Quick Take: Buyer’s Bias. Leadership takes a hit as the broader market pulls back.
Dear Reader,
There is very little to inspire buyers these days. The bias remains bullishhere as long as institutional grade selling remains absent and price holds above major moving averages.
FOR THE WEEK:
INDEX
CLOSE
% CHANGE
YTD %
DJIA
26469.89
-0.8
-7.2
Nasdaq
10363.18
-1.3
15.5
S&P 500
3215.63
-0.3
-0.5
Russell 2000
1467.55
-0.4
-12
Profit taking in the Nasdaq saw many strong names come back closer to earth.
US relations with China remain at a low with the closure of the Chinese consulate in Houston, and the reciprocated action of closing the US consulate in Wuhan.
President Trump said the coronavirus will likely get worse before it gets better.
Consumer spending will take a hit this fall if Treasury Secretary Mnuchin’s plan of reducing unemployment benefits to 70% of what people were earning.
Gold hit another high as the Dollar hit a low. Defense under uncertainty is to be discerned from these types of moves.
Expect good earnings news to come out early in season for second quarter announcements. Bad news will likely come later, presenting a sentiment challenge for the bulls.
TECHNICALLY SPEAKING
Total volume for the week held pace with last week. Bulls held a slight edge with advance/decline ratios of 1.1 and 1.2 for the NYSE and Nasdaq.
The NYSE saw a 12% increase in new highs to 240.
Both the NYSE and Nasdaq had a 9% decrease of new low as they notched in 20 and 64 respectively.
On the Advance/Decline front, the bull cooled from last week as the NYSE posted a barely bullish 1.4 and the Nasdaq a barely bearish 0.8
WEEKLY SECTOR ACTION
Tech took a step back for the week as discretionary showed a bullish vote for the economy with its holdings in retail, automobiles, consumer durables, apparel, hotels, and restaurants.
SCTR
NAME
% CHG
Consumer Discretionary Sector Fund
XLY
1.7
Energy Sector Fund
XLE
0.82
Consumer Staples Sector Fund
XLP
0.54
Financial Sector Fund
XLF
0.32
Materials Sector Fund
XLB
0.31
Utilities Sector Fund
XLU
0.07
Industrial Sector Fund
XLI
-0.16
Real Estate Sector Fund
XLRE
-0.22
Communication Services Sector Fund
XLC
-0.56
Health Care Sector Fund
XLV
-0.79
Technology Sector Fund
XLK
-1.63
LEADERSHIP
Tesla (TSLA, -5.59%) sold off for the second week in a row. This electric car/technology company has been more of a read on sentiment than a solid investment. Its market cap has it as a potential new member of the S&P 500.
As a group, traditional leadership from the FAANG and friends declined with 50-day moving averages poised to serve as support.
Facebook (FB, -4.68%), Apple (AAPL, -3.85%), Netflix (NFLX, -2.54%) Google (GOOG, -0.24%.)
Microsoft (MSFT, -0.78%) reported lower than expected growth for its cloud server business Azure.
Amazon (AMZN, +1.58%) bucked the trend here as its pandemic friendly business continues to thrive.
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 caterto the agoraphobic.
Tech leadership from FB, AAPL, AMZN, NFLX, GOOG and MSFT was solidfor 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:
ADBE
Adobe Inc
Software & IT Services
APPS
Digital Turbine Inc
Software & IT Services
EA
Electronic Arts Inc
Software & IT Services
EPAM
Epam Systems Inc
Software & IT Services
HOLX
Hologic Inc
Healthcare Equipment & Supplies
LOW
Lowe`s Companies Inc
Specialty Retailers
PFSI
PennyMac Financial Services Inc
Banking Services
PLMR
Palomar Holdings Inc
Insurance
RAPT
Rapt Therapeutics Inc
Biotechnology & Medical Research
BASES
ALGN
Align Technology Inc
Healthcare Equipment & Supplies
BLFS
Biolife Solutions Inc
Healthcare Equipment & Supplies
CORT
Corcept Therapeutics Inc
Pharmaceuticals
CPRX
Catalyst Pharmaceuticals Inc
Biotechnology & Medical Research
DHX
DHI Group Inc
Professional & Commercial Services
FND
Floor & Decor Holdings Inc
Specialty Retailers
GDDY
GoDaddy Inc
Software & IT Services
K
Kellogg Co
Food & Tobacco
LAKE
Lakeland Industries Inc
Textiles & Apparel
LL
Lumber Liquidators Holdings Inc
Specialty Retailers
MVIS
MicroVision Inc
Electronic Equipment & Parts
RMD
Resmed Inc
Healthcare Equipment & Supplies
SHW
Sherwin-Williams Co
Chemicals
SITE
SiteOne Landscape Supply Inc
Food & 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)
Bulls and Bears alike need to take caution, say the volume and price trend indicators.
