Healthcare, -0.80%, was the only sector down for the week, while Consumer Staples was near breakeven, +0.14%.

BREAKOUTS 

BioCryst Pharmaceuticals Inc BCRX Biotechnology & Medical Research
Electronic Arts Inc EA Software & IT Services
ETSY Inc ETSY Diversified Retail
Fate Therapeutics Inc FATE Biotechnology & Medical Research
Glu Mobile Inc GLUU Software & IT Services
NetEase Inc NTES Software & IT Services
Novavax Inc NVAX Biotechnology & Medical Research
Ultragenyx Pharmaceutical Inc RARE Biotechnology & Medical Research
Schrodinger Inc SDGR Software & IT Services
Atlassian Corporation PLC TEAM Software & IT Services
2U Inc TWOU Software & IT Services
United Therapeutics Corp UTHR Biotechnology & Medical Research
Vertex Pharmaceuticals Inc VRTX Biotechnology & Medical Research
Wix.Com Ltd WIX Software & IT Services
Acceleron Pharma Inc XLRN Biotechnology & Medical Research
Zynga Inc ZNGA Software & IT Services
Zynex Inc ZYXI Healthcare Equipment & Supplies

BASES

Lots of basing patterns out there. Here’s a handful of top quality stocks in hot industry groups.

ACADIA Pharmaceuticals Inc ACAD Biotechnology & Medical Research
Autodesk Inc ADSK Software & IT Services
Advanced Micro Devices Inc AMD Semiconductors & Semiconductor Equipment
Biomarin Pharmaceutical Inc BMRN Pharmaceuticals
Amicus Therapeutics Inc FOLD Biotechnology & Medical Research
Gravity Co Ltd GRVY Software & IT Services
Nautilus Inc NLS Leisure Products

Amicus Therapeutics Inc. (FOLD, +9.31%)

  • Setup tight in a ten-month base, this Biotech is part of a hot sector.
  • Solid revenue, accumulation make it attractive.
  • Recent breakout from sector with Fate Therapeutics (FATE) could be the trailblazer for it.

Use your stops, play it safe.

Dan

All Talk

Quick Take: Sell Bias. There’s too much uncertainty in the market and markets hate uncertainty. 

Dear Readers:

Lots of heavy talk from leaders with relatively little reaction from stocks this week.

For the week, the Nasdaq, -1.17%, and the S&P 500, -2.26%, closed above their 20-day moving averages. Broad based selling came with higher than average volume creating churning.

The market is looking for signs of economic recovery as the world continues to slowly re-open from coronavirus quarantines.

Neither Fed Chairman Jerome Powell, who said, “the recovery may come more slowly than we would like, nor top White House infectious disease expert Dr. Anthony Fauci had much to offer in optimism.

There’s solid reason to sell. Famed market players including David Tepper, Stanley Druckenmiller and Carl Icahn have voiced their opinions of an overvalued market.

Reasons to buy are overall less convincing, though explain the run up in select stocks that have been pulling the market higher. Investors don’t buy on GDP predictions as much as they do earnings guidance.

The government has pumped more than three trillion dollars into the system, and unlike the financial crisis where rescue funds shored up reserves for balance sheets. This money going to circulate more throughout the economy.

Companies offering products and services compatible for staying at home are being rewarded, as are big stores that have stayed open as they take business that would have otherwise gone to smaller businesses forced to close.  

Technology shares remain a bright spot. The trend here is stay-at-home products and services, which is right in tune with the tech giants that have been leading stocks higher.

Amazon (AMZN) +1.27%, Apple (AAPL) -0.78%, Microsoft (MSFT) -0.82%, Netflix (NFLX) +4.28%, Google (GOOG) -1.09%. 

Biotech, $BTK +2.38% continues its advance out of a twenty-month-long base as funding pours in for remedies against coronavirus. Biotechs are coincidently the most shorted sector, followed by financial and healthcare. Don’t let that sway you – the herd often gets slaughtered. More on individual $BTK names below. 

The commodity Gold, GLD +2.19%, as well as Gold Miners, GDX +4.91%, also push to new highs as investors seek security from uncertainty. 

Earnings guidance remains a rarity given the too many unanswered questions for the rest of the year. There were no major earnings surprises for the week.

Economic data was predictably poor for the week. Most notably, retail sales fell more than 16% in April, which was more than expected as well as a record. 

Economic forecasts, though often wrong, will likely serve even less useful as economists surely can’t predict the coronavirus as well. 

Potential game changers include: Any positive news regarding coronavirus drug treatment. US tensions with China remain a threat to the market. 

