Bio Bull

The Bear put a headlock on the Bull as we head into a traditionally strong pre-holiday week. 

Bias here has gone down to a cautionary Yellow Flag. Recent Growth Stock breakouts are working, though road signs flash warning as the uncertainty of a pandemic looms. 

For the Week: 

  • The S&P 500, -2.42% 
  • The Nasdaq, -2.59%
  • The Dow, -2.84%

Don’t look too much into the selling. Despite two clear distribution days, the bias here won’t shift lower as long as leadership and price action hold up above the major moving averages. 

Technology continues to pull action higher, though most other sectors continue to struggle under the 200-day averages. 

Lighter volume for the NYSE and Nasdaq was’t panic motivated, and was long overdue as a consequence of an “over bought” market. 

The coronavirus battlefront threatens further economic impact. Rising infection and hospitalization rates in some regions will thwart business. To what degree is uncertain.  

The Fed showed concern for banks when Friday it instructed them to preserve capital by putting a hold on buybacks and paying dividends. Continued high unemployment is worrisome, and will need to be resolved before stimulus wears off. 

Another round of government stimulus may very well be in the works, which would be a big boost to market sentiment. 

Next week will be a day shorter as the U.S. celebrates the Fourth of July

It’s window dressing time. Quality names are well bid as being as portfolio managers look to impress customers with their holdings.

Small caps will likely benefit from the annual Russell 2000 realignment on June 29, as well as the 90 day ETF realignment to end the quarter.

The best thing the Bull has going for it is names from the Dow paying dividends four times greater than the 10-year Treasury notes. Smart money will gravitate to this.

LEADERSHIP

The semiconductor index (SMH, -1.87%) is flirting with a failed breakout. Action here is key to the broader market’s direction.

Watch for any weakness in the internet (FDN, -2.01%) and software (IGV, -0.88%) indexes. The Bull has been led from its March lows by these stay at home friendly businesses. Any faltering could pull major indexes in the southern direction that the energy, finance, retail, industrial and transportation stocks have been leaning toward. 

Facebook (FB, -8.32%) and Google (GOOG, -5.65%) took dip down to their 50-day moving averages this week, breaking their upward drifts. 

Meanwhile, this group of stellar tech names continues to hold bullish form: Apple (AAPL, -3.07%) Amazon (AMZN, -2.24%), Netflix (NFLX, -4.83%) and Microsoft (MSFT, -2%.)  

Gold (GLD, +0.45%) remains near highs. The biotechs (IBB, -2%) continue to produce a multitude of growth stock breakouts. See below. 

TECHNICALLY SPEAKING

  • The S&P 500 is lacking a long-term trend as the 50-day moving average tracks slow the 200-day MA.
  • NYSE volume for the week was 5% lighter than last week, and favored the bears with a 0.6 ratio of buyers to sellers. 
  • Nasdaq volume was 15% higher and showed an even 1 ratio of buyers to sellers.
  • Declining issues dominated for the NYSE and Nasdaq with advance/decline ratios of 0.3 and 0.4 respectively. 

GROWTH STOCKS

Growth Stock breakouts are holding, though we’re seeing some erosion in these quality names as fewer appear to be on track for new buy setups. 

Fresh breakouts in biotech show optimism for the industry as the pandemic takes  center role in the healthcare sector. 

Breakouts

PFSIPennyMac Financial Services, Inc.Finance/Rental/Leasing
PLMRPalomar Holdings, Inc.Property/Casualty Insurance
ZMZoom Video Communications, Inc. Class APackaged Software
AMRCAmeresco, Inc. Class AEngineering & Construction
CHGGChegg, Inc.Miscellaneous Commercial Services
IPHIInphi CorporationSemiconductors
TTDTrade Desk, Inc. Class AAdvertising/Marketing Services
VAPOVapotherm, Inc.Medical Specialties
ALNYAlnylam Pharmaceuticals, IncBiotechnology
CGENCompugen Ltd.Biotechnology
IMMUImmunomedics, Inc.Biotechnology
OCULOcular Therapeutix IncPharmaceuticals: Major
CRSPCRISPR Therapeutics AGBiotechnology
CRWDCrowdStrike Holdings, Inc. Class APackaged Software
EXPIeXp World Holdings, Inc.Financial Conglomerates
TWSTTwist Bioscience Corp.Biotechnology
AEYEAudioEye, Inc.Internet Software/Services
RAREUltragenyx Pharmaceutical, Inc.Biotechnology
WRTCWrap Technologies, Inc.Industrial Conglomerates
CDNACareDx, Inc.Medical Specialties
ALBOAlbireo Pharma, Inc.Pharmaceuticals: Other

