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Premium daily stock trading service. In our Stock Trading Alerts, we provide extensive analyses and comments at least 1 time per trading day, usually before the opening bell. The analyses focus on all the key factors essential to determining the medium- and short-term outlook for the S&P 500 futures, spanning over several time frames, credit markets and S&P 500 sectors and ratios. They also capture the key fundamental developments, events and trends in assessing the prospects and health of the S&P 500 moves. This way, you’re kept up-to-date on important developments that far too many investors are apt to miss or underestimate.

Whether you're looking for objective analyses to broaden your horizon / add confidence to trading decisions, or want to get inspired by our trade calls for S&P 500 futures, Stock Trading Alerts are the way to go.

  • Stocks Surge to New Records on More Optimism

    December 18, 2020, 11:09 AM

    Major averages hit both all-time intraday and closing highs on Thursday (Dec. 17), riding on vaccine optimism and hopes that a stimulus package could be passed in a matter of days.

    News Recap

    • The Dow Jones climbed 148.83 points, or 0.5%, to 30,303.37 for a record close. Both the S&P 500 and Nasdaq hit intraday and closing records as well and gained 0.6% and 0.8%, respectively. In typical fashion, the Russell 2000 small-cap index once again beat the other indices and gained 1.30%.
    • Senate Majority Leader Mitch McConnell on Thursday (Dec. 17) said that a stimulus deal was closing in. Congress appears to be nearing a $900 million stimulus package that would include direct payments to individuals. However, the package would exclude the partisan issues of liability protections for businesses and aid to state and local governments.
    • Despite the optimistic tone of the day, jobless claims disappointed for a second consecutive week. Jobless claims totaled 885,000 last week, hitting their highest levels since early September. This was also significantly worse than the expected 808,000.
    • An FDA panel officially endorsed Moderna's (MRNA) COVID-19 vaccine. It could officially be cleared for emergency usage as early as Friday (Dec. 18), and be distributed as soon as after the weekend. Upon authorization, government officials plan to ship nearly 6 million doses of Moderna’s vaccine in addition to the 2.9 million Pfizer (PFE) doses already in distribution.
    • Real estate, materials and health care were the best-performing sectors in the S&P 500, each gaining over 1%. Johnson & Johnson (JNJ) rose 2.6% to lead the Dow higher.
    • Tesla (TSLA) gained 5.32% and will now officially join the S&P 500.
    • We are in the darkest days of the pandemic. On average, the U.S. is recording at least 215,729 additional COVID-19 cases a day. More than 114,200 Americans are also now hospitalized, and over 3,400 new deaths were recorded. According to the CDC Director, Robert Redfield, US COVID-19 deaths are likely to exceed the 9/11 death toll for the next 60 days.

    While sentiment has been positive over the last two trading sessions, there will still be a short-term tug of war between good news and bad news. It’s quite simple really - until a stimulus is passed and the virus is somewhat brought under control, there will be negative pressure on the markets. Even though a stimulus package passing appears to be imminent, time is running short and we may be at a fork in the road.

    For now, though, hopes that a deal could pass through are sending stocks higher.

    “Stimulus is still the main driver in the market right now until they get something done, and it does appear there is some motivation on that front to get something done,” said Dan Deming, managing director at KKM Financial, further stating that “the market’s benefiting from that (enthusiasm).”

    Additionally, Luke Tilley, chief economist at Wilmington Trust, said that another stimulus package was needed to keep the economic recovery from stalling before the mass distribution of a vaccine.

    “With the continued rising cases and mass vaccinations still a ways out, we could see some further weakness in jobs and even a flattening where we’re not even adding jobs at all ... that’s absolutely a possibility for this next jobs report,” Tilley said. “And if we were to not get another stimulus package, you’re going to have 10 to 11 million people fall off the unemployment rolls right away, and that would hit spending as well.”

    The overwhelming majority of market strategists are bullish on equities for 2021 though, despite near-term risks. While there may be some semblance of a “Santa Claus Rally” occurring, the general consensus between market strategists is to look past the short-term pain and focus on the longer-term gains. The mid-term and long-term optimism is very real.

    According to Robert Dye, Comerica Bank Chief Economist:

    “I am pretty bullish on the second half of next year, but the trouble is we have to get there...As we all know, we’re facing a lot of near-term risks. But I think when we get into the second half of next year, we get the vaccine behind us, we’ve got a lot of consumer optimism, business optimism coming up and a huge amount of pent-up demand to spend out with very low interest rates.”

