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