Key Earnings announcement next week from: Nvidia (NVDA), which charged higher after breaking out last week, Walmart (WMT), Target (TGT) Home Depot (HD) Lowes (LOW)

TECHNICALLY SPEAKING

  • The S&P 500 is moving sideways below its 200-day SMA and above its 50-day SMA, a common experience after a quick rebound from a sharp sell-off as bulls and bears have been slaughtered.
  • Volume for the week tilted to the Bears with NYSE declining at +17B and advancing at +10B 
  • Overall volume pattern gives and edge to the Bears with three clear Distribution days in the past month. 
  • NYSE decliners, 2,538, beat out advancers 498.
  • There were 130 new lows and 73 new highs. 

GROWTH STOCK ACTION

Stock selection for this report focuses only on high quality companies that actually make money and are part of strong trending industry groups.

This week we have a selection of names from the Biotech, Software and Online Gaming groups. 

HIGH QUALITY BREAKOUTS

Novavax, Inc. (NVAX) is in the midst of a breakout while setup in a new multi-year base. This maker of a promising flu vaccine is also experiencing attention for its experience with developing a vaccine for the coronavirus. 

Its price has doubled since first mentioned on this report last month. 

Also in Breakout Territory Are:

ZYXI,ZNGA,WIX,VRTX,TWOU,TEAM,SE,RGEN,NVAX,NTES,NLS,GLUU,FOLD,ETSY,CAPR

HIGH QUALITY BASES

ACAD,AMD,AMGN,BMRN,CVM,DVA,FATE,GIGM,GRVY,PSTI,RARE,ROKU,SDGR,UTHR,XLRN

LAST WORDS

Perhaps online trading has taken over as an American pastime. E-Trade and Ameritrade reportED three times as much trading compared to a year ago. 

The founder of Barstool Sports has transformed into a day trader and is having his time in the financial media – reminds of characters in online brokerage commercials in the tech bubble era at the turn of the century.

Could these characters be responsible for the run-up in stocks?

Stay safe,

Dan

Melt Up

Dear reader,

Stocks are hot as the world economy re-opens. 

While the re-opening of businesses will come slowly, in stages, the stock market has wasted no time taking back lost ground for the year. 

Technology shares drove the week’s action as the Nasdaq roared 6% for higher to mark a 1% gain for the year.  The S&P 500 is down 10% for the year.

Fear of missing out on a new bull market, FOMO, became a theme this week. Last week it was short covering. Who wants to fight the Fed?

Some traders feel the Federal Reserve has put a floor on the market. There’s lots of money out there, and it doesn’t appear to be fleeing the market. 

The Bears are sticking to the notion that bear markets always have rallies that get everyone feeling good, like we’re in a new bull market. To this cause, the path of least resistance remains down as markets don’t do well with uncertainty, and there’s plenty of that at hand. 

China and Japan offer hints of what the US might expect post-quarantine. The Chinese have showed reluctance to resume normal life as restaurants and travel have not resumed to pre-virus levels. In Japan, an uptick in cases after quarantine has triggered a second round of lockdowns.  

Companies benefiting from social distancing have pulled indexes higher, including market flagships Amazon (AMZN), Netflix (NFLX), Microsoft (MSFT), Google (GOOG) and Apple (AAPL),  

Other hot spots include biotechnology, healthcare, high quality dividend payers and foreign stocks whose economies opened. Stocks may also be seen as a hedge against potential inflation with unprecedented money printing by the government. 

Meanwhile, major carnage in finance, retail, energy, industrials and travel related stocks threatens to become leadership to the downside if the bear returns.

There have been a number of positive first quarter earnings reports, especially from tech names. But first quarter numbers do not represent the full impact of the economic shutdown which started in its last two weeks. 

In the coming weeks second quarter earnings will be the focus, and are feared to be the worst of the year. Many feel a bounce back will occur in the third quarter.

About a third of the companies in the S&P 500 that report earnings have refused to give guidance given the unprecedented environment. Goldman Sachs expects S&P 500 earning to be off by a third for the full year. 

The S&P 500 fell 35% from its February hight to its March low, which matches exactly that an average bear market. The big question is whether or not the stock market losing a third of its value this year is an accurate reflection of future earnings.

The hope is that we’ve hit bottom. The market looks like its anticipating a V-shaped economic turnaround, which is hard to imagine happening given the horrendous economic data. 

So far, the market doesn’t care that economic data is at its worst since the Great Depression of the 1930’s. April’s unemployment report showed more than 20 million jobs lost. That’s the size of the state of New York. 

The good news is the unemployment report is a lagging indicator. More than a fifth of the 23 million jobless are classified as temporary rather than permanent.

US relations with China will likely play on market sentiment in the coming weeks. Threats of, and actual punishment to China for its behavior during the early days of the virus outbreak will be a headwind indexes, while talk of resuming trade talks may boost them. 

Trump wants a strong stock market heading into the November election. 

Technically Speaking

  • The S&P 500’s 3.5% climb for the week gives it a solid close above its 50-day moving average. But it wasn’t enough to take out last week’s high.
  • The 50-day averages are key. Any firm close below will assert the Bear’s cause. 
  • Bulls take the volume edge for the week, with two accumulation days to zero distribution days on the S&P 500 and Nasdaq.