    In the short-term, there will be some optimistic and pessimistic days. On some days, the broader “pandemic” market trend will happen, with cyclical and recovery stocks lagging, and tech and “stay-at-home” stocks leading. Sometimes a broad sell-off based on fear or overheating may occur as well. On other days, there will be a broad market rally due to optimism and 2021-related euphoria. Additionally, there will be days (and in my opinion this will be most trading days), when markets will trade largely mixed, sideways, and reflect uncertainty. But if we get an early Christmas present and a stimulus package passes, all bets are off. It could mean very good things for short-term market gains.

    In the mid-term and long-term, there is certainly a light at the end of the tunnel. Once this pandemic is finally brought under control and vaccines are mass deployed, volatility will stabilize, and optimism and relief will permeate the markets. Stocks especially dependent on a rapid recovery and reopening, such as small-caps, should thrive.

    Due to this tug of war between sentiments though, it is truly hard to say with any degree of certainty that a correction will happen or more record high rallies will occur.

    Therefore, to sum it up:

    While there is long-term optimism, there is short-term pessimism. A short-term correction is very possible, but it is hard to say with conviction that a big correction will happen.

    The premium analysis this morning will showcase a “Drivers and Divers” section that will break down some sectors that are in and out of favor. As a token of my appreciation for your patronage, I decided to give you a free sample of a “driver” and “diver” sector. Please do me a favor and let me know what you think of this segment! I’m always happy to hear from you.

    Driving

    Small-Caps (IWM)

    In typical fashion, the Russell 2000 small-cap index once again beat the other indices and gained 1.30% on Thursday (Dec. 17). I truly love small-cap stocks in the long-term and this small-cap rally is more encouraging than the “stay-at-home” stock rallies from April/May. This is a bullish sign for a long-term economic recovery and shows that investors are optimistic that a vaccine will return life to relatively normalcy in 2021.

    I do have some concerns of overheating in the short-term however, especially with the headwinds that still exist. The Russell keeps outperforming no matter what the market sentiment of the day or week is. For example, although the week ended December 11th was an overall down week, the Russell 2000 STILL managed to outperform the larger indices and eek out another weekly gain of 1.02%. While it is remarkable, I do not see how this is sustainable in the short-term.

    The performance of the Russell 2000 index since early November has been nothing short of staggering. Although the Russell index is composed mostly of small-cap value cyclical stocks dependent on the recovery of the broader economy, and may be more adversely affected on “sell-the-news” kind of days, its hot streak since November has not cooled off in the slightest.

    Since the start of November, the Russell 2000 has skyrocketed and considerably outperformed the other major indices. The iShares Russell 2000 ETF (IWM), in comparison to the ETFs tracking the Dow (DIA), S&P (SPY), and Nasdaq (QQQ), has risen 28.62%. This is at least 13% higher than all of the other major indices. Since the start of December, the Russell ETF has also outperformed the other ETFs between 4%-5%.

    However, when looking at the chart for the Russell 2000 ETF (IWM), it becomes pretty evident that small-cap stocks have overheated in the short-term. These are stocks that will experience more short-term volatility. Stocks don’t always go up but the Russell’s trajectory since November has been essentially vertical. The IWM ETF keeps hitting record highs while the RSI keeps overinflating way past overbought levels. I would SELL and trim profits for the short-term but do not fully exit these positions. A stimulus could be imminent and send these stocks soaring more. But if there is a pullback, BUY for the long-term recovery.

    Diving

    US Dollar ($USD)

    The U.S. Dollar’s plunge continues to its lowest levels in years. I called the return to oversold levels this week despite the currency piercing the 91-level last Wednesday (Dec. 9). I knew it was “fool's gold” and not the sign of any sort of breakout. I have been calling the dollar’s weakness for weeks despite its low levels, and I expect the decline to continue.

    For the first time since April 2018, the world’s reserve currency is now trading below 90.

    Why did the dollar plunge so much on Thursday (Dec. 17)? You can thank the Fed! After the Federal Reserve’s dovish tone and reassurance on Wednesday (Dec. 16) that it won’t be soon tapering its bond purchases, bearish traders took this as a sign to continue selling the dollar.

    “The latest blow to the dollar came from the Fed, which vowed not to touch policy even if the outlook for the U.S. economy brightens as it now expects,” said Joe Manimbo, senior analyst at Western Union Business Solutions.

    After hitting a nearly 3-year high in March, the dollar has plunged in excess of 13%.

