Corona Drift

Quick Take: Buy Bias. Fed fueled buying ignores weak business and economic data. 

FOR THE WEEK

For all the reasons to sell amidst this coronavirus infected economy, the market just doesn’t.

The market will continue to drift higher until it doesn’t.  

INDEXCLOSECHANGE% CHANGEYTD %
DJIA26671.95596.652.3-6.5
Nasdaq10503.19-114.25-1.117.1
S&P 5003224.7339.691.2-0.2
Russell 20001473.3250.643.6-11.7

Money shifted into value oriented Industrials, Materials and Healthcare this week as the tech gorillas cooled with a pullback. 

Watch for growth stocks as a group to cool off as funds take profits from a legendary rally. Though opportunities still abound for new breakouts. 

Big dividend payers remain a thing. Watch how the Dow doesn’t sell off as hard as the S&P 500 and Nasdaq on down days. Treasuries won’t yield much as the government promises to keep rates low for a couple of years.

Optimism is growing on the covid-19 vaccine front as a collaboration with Pfizer (PFE, +1.15%) and BioNTech (BNTX, +11.21%) received fast-track designation from the FDA.  

Moderna’s (MRNA, +51.49) had reported a positive first phase in its study.  Novavax (NVAX, +48.89%) also continues to receive votes of hope as its stock teared higher for another week.

The market’s V recovery continues to be supported by economic data.  

The trend in job recovery continues, though about a third of the jobs lost during the virus lockdown have been recovered, according to US employment data released Thursday.

As the band plays upbeat, a darker reality threatens with the coronavirus. 

States making up nearly a third of the US economy reported a fearsome uptick in covid-19 cases. California, Texas, Florida and Arizona are taking measures to counter the spread.  

There’s no guidebook for this. We simply don’t know what to expect as the pandemic plays out. 

No one expects year over year earnings for the second quarter to be good. The attention will go to guidance, as usual.

Analysts may have predicted the worst for companies struggling during lockdown, look for surprises, and more importantly the reactions to those surprises.

Big banks reporting earnings largely beat estimates as a group. But uncertainty in the market has led them to reserving more cash for failed loans. 

News reactions were a mixed bag for the six largest banks reporting: Citigroup (C, -4.62%), JPMorgan (JPM, +1.96%), Wells Fargo (WFC, -2.04%), Goldman Sachs (GS, +2.85%), Bank of America (BAC, -3.33%) and Morgan Stanley (MS, +5.24%.)

Lack of participation in this bull market from the financials does not bode well for business. Price action on the Financial sector ETF  (XLF, +2.09%) is not supporting a rosy future as it continues to struggle with mostly sideways chop.

LEADERSHIP

Tech leadership tests its bullish form with sizable drops. Let’s call it profit taking after huge runs since March. 

Facebook (FB, -1.24%), Apple (AAPL, .42%) Amazon (AMZN, -7.44%), Netflix (NFLX, -10.16%) Google (GOOG, -1.7%) Microsoft (MSFT, -5.05%)  

Netflix (NFLX) shares fell 10%, with a bulk of those losses coming after the company issued cautious subscriber guidance at the end of the week.

Gold (GLD, +0.55%) and Biotech (IBB, +3.41) have their breakouts intact. These have been the drivers in the Materials and Healthcare sectors. 

TECHNICALLY SPEAKING

Picture Perfect Breakout Setup
  • The S&P 500 is poised for another breakout as it trends above its major moving averages, just 5% from its 52-week high.
  • NYSE volume was 7% lower than last week as edged out sellers with a 1.2 ratio.
  • Nasdaq volume was 10% higher as buyers prevailed with a 1.7 ratio.
TICKERINDUSTRY ETF% CHG
XLIIndustrial Sector Fund5.87
XLBMaterials Sector Fund5.47
XLVHealth Care Sector Fund5.14
XLUUtilities Sector Fund4.22
XLEEnergy Sector Fund3.24
XLPConsumer Staples Sector Fund2.16
XLFFinancial Sector Fund2.09
XLYConsumer Discretionary Sector Fund0.4
XLREReal Estate Sector Fund0.06
XLCCommunication Services Sector Fund-0.5
XLKTechnology Sector Fund-1.16

GROWTH STOCKS

Buyer’s Bias intact. Opportunities abound.

BREAKOUTS

AEYEAudioEye, Inc.Internet Software/Services
ALNYAlnylam Pharmaceuticals, IncBiotechnology
CHGGChegg, Inc.Miscellaneous Commercial Services
CRSPCRISPR Therapeutics AGBiotechnology
CRWDCrowdStrike Holdings, Inc. Class APackaged Software
IMMUImmunomedics, Inc.Biotechnology
NKNantKwest, Inc.Biotechnology
PAASPan American Silver Corp.Precious Metals
RAREUltragenyx Pharmaceutical, Inc.Biotechnology
RMBLRumbleOn, Inc. Class BInformation Technology Services
SEDGSolarEdge Technologies, Inc.Electrical Products
TNDMTandem Diabetes Care, Inc.Medical Specialties
TTDTrade Desk, Inc. Class AAdvertising/Marketing Services
WRTCWrap Technologies, Inc.Industrial Conglomerates
ZMZoom Video Communications, Inc. Class APackaged Software

BASES

ALBOAlbireo Pharma, Inc.Pharmaceuticals: Other
AXNXAxonics Modulation Technologies, Inc.Medical Specialties
CGENCompugen Ltd.Biotechnology
DRNADicerna Pharmaceuticals, Inc.Biotechnology
EXASExact Sciences CorporationBiotechnology
OCULOcular Therapeutix IncPharmaceuticals: Major
OROsisko Gold Royalties LtdPrecious Metals
OTRKOntrak, Inc.Medical/Nursing Services
STNEStoneCo Ltd. Class APackaged Software
XLRNAcceleron Pharma IncBiotechnology
ZZillow Group, Inc. Class CInformation Technology Services

Control your loses, let your winners run.

Dan