Accumulation/ Distribution*
S&P 500
6/5
NASDAQ
4/5
DOW 30
3/6
No clear dominance in volume to suggest institutions are buying or selling in mass.
Sector Bias
Ticker
ETF
Bias
FDN
First Trust Dow Jones Internet Index Fund
+
IGE
iShares North American Natural Resources ETF
+
IGN
iShares North American Tech-Multimedia Networking ETF
+
IGV
iShares North American Tech-Software ETF
+
IHI
iShares U.S. Medical Devices ETF
+
IYZ
iShares U.S. Telecommunications ETF
+
OIH
VanEck Vectors Oil Services ETF
+
PPA
PowerShares Aerospace & Defense Portfolio
+
QTEC
First Trust NASDAQ-100-Technology Sector Index Fund
+
SMH
VanEck Vectors Semiconductor ETF
+
XLB
The Materials Select Sector SPDR Fund
+
XLE
The Energy Select Sector SPDR Fund
+
XLI
The Industrial Select Sector SPDR Fund
+
XLK
The Technology Select Sector SPDR Fund
+
XLP
The Consumer Staples Select Sector SPDR Fund
+
XLU
The Utilities Select Sector SPDR Fund
+
XLV
Health Care Select Sector SPDR ETF
+
XME
SPDR S&P Metals & Mining ETF
+
KIE
SPDR S&P Insurance ETF
XLY
The Consumer Discretionary Select Sector SPDR Fund
IBB
iShares Nasdaq Biotechnology ETF
IYT
iShares Transportation Average ETF
KBE
SPDR S&P Bank ETF
KCE
SPDR S&P Capital Markets ETF
KRE
SPDR S&P Regional Banking ETF
PPH
VanEck Vectors Pharmaceutical ETF
XHB
SPDR S&P Homebuilders ETF
XLF
The Financial Select Sector SPDR Fund
XRT
SPDR S&P Retail ETF
Not quite a bull market anymore as bank stocks trend below their major MA’s, as well as lackluster action from retail, a traditionally decent measure of economic health.