    Meanwhile, other currencies continued strengthening on Thursday (Dec. 17), relative to the dollar:

    • The euro rose 0.6% to $1.2270, hitting its highest level versus the dollar since April 2018. The euro is up more than 9% year to date.
    • The dollar fell to a more-than-three-year low versus the Japanese yen and declined 0.4% to ¥103.07.
    • The British pound was up 0.5% at $1.3575 - its highest since April 2018.
    • Both the Australian dollar and the New Zealand dollar each gained 0.6% versus the US dollar.
    • The US dollar was off 0.1% vs. the Canadian dollar.

    After briefly rising above an oversold RSI of 30 last week, the dollar’s RSI is at an alarmingly low 22.96. The dollar is also significantly trading below both its 50-day and 200-day moving averages.

    Many believe that the dollar could fall further too.

    If the world returns to relative normalcy within the next year, investors may be more “risk-on” and less “risk-off,” meaning that the dollar’s value will decline further.

    Additionally, because of all of the economic stimulus and seemingly imminent additional stimulus, the dollar’s value has declined and could have more room to fall. With a dovish Fed and record low-interest rates projected to remain this low for at least another two years, the dollar may not appreciate again for a very long time.

    While the dollar may have more room to fall, this MAY be a good opportunity to buy the world’s reserve currency at a discount - at least for a quick short-term trade. The low RSI reflects this.

    But I just have too many doubts on the effect of interest rates this low, government stimulus, strengthening of emerging markets, and inflation to be remotely bullish on the dollar’s prospects over the next 1-3 years.

    For now, where possible, HEDGE OR SELL USD exposure.

    Thank you for reading today’s free analysis. If you would like to receive daily premium follow-ups, I encourage you to sign up for my Stock Trading Alerts to also benefit from the trading action described - the moment it happens. The full analysis includes more details about current positions and levels to watch before deciding to open any new ones or where to close existing ones.

    Thank you.

    Matthew Levy, CFA
    Stock Trading Strategist

  • Nasdaq Hits Yet Another Record Close

    December 17, 2020, 12:02 PM

    The major indices closed mixed on Wednesday (Dec. 16), as the Nasdaq hit yet another record close amidst stimulus optimism and the Fed’s dovish tone.

    News Recap

    • Although the Dow Jones closed lower by 44.77 points, or 0.15%, the S&P 500 gained for the second day in a row and rose by 0.18%. The Nasdaq closed once again at a record high and gained 0.5%.
    • Sentiment for the day started negatively after the Commerce Department reported a steeper-than-expected drop in U.S. retail sales. The department stated that retail sales fell by 1.1% in November compared to estimates of 0.3%.
    • Cautious optimism that some sort of stimulus could be passed before the end of the year encouraged investors.
    • According to Politico, Congress was on the brink of a $900 billion stimulus deal that would include a new round of direct payments to consumers. However, that package would exclude the more contentious areas of liability shields for businesses and state and local aid.
    • We have reached the deadliest weeks of the COVID-19 pandemic. More than 300,000 total COVID-19 related deaths have now been confirmed in the U.S., with over 16 million confirmed cases. Additionally, US officials reported 3,400 new COVID-19 deaths - a daily record.
    • After an FDA panel officially endorsed Moderna (MRNA) - following a review which confirmed safety and efficacy earlier in the week – the big day is finally here. On Thursday (Dec. 17), the FDA will officially vote on Moderna's vaccine. This will strongly complement the mass deployment of Pfizer (PFE) and BioNTech’s (BNTX) vaccine.
    • The Federal Reserve’s announcement on monetary policy was largely as dovish as expected. The Fed vowed to continue its asset purchase program at the current rate, “until substantial further progress has been made toward the committee’s maximum employment and price stability goals.”
    • Microsoft (MSFT) and Salesforce (CRM) led the Dow with gains of 2.4% and 1.6%, respectively, while Walgreens (WBA) was the laggard and declined 2.15%.
    • Moderna (MRNA), despite its big week ahead, dropped 6.9%.

    While there is some short-term uncertainty and mixed sentiment, there is some general consensus: While the short-term may see some pain and/or mixed sentiment, it may be worth it for the medium-term and long-term optimism.

    The overwhelming majority of market strategists are bullish on equities for 2021- despite near-term risks. Outside of the pandemic raging to out of control levels, another near-term risk that has been largely overlooked is the Senate runoff election in Georgia. Investors have largely already priced in a divided government - however, if Republicans end up losing both seats in Georgia, this could potentially upend everything.