Bases

NBIXNeurocrine Biosciences, Inc.Biotechnology
NTRANatera, Inc.Medical/Nursing Services
XLRNAcceleron Pharma IncBiotechnology
BYNDBeyond Meat, Inc.Food: Major Diversified
PAASPan American Silver Corp.Precious Metals
TNDMTandem Diabetes Care, Inc.Medical Specialties
STNEStoneCo Ltd. Class APackaged Software
LGIHLGI Homes, Inc.Homebuilding
PAYCPaycom Software, Inc.Packaged Software
DRNADicerna Pharmaceuticals, Inc.Biotechnology
ZZillow Group, Inc. Class CInformation Technology Services
IIPRInnovative Industrial Properties IncReal Estate Investment Trusts
SILKSilk Road Medical, Inc.Medical Specialties
SWAVShockwave Medical, Inc.Medical Specialties
OROsisko Gold Royalties LtdPrecious Metals
AKCAAkcea Therapeutics, Inc.Pharmaceuticals: Major
EXASExact Sciences CorporationBiotechnology
KERNAkerna Corp.Data Processing Services
DRNA: Always good to see strong buy-volume prior to breakout.
PRTK: Another biotech with strong fundamentals in a sound base.

Stay safe,

Dan

Quality Flight

Quick Take: Buy Bias. Despite significant economic uncertainty, buyers continue to step up to support growth stocks. But we’re long due for a pullback. 

Marauders:

Typical of June, a flight to quality bid shares higher as portfolio managers maneuvered to add leaders in their holdings.

Quadruple witching in the options market on Friday capped off a week that had the Nasdaq came just short of a new high. A small cap rally also added heat as the Russell 2000 index realigns itself (IWM, +2.31%). 

The Nasdaq’s +3.73% gain came on volume down 10% from last week’s heavy selling rout. It convincingly favored advancers to decliners by more than two to one. 

The S&P 500 posted posted a +1.86% gain and the Dow was +1.04% with NYSE volume off 15% from last week with advancers and decliners a near match. 

Stocks appear to be pricing in a V-shape recovery vs. the  Fed’s  U-shape prediction. The old adage that “You don’t fight the Fed,” as well as “Don’t fight the tape,” has been the winning mantra since stimulus plans were set in play. 

Friday’s heavy volume down day would be an ominous sign of institutional dumping if it weren’t for options expirations. However, the major indexes have been taking in more buy-volume than sell volume since putting in their lows in March. 

Though much uncertainty remains regarding the pandemic, which is still on, as well as what happens when stimulus money wears off, which may happen in the Fall. Let’s not forget it’s an election year and the country is going through historical social unrest. 

Covid-19 won’t kill economy. Rising infection rates in 15 states has raised fears. Though in ten of the states the increase is minor, and somewhat expected after reopening from lockdown. Rates have been falling in 16 states. 

The virus situation may be more severe for states such as Arizona, South Carolina and Alabama, which have seen more severe upticks. 

The market has rightly favored companies with business models that cater to the agoraphobic. 

Tech leadership from FB, AAPL, AMZN, NFLX, GOOG and MSFT was solid for the week. Take not that GOOG is showing relative weakness here, down -7% from its 52-week high, with the rest of the pack down less than 2%.

Internet, cloud computing, social media and esports stocks rage on.

Biotech (IBB, +7.33%) had a monumental week as it set a new high as it continues to breakout from a five year base. This was the most shorted sector, so no doubt covering  here. Though the virus has made the sector attractive for its potential to cure. 

Gold (GLD, +0.87%) holds near highs not seen in eight years, as gold miners (GDX, +2.79%) recover from pullback mode. Similar story for silver miners (SLVP, +0.34%.) 