Breakouts are happening. Upside momentum on the major indexes coupled with a boost in business for the newly strong stay-at-home market is rewarding companies with strong fundamentals.  

Recent Breakouts from eBay (EBAY), from a multi-month base, Etsy (ETSY) and Peloton (PTON) are just a few of many we’ve seen. 

Continued strength from Biotech is evident with the iShares Nasdaq Biotechnology Index ETF (IBB) approaching its 2015 high. 

Gilead Sciences (GILD) slipped 3% for the week as it flirts with a failed breakout. The company’s Covid-19 drug remdesivir is now shipping to hospitals. 

Many of bases are in the process of being formed, though few meet the strict criteria of our fundamental standards. 

The Trade Desk Inc. (TTD) is a top candidate as it technically broke out Thursday, though is still within acceptable range of its buy-point. 

The company’s cloud-based technology gives its customers the ability run digital ads via video, audio on multiple platforms. Fundamental year over year highlights include 33% quarterly revenue growth, 137 earnings growth and 22% return on equity. 

Many, many other opportunities are lining up. Many of which will hinge on broader market strength.

Also, Corona beer sales strong, according to its parent company Constellation Brands (STZ). Unfortunately, it does not meet our strict fundamental criteria for buys. 

Be lucky,

Dan

Erasure Bear

Dear Readers:

Friday we kicked off May trading with a broad sell-off on the major indexes, erasing gains made earlier in the week. Lack of volume shows less fervor for the Bears.

The month of April proved to be the best for the S&P 500 since 1987 as it rocketed up 12.7%, cutting its loss for the year to 10%.

The Coronavirus appears to be slowing. States are either re-opening or making plans to do so. All great news minus the fear of infections with a second wave which will persist until a vaccine is available.

Heavy-handed short covering has fueled upward momentum. This rally off the March low doesn’t look any different than a bear market rallies following similar steep sell-offs.

Buyers are more concerned with going against the government’s massive stimulus than focussing on the usual fundamentals.

Unfortunately, economic carnage from stay-at-home orders is feared to be among the worst the United States has seen, though only time will tell. First quarter GDP fell 4.8%, but the second quarter is estimated to have a 30% to 40% drop, with full year GDP expected to contract 4% to 5%. 

Widespread struggling among companies will continue. Earnings are expected to fall more than 15% for the first quarter. More than 30 million people have lost their jobs in the last six weeks. 

Quarterly reports from the digital heavyweights showed some resilience with sales and are poised to do well with their work-from-home products. Thought future guidance was lacking.  

Apple (AAPL), +2.16%, showed resilience with iPhone sales, though declined to give guidance. Google (GOOG), +3.23%, had better than expected revenue, search biz stable, cloud biz more appealing to CEO’s, work at home. Microsoft (MSFT), +0.01%,reported it was alive and well, a boost from its XBox home video game a highlight. 

Pandemic success Amazon (AMZN), -5.15%, said it would spend its $4B profit to help protect its workforce from Covid-19, including $1B for in-house testing. While its cloud business slowed, its video conference, gaming and entertainment picked up. Amazon’s stock is up more than 50% since its March low.

Technically Speaking

  • The S&P 500 holds above its 50-day simple moving average. 
  • Volume patterns continue to favor the bulls, though it may be short covering and stimulus related rather than truly committed buyers. Six clear Accumulation Days have been notched in since the March low, where the Bears have failed to notch in a single Distribution Day

Small caps are showing relative strength with the S&P Smallcap 600 up 3.48% for the week. Materials and Energy were big gainers here, a sign of optimism as the larger companies have been seen as safer for investors compared to the riskier, more leveraged small companies.

The market will become more selective over stocks with a flight to quality. Growth stocks prefer bull markets to move them higher. Few from this group tend to do well when the trend is down.

The Nasdaq Biotechnology Index (IBB) fell 4% and back below its breakout base line as it put the breaks on a strong rally that began mid-March. The sector remains in the spotlight with hopes of a remedy and cure for the virus. 

Gilead Science’s (GILD), +0.39%, Remdesivir showed positive testing results with about a thousand Covid patients, reducing their hospital stays by about four days on average to 11. Any hint that they’re on the right track with this could serve as a base for other drugs.

Intact breakouts in biotech include Cel-Sci Corp. (CVM), United Therapeutics Corp. (UTHR), Repligen Corp. (RGEN), Bio-Techno Corp (TECH) and Vertex Pharmaceuticals (VRTX.)

Heavyweight Amgen (AMGN) looks to be tested with its breakout, failing is BioMarin (BMRN.)

The economy is changing. It may be rough sledding at the moment, though we will come out of it stronger and better. This report will have much to say on trends shaping our lives and investments. There’s loads of opportunity. 

And, there’s plenty of chicken to make up for a decline in red meat. 

Good luck out there,

Dan