    According to Jimmy Lee, CEO of the Wealth Consulting Group,

    “I think that we can get a little bit of consolidation before year-end just due to normal selling at the year-end for rebalancing or tax loss harvesting. Also, depending on where the pulse is for the Senate race in Georgia, investors might want to get ahead of that if they think that capital gains taxes may go up in the future...So that could cause some additional selling before year-end and we could get a little bit of a pullback. But I am very bullish on equities at this point. And I do think we may get a little bit more of a rotation into the economy-opening sectors.”

    Meanwhile, progress on the stimulus package appears to be more optimistic than many expected in the near-term.

    “The odds of a fiscal deal before year’s end have been improving,” Goldman Sachs economists led by Jan Hatzius wrote in a note Tuesday (Dec. 15). “While we had expected a smaller package to pass now with a larger package waiting until early 2021, it appears increasingly likely that most of this could pass this week.”

    While markets for the rest of 2020 (and perhaps early 2021), will wrestle with the negative reality on the ground and optimism for an economic rebound, the general consensus appears to be looking past the short-term painful realities, and focusing more on the longer-term - a world where COVID-19 is expected to be a thing of the past and we are back to normal.

    In the short-term, there will be some optimistic and pessimistic days. On other days, such as Wednesday (Dec. 16) (and in my opinion this will be most trading days), markets will trade largely mixed, sideways, and reflect uncertainty. Therefore, it is truly hard to say with conviction what will happen with markets in the next 1-3 months. However, if a stimulus deal passes within the next week, it could mean very good things for short-term market gains.

    In the mid-term and long-term, there is certainly a light at the end of the tunnel. Once this pandemic is finally brought under control and vaccines are mass deployed to the general public, volatility will stabilize, and optimism and relief will permeate the markets. Stocks especially dependent on a rapid recovery and reopening such as small-caps should thrive.

    Due to this tug of war between sentiments, it is truly hard to say with any degree of certainty whether another crash or bear market will come.

    Therefore, to sum it up:

    While there is long-term optimism, there is short-term pessimism. A short-term correction is very possible. But it is hard to say with conviction that a big correction will happen.

    Nasdaq Hits Another Record Close - Too Good to Be True?

    Is the Nasdaq’s performance since its sharp sell-off last Wednesday (Dec. 9) too good to be true? Truthfully, I don’t know. But it’s very possible - especially if shut down measurements become harsher and stricter and investors return to the “stay-at-home” trade that led markets from April through the end of October.

    Additionally, I still have many concerns about tech valuations and their astoundingly inflated levels. Last week’s IPOs of DoorDash (DASH) and AirBnB (ABNB) reflect this and invoke traumatic memories of the dotcom bubble era. I believe that more pullbacks along the lines of last Wednesday (Dec. 9) could inevitably come in the short-term. Frankly, it would make me feel far more confident about initiating tech positions as well for the long-term.

    Pay close attention to the RSI. While an overbought RSI does not automatically mean a trend reversal, I called keeping a very close eye on this for the Nasdaq. Last Wednesday’s (Dec. 9th) Nasdaq pullback after it exceeded a 70 RSI reflects that.

    The Nasdaq has sharply rallied in the week since then. But its RSI is nearly 69. Monitor this. If the index goes on another bull-run and hits more record closes, it could surely exceed an RSI of 70 by the end of market close on Thursday (Dec. 17). I did not make a conviction call last week but I will now- if the RSI exceeds 70 this time, take profits- but don’t fully exit.

    One thing I do like is how stable the volume has been this week and since the sharp sell-off last week. Stable volume is a good thing, especially if one is concerned about volatility. Low volume, especially a declining trend, means that there are fewer shares trading. Lower volume also means less liquidity across the index, and an increase in stock price volatility.

    On pessimistic days, having NASDAQ exposure is crucial because of all the “stay-at-home” trade. However, positive vaccine-related news always induces the risk of downward pressure on tech names - both on and off the NASDAQ. What concerns me most are sharp sell-offs due to overheating and mania. Don’t ever let anyone tell you “this time is different” if fears of the dot-com bubble are discussed. History repeats itself, especially in markets.

    It is very hard to say with conviction to sell your tech shares though. However, as I said before - if the RSI exceeds 70 again - consider selling some shares and taking profits. For now, however, the NASDAQ stays a HOLD.

    For an ETF that attempts to directly correlate with the performance of the NASDAQ, the Invesco QQQ ETF (QQQ) is a good option.