TECHNICALLY SPEAKING, 

  • The S&P 500 is showing near-term weakness as it consolidates under a bearish island top.
  • Strength For The Week: Healthcare, Technology, Communications
  • Weakness: Utilities, Energy, Real Estate

GROWTH STOCKS

It’s breakout-palooza out there. Hit ‘em until it stops. I like to ring the cash register at 20%. Do it five times to more than double your money. 

Last week we saw from our list:

+40% in one week for this biotech.

+40% in one week for this Chinese educator.

+42% in one week for this Covid-19 vaccine hopeful.

BREAKOUTS:

ADBEAdobe IncSoftware & IT Services
APPSDigital Turbine IncSoftware & IT Services
EAElectronic Arts IncSoftware & IT Services
EPAMEpam Systems IncSoftware & IT Services
HOLXHologic IncHealthcare Equipment & Supplies
LOWLowe`s Companies IncSpecialty Retailers
PFSIPennyMac Financial Services IncBanking Services
PLMRPalomar Holdings IncInsurance
RAPTRapt Therapeutics IncBiotechnology & Medical Research

BASES

ALGNAlign Technology IncHealthcare Equipment & Supplies
BLFSBiolife Solutions IncHealthcare Equipment & Supplies
CORTCorcept Therapeutics IncPharmaceuticals
CPRXCatalyst Pharmaceuticals IncBiotechnology & Medical Research
DHXDHI Group IncProfessional & Commercial Services
FNDFloor & Decor Holdings IncSpecialty Retailers
GDDYGoDaddy IncSoftware & IT Services
KKellogg CoFood & Tobacco
LAKELakeland Industries IncTextiles & Apparel
LLLumber Liquidators Holdings IncSpecialty Retailers
MVISMicroVision IncElectronic Equipment & Parts
RMDResmed IncHealthcare Equipment & Supplies
SHWSherwin-Williams CoChemicals
SITESiteOne Landscape Supply IncFood & Tobacco

TOP INDUSTRY GROUPS, RANKED BY PROXIMITY TO 52-WEEK HIGH

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

Get on, play it safe.

Dan

Snap Back

Quick Take: Sell Bias. Economic and pandemic uncertainty serve as a backdrop in an election year.  

Dear Market Player:

For the week, the Bull took a one-two hit as sellers took profits amid fears over the world’s health and finance concerns. 

The seemingly overdue selling sent the S&P 500 down -4.78% on institutional grade volume, and the Nasdaq down -2.3% on volume that favored the bulls by a modest margin. 

The week’s heaviest selling came Thursday on the heels of Fed Chairman Jerome Powell’s press conference where he stated raising interest rates wasn’t a consideration given the country’s  economic situation.

The Fed said it doesn’t see the economy returning to pre-pandemic levels until 2022. This year’s GDP may fall 6.5% and unemployment, not at about 13%, may recover to about 9% by the end of the year.  

A resurge in covid-19 cases in places such as Florida, Texas and Arizona reminded the country still has an invisible enemy to reckon with. 

Treasury Secretary Steve Mnuchin said a second quarantine was not an option, though a second round of stimulus checks may be.

A market awash in cash keeps the Bulls perky. They are reassured the Fed has their back as it expects the economy will continue to tick. 

Fund managers in June typically gravitate toward quality stocks as they add the winners to portfolios to impress clients. We’ve seen top dividend vehicles attract bids as bonds lose popularity with low yields. 

The Tech leaders pulled back with the broader market for the week, though still well above major moving averages . They continue to serve as strength in an economy that favors their “do it from home” offerings. FB, AAPL, AMZN, NFLX, GOOG and MSFT. 

New highs encourage from MICROSOFT (MSFT, +0.29%) chip standout Nvidia (NVDA, +0.14%) and eSports ETF (ESPO, +0.89%.) 

The US presidential election November will attract more attention from market pundits in the coming months. The corporate America’s tax structure will have an impact on its outcome. Look for polls as influence to buyers and sellers. 

Evidence of froth persists as low priced stocks have attracted bids, presumably from Robinhood type traders looking for an easy buck. This type of activity from the “lesser informed” has gone hand-in-hand with market tops before. 

NEXT WEEK

Tuesday: Earnings announcement from software maker Oracle (ORCL) and homebuilder Lennar (LEN.) 

Thursday: Earnings announcement from Kroger (KR.)

