US – Opportunities For The Coming Week (Sep 28, 2020)

If one were to look at the WoW performance for major indices, it would be hard to imagine the volatility most investors went through last week.

  • #SPX: +0.53%
  • #NDX: +1.25%
  • #RUT: -0.76%

My model shows massive deterioration in the setups for uptrending stocks. While we wait for the bull market to resume (SPX above 50dma, NDX above 50dma), here are few stocks that one can focus on once the index uptrend is re-established:

$ZM: Zoom needs no introduction. Here is how the chart is setting up. On the fundamental side, it’s really good to see the revenues going 2x in last 12 months and free cash flow 6x.

$CRWD: CrowdStrike Holdings, Inc. provides cloud-delivered solutions for next-generation endpoint protection in the United States, Australia, Germany, India, Romania, and the United Kingdom. It offers 11 cloud modules on its Falcon platform through a software as a service subscription-based model that covers various security markets, such as endpoint security, security and IT operations, and threat intelligence to deliver comprehensive breach protection even against today’s most sophisticated attacks. The company primarily sells its platform and cloud modules through its direct sales team. (Source: yahoo)

$NOW: ServiceNow, Inc. provides enterprise cloud computing solutions that defines, structures, consolidates, manages, and automates services for enterprises worldwide. The company offers information technology (IT) service management applications; and digital workflow products for customer service, human resources, security operations, integrated risk management, and other enterprise departments. It operates the Now platform that offers workflow automation, electronic service catalogs and portals, configuration management systems, data benchmarking, performance analytics, encryption, and collaboration and development tools. (Source: yahoo)

$NVDA: Nvidia is the leading designer of graphics processing units that enhance the experience on computing platforms. The firm’s chips are used in a variety of end markets, including high-end PCs for gaming, data centers, and automotive infotainment systems. In recent years, the firm has broadened its focus from traditional PC graphics applications such as gaming to more complex and favorable opportunities, including artificial intelligence and autonomous driving, which leverage the high-performance capabilities of the firm’s graphics processing units. (Source: Morningstar)

$ENPH: Enphase Energy Inc delivers energy management technology for the solar industry. The company designs, develops, manufactures and sells home energy solutions that connect solar generation, energy storage, and management on one intelligent platform. Its product and service portfolio consists of Enphase Microinverters, Enphase Envoy, Enphase Enlighten and Apps, Enphase Energy Services, and Enphase Storage System. Geographically, it derives a majority of revenue from the United States. (Source: Morningstar)

Fundamentals look good here. It looks choppy but certainly one to keep an eye on.

$PTON: Peloton Interactive, Inc. provides interactive fitness products in North America and internationally. It offers connected fitness products, such as the Peloton Bike and the Peloton Tread, which include touchscreen that streams live and on-demand classes. The company also provides connected fitness subscriptions for multiple household users, and access to all live and on-demand classes, as well as Peloton Digital app for connected fitness subscribers to provide access to its classes. (Source: Yahoo)

Charts sourced from stockcharts.com and financials from morningstar.com

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it. I have no business relationship with any company whose stock is mentioned in this article.

Disclaimer: This is not investment advice, please do your research before committing capital.

Another week of Horrible data (May 4-May 8, 2020)

Risk-on sentiment prevailed in the previous week with all major US indices gaining more than 3% for the week. (SPY/SPX +3.4%, QQQ/NDX +5.7%, IWM/Russell2000 +5.77%, Dow +2.67%)

In the bond world, yield curve steepened with 30 yr Tsy yield +10.8bps WoW vs 10 yr Tsy yield +4bp WoW vs 2yr Tsy yield +3.7bp WoW. US HY OAS tightened by 10bps until Thursday while US IG OAS widened 3bps WoW. Another interesting development here was that Fed Funds Futures for Jan’21 turned negative briefly. So far Fed has been saying they are against the NIRP, let’s see if the bond market forces it’s hand.

If one were to draw an inference from just the above 2 facts (equity markets rising and yield curve steepening), it seems like growth is coming back. Market seems to be looking beyond any bad data point that comes across even if it’s the worst EVER:

  • ISM Non-Manufacturing PMI of 41.8 vs 52.5 last month
  • ADP Employment change of -20.2mm vs -20mm consensus
  • Initial jobless claims of 3.17mm vs consensus 3mm taking overall jobless claims in last 7 weeks to 33mm
  • Continuing Jobless claims of 22.65mm vs consensus 19.9mm
  • Non-farm Payroll of -19.5mm vs consensus -21mm

Why did markets rally with all this bad data? Some say unemployment data are lagging numbers and I agree. But when they say that this is appropriately priced when the S&P is only -9.3% YTD and +1.7% from 1year ago, that is a tough one to agree with.

All risk assets except Banks (KRE +0.6% WoW, KBE +0.6%), Utilities (XLU +0.5%), Staples (XLP +0.9%), Industrials (XLI +1.35%) and Healthcare (+1.6%) rallied hard

  • Semis (SMH +7.2%)
  • Biotech (+6.2%)
  • Consumer Discretionary (+4.5%)
  • Tech Hardware (+6.4%)
  • Homebuilders (+7.3%)
  • Oil & Gas Exploration (+7.2%)

In commodities world, Lumber (+11.6%) and Oil (+24.5%) led the way.

Most market commentators are puzzled by the disconnect between the stock market and reality. Some have started saying, “Stock market is not the economy. The economy is not the stock market”. Other more confident proponents of a solid quick recovery think re-opening will unleash the “pent up demand” bazooka.

We know the situation is not good. I think V-shaped recovery is not possible from my reading of investor calls from 1Q results.

Trump administration re-ignited the optimism for Trade war stuff last week, just before the horrible unemployment numbers. I am not sure how bad the situation really is that they have to again rely on this narrative for markets to keep moving up. How does it gel with US claims of the virus originating in Chinese labs?

From a technicals perspective, S&P is near the 61.8% retracement level again. One trade that has done well is Long Tech/Short S&P and is now probably the most crowded trade. How do we play the current scenario?

  • I would say follow the commodities and design some trades around them as Fed can’t buy commodities or artificially inflate them for long. I am looking at lumber.
  • Traditional stock picking with sector hedges is another way