    Thank you for reading today’s free analysis. If you would like to receive daily premium follow-ups, I encourage you to sign up for my Stock Trading Alerts to also benefit from the trading action described - the moment it happens. The full analysis includes more details about current positions and levels to watch before deciding to open any new ones or where to close existing ones.

    Thank you.

    Matthew Levy, CFA
    Stock Trading Strategist

  • Stocks Surge on Stimulus Hopes

    December 16, 2020, 11:25 AM

    Stocks rose sharply on Tuesday (Dec. 15) as optimism grew that Congress could pass another economic stimulus package before year’s end.

    News Recap

    • The Dow Jones gained 337.76 points, or 1.1%, and closed at 30,199.31. The S&P 500 also gained 1.3% and snapped a four-day losing streak. The tech-heavy Nasdaq climbed 1.3% and reached a new record closing high of 12,595.06. However, the Russell 2000 small-cap index once again beat the other indices and gained 2.40%.
    • In the strongest indication yet that we may be coming closer to a stimulus agreement, the top four congressional leaders-House Speaker Nancy Pelosi, Senate Majority Leader Mitch McConnell, Senate Minority Leader Chuck Schumer, and House Minority Leader Kevin McCarthy - all were set to meet after market close on Tuesday (Dec. 15).
    • Democrats and Republicans still remain deeply divided on certain matters, but a two-part bipartisan stimulus plan proposed on Tuesday (Dec. 15) has a chance of passing.
    • The stimulus package would provide around $908 billion in total aid. The first part would be a $748 billion stimulus package that includes an additional $300 per week in federal unemployment benefits and another $300 billion for more PPP loans. This segment would also include money for vaccine distribution, education, and rental assistance. The second segment would be a $160 billion aid package and cover the more partisan issues of business liability protections and financial aid to state and local governments.
    • The first round of shots from the vaccine developed by Pfizer and BioNTech were given in the U.S. on Monday (Dec. 14) with further distributions occurring Tuesday (Dec. 15).
    • FDA staff announced that they endorsed emergency usage of Moderna’s vaccine. The FDA’s vaccine advisory panel will meet Thursday (Dec. 16) to decide whether to recommend clearance for emergency use. Upon authorization, government officials plan to ship nearly 6 million doses of Moderna’s vaccine in addition to the 2.9 million Pfizer doses already in distribution.
    • Apple led the Dow higher, jumping 5% after Nikkei reported that the company will increase iPhone production by about 30% in the first half of 2021.
    • All 11 S&P 500 sectors gained on Tuesday (Dec. 15) and were led by energy and utilities.
    • We are approaching the darkest days of the COVID-19 pandemic yet. 300,000 people across the country have now lost their lives to the disease. However, the worst may not be over yet. According to the CDC Director Robert Redfield, US COVID-19 deaths are likely to exceed the 9/11 death toll for the next 60 days.

    The short-term may see some pain and/or mixed sentiment due to two major catalysts - the lack of stimulus and an out-of-control virus.

    According to Art Hogan, chief market strategist at National Securities:

    “There’s been a tug of war between the vaccine news and the virus news. The only tiebreaker that’s kept the averages on their way higher seems to be the potential for getting stimulus out of gridlock...It certainly feels like one of the proposals that’s on the table ... can go through.”

    Additionally, Luke Tilley, chief economist at Wilmington Trust, said that another stimulus package was needed to keep the economic recovery from stalling before a mass distribution of a vaccine.

    “With the continued rising cases and mass vaccinations still a ways out, we could see some further weakness in jobs and even a flattening where we’re not even adding jobs at all ... that’s absolutely a possibility for this next jobs report,” Tilley said. “And if we were to not get another stimulus package, you’re going to have 10 to 11 million people fall off the unemployment rolls right away, and that would hit spending as well.”

    On the other hand, the mid-term and long-term optimism is very real. While there may be some semblance of a “Santa Claus Rally” occurring, the general consensus between market strategists is to look past the short-term pain, and focus on the longer-term gains.

    According to Robert Dye, Comerica Bank Chief Economist:

    “I am pretty bullish on the second half of next year, but the trouble is we have to get there...As we all know, we’re facing a lot of near-term risks. But I think when we get into the second half of next year, we get the vaccine behind us, we’ve got a lot of consumer optimism, business optimism coming up and a huge amount of pent-up demand to spend out with very low interest rates.”

    In the short-term, there will be some optimistic and pessimistic days. On some days, like Monday (Dec. 14), the broader “pandemic” market trend will