Friday: Earnings announcement from Carmax (KMX) AutoZone (AZO) and Tesla (TSLA.) 

TECHNICALLY SPEAKING

  • The S&P 500 closed just above its 200-day moving average for the week.
  • Two distribution days gave the Bear and edge for the week. 
  • All sectors posted losses.
  • The least weak were: Tech (XLK, -1.97%, Communications (XLC, -2.50%) and Consumer Staples (XLP, -3.81%)
  • Weakest were: Energy (XLE, -11.2%), Financial (XLF, -9.18%) and Materials (-8.01%)
  • NYSE Volume was 10% higher than last weak with a slightly bearish .8 Up/Dn ratio.
  • Nadaq Volume was 5% higher with a slightly bullish Up/Dn ratio of 1.  
  • The Advance Decline ratios were decidedly bearish with the NYSE at .2 and the Nasdaq at .4.

GROWTH STOCKS

Watch for recent breakouts falling apart. A handful of these happened last week.  This would serve as a caution for potential breakouts.

Homebuilders and REITs setting up in bases. Success here will bode well for the broader market.

Biotechs are holding their bullish patterns.

BREAOUTS

Adobe IncADBESoftware & IT Services
Autodesk IncADSKSoftware & IT Services
Biomarin Pharmaceutical IncBMRNPharmaceuticals
Datadog IncDDOGSoftware & IT Services
Fastly IncFSLYSoftware & IT Services
Livongo Health IncLVGOHealthcare Equipment & Supplies
Neurocrine Biosciences IncNBIXBiotechnology & Medical Research
Trade Desk IncTTDSoftware & IT Services

BASES

Adaptive Biotechnologies CorpADPTBiotechnology & Medical Research
American Homes 4 RentAMHResidential & Commercial REIT
Beyond Meat IncBYNDFood & Tobacco
D.R. Horton IncDHIHomebuilding & Construction Supplies
GSX Techedu IncGSXPersonal & Household Products & Services
Invitation Homes IncINVHResidential & Commercial REIT
ServiceNow IncNOWSoftware & IT Services
Paycom Software IncPAYCSoftware & IT Services
Pinterest IncPINSSoftware & IT Services
Peloton Interactive IncPTONLeisure Products
10X Genomics IncTXGHealthcare Equipment & Supplies

Coming IPO’s from online used car seller Vroom (VRM) and Peter Thiel’s data miner Palantir hope to attract the bids like the recent IPO electric pickup truck maker Nikola (NKLA.)  

Stay safe,

Dan

FauxMo

Quick take: No Bias. Too much uncertainty.

Fear of missing out was the rally cry for many Bulls heading into Friday’s unemployment numbers. But apparently few were able to grasp the unexpected addition of 2.5 million jobs last month, which turbo charged shares even higher with the believe that a V-shaped recovery has been nailed in. 

For the week, the S&P 500 shot up +4.91% and the Nasdaq +3.42%. The buying was large and heavy with all sectors participating. 

The unexpected data miss from the “experts” has raised eyebrows. Perhaps the unfamiliar ground of shutting down the economy coupled with stimulus programs like the Payroll Protection Program has distorted economists visions. Perhaps the government’s history of errors in data plays a roll. 

What is clear is that the economy is mostly open now. What is unclear is how the economy will look when the stimulus runs out. The unemployment rate stands at 13% at them moment, down from 15% before Friday’s announcement. 

Stocks do not offer an attractive risk-reward scenario. Difficult to bet the market will continue to charge higher given valuations and the uncertainty of the economy – as well as the coronavirus.

The Dow, +6.81%, has been a big upside driver for the market as the hunt for yield continues. Dividends pay higher than treasuries. It’s hard to retire. 

Mixed signals with fund flows.:

While discount brokers have reported large inflows, many wealth advisors and fund managers haver reported outflows from stocks and into the safety of bonds. 

Large numbers of block trades Friday may suggest real buying. Funds available from quantitive easing will weigh in as will short covering.

For a change, the market is being led by non-tech names. Tech remains firm, with the FAANG and Microsoft stocks showing strength. But it’s the breadth of the rest of the market that has really stepped in of late. 

We may see some bad earnings reports in the second quarter, though the prospects are better for the second half of the year – IF the coronavirus does’t become a problem again. 

