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