Price Performance, Ranked By YTD
Rank
Ticker
Perf Week
Perf Month
Perf Quart
Perf Half
Perf Year
Perf YTD
1
XME
-1.80%
7.38%
13.07%
61.23%
-9.10%
56.79%
2
XLU
0.16%
4.46%
3.76%
22.11%
22.36%
18.21%
3
IGE
-4.05%
0.06%
5.96%
12.70%
-11.82%
15.19%
4
IYZ
1.11%
5.01%
6.53%
13.86%
8.09%
11.34%
5
XLE
-3.21%
0.38%
5.28%
8.70%
-11.00%
11.28%
6
XLB
-1.81%
1.57%
4.41%
9.52%
-4.22%
9.15%
7
OIH
-6.31%
2.59%
3.11%
2.14%
-19.97%
7.86%
8
IHI
-2.46%
2.29%
11.66%
8.85%
11.17%
7.76%
9
XLP
-0.15%
2.82%
2.45%
8.74%
14.21%
7.52%
10
XLI
-2.01%
0.96%
1.51%
7.21%
2.69%
6.16%
11
SMH
-2.32%
8.49%
4.00%
5.08%
0.86%
5.78%
12
PPA
-1.95%
1.58%
6.43%
6.38%
3.68%
4.69%
13
IGV
-1.26%
4.14%
7.45%
2.53%
4.13%
2.51%
14
XLK
-1.69%
2.78%
0.07%
1.55%
3.93%
2.20%
15
KIE
-3.17%
-0.35%
1.42%
1.51%
2.14%
1.38%
16
QTEC
-1.82%
5.88%
1.72%
0.39%
-2.55%
1.31%
17
IYT
-4.27%
-0.50%
-4.82%
0.49%
-8.13%
1.05%
18
XLY
-1.25%
0.80%
0.44%
0.11%
3.23%
0.63%
19
XLV
-1.77%
2.49%
7.59%
-0.06%
-3.77%
-0.96%
20
IGN
-1.85%
5.49%
0.69%
-0.77%
-9.08%
-2.29%
21
FDN
-0.95%
4.57%
7.96%
-2.74%
7.26%
-2.55%
22
XHB
-3.66%
0.70%
0.36%
-3.49%
-8.64%
-2.98%
23
XLF
-2.99%
-0.52%
1.08%
-4.29%
-7.22%
-4.01%
24
XRT
-2.27%
1.57%
-9.64%
-4.92%
-16.44%
-4.35%
25
KRE
-5.64%
0.23%
1.84%
-8.44%
-11.06%
-7.49%
26
KBE
-5.83%
-0.80%
0.84%
-9.82%
-14.00%
-8.37%
27
PPH
-3.23%
0.30%
2.72%
-10.53%
-18.49%
-11.28%
28
KCE
-4.78%
-0.68%
-2.86%
-11.62%
-25.81%
-12.75%
29
IBB
-4.23%
1.09%
6.10%
-20.55%
-28.46%
-22.52%
Late bull market cycle in the works with Metals and Utilities well bids this year.
Four official, albeit light, days of distribution in the past five session tells us we’re seeing some funds unload as the major indexes test their 50-day moving averages.
The 50 is key. Either we’ll see sell volume dry up in here or it picks up in this zone. As is, all major sectors are trending above their major moving averages. Any deterioration of this number will suggest more may come.
Future top earners are screened for as we look for 30% growth or more in earnings over the next five years, weeding out false promises as we also screen for those with current sales showing more than 30% growth, and further drilling it down to only solidly profitable companies with return on equity of 15% or better. This is the Stud Screen:
Happy stocks this morning turned sour into the close as the Nasdaq posted a modest loss on distribution. The Dow and S&P 500’s retreats from earlier highs weren’t as dramatic. We see it all as a sign that this recent uptrend is now cooling.
The pressure is on for recent breakout 3D Systems Corp. (DDD) to give us another profitable climb. This stock, which made our year in January, looks poised to do it again with a clean, high-volume push out of its four month base.
It’s good that we’re not seeing any heavy distribution at these levels. We won’t be surprised to see a test of the 50-day average. Perhaps not coincidentally, the $50 price marker is also in play as a psychological hurdle. Longs are likely to get spooked somewhere, somehow in this early stage.
Looking under the hood, this maker of 3D printers sold to pros and amateurs has a market cap of $5B with yearly sales of more than $400M, grown at a 40%+ clip, with earnings of nearly $40M, representing 12% growth. Debt of more than $30M with 6% return on equity leaves much to be desired. But it’s ok. The sector is still well bid. We’ll see if the broader market supports it. Analysts, as a group measured by Yahoo!, see growth at 30% next year.
We've shifted our bias down to Buyer's Caution as multiple distribution days, a lack of leadership and an expected seasonal shift in sentiment appear to have set in for awhile. This is our first bias shift all year. We're happy to have been on the right side of the market for the last six months despite staying on the lookout for a 5% pullback in the major indexes.
This morning’s pop to new highs for the major indexes is exactly the type of exuberance we sell into. Let’s see how the day closes. It’s the smart money that ends a session that tells us a little better where we’re heading.
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