This pandemic market has created winners and losers depending on how well a companies model has allowed them to adjust to quarantines. 

There is always something to be afraid of.

Commercial Real Estate is threatened with with nearly half the rents not paid in May. Starbucks, TJ Max and Ross Store are among those who reportedly did not pay.

Wells Fargo (WFC, +19.64%) pulling back on auto and home equity loans is a concern for the credit market. Rental car company Hertz declaring bankruptcy is also worth taking note of for signs of a trend, or perhaps opening the door for other companies to succeed. 

TECHNICALLY SPEAKING

  • The S&P 500 is trending higher above major moving averages, and is abut 6% away from its February high.
  • NYSE about 25% higher than last week and the Nasdaq 40% higher. 
  • NYSE buy-volume dominating sell-volume by more than 4 to 1, Nasdaq more than 2 to 1. 
  • All sectors advanced, with Industrials (XLI, +7.12%), Consumer Discretionary (XLY, +7.06%) and Energy (XLE, 6.08%) the biggest winners. 

GROWTH STOCKS

Loads of high quality setups. We can see the 5G stocks making bases now, though they’re not qualifying with underlying fundamentals.

BREAKOUTS

Abbvie IncABBVPharmaceuticals
Autodesk IncADSKSoftware & IT Services
A. O. Smith CorpAOSMachinery, Equipment & Components
TopBuild CorpBLDConstruction & Engineering
Biomarin Pharmaceutical IncBMRNPharmaceuticals
Deckers Outdoor CorpDECKTextiles & Apparel
Danaher CorpDHRHealthcare Equipment & Supplies
Epam Systems IncEPAMSoftware & IT Services
GoDaddy IncGDDYSoftware & IT Services
Acushnet Holdings CorpGOLFLeisure Products
Howmet Aerospace IncHWMMetals & Mining
Horizon Therapeutics PLCHZNPPharmaceuticals
Lowe’s Companies IncLOWSpecialty Retailers
Livongo Health IncLVGOHealthcare Equipment & Supplies
Paycom Software IncPAYCSoftware & IT Services
Pool CorpPOOLLeisure Products
Thor Industries IncTHOLeisure Products
Trade Desk IncTTDSoftware & IT Services
UnitedHealth Group IncUNHHealthcare Providers & Services
Slack Technologies IncWORKSoftware & IT Services
Williams-Sonoma IncWSMSpecialty Retailers

BASES

American Airlines Group IncAALPassenger Transportation Services
Avantor IncAVTRHealthcare Equipment & Supplies
Brunswick CorpBCLeisure Products
BWX Technologies IncBWXTAerospace & Defense
Beyond Meat IncBYNDFood & Tobacco
Charter Communications IncCHTRMedia & Publishing
D.R. Horton IncDHIHomebuilding & Construction Supplies
DaVita IncDVAHealthcare Providers & Services
Floor & Decor Holdings IncFNDSpecialty Retailers
Heineken NVHEIABeverages
Hologic IncHOLXHealthcare Equipment & Supplies
J B Hunt Transport Services IncJBHTFreight & Logistics Services
Manhattan Associates IncMANHSoftware & IT Services
Microsoft CorpMSFTSoftware & IT Services
Cloudflare IncNETSoftware & IT Services
ServiceNow IncNOWSoftware & IT Services
Peloton Interactive IncPTONLeisure Products
SiteOne Landscape Supply IncSITEFood & Tobacco
Stericycle IncSRCLProfessional & Commercial Services
Atlassian Corporation PLCTEAMSoftware & IT Services
10X Genomics IncTXGHealthcare Equipment & Supplies
Ubiquiti IncUICommunications & Networking
VMware IncVMWSoftware & IT Services

The stock market has not reacted to the protests and riots across the country. That shouldn’t be a sign of uncaring, only that it doesn’t appear to be taking away from business. Many companies have stepped up and donated for the sake of ending racism.

Society will ultimately be better for all of this. As Martin Luther King said, “riots are the language of the unheard.” Hopefully a lot of listening will take place as response.

There will come a day where people are only seen by their good actions and bad actions. Skin color and culture will be irrelevant in the true judgment of a person.

Stay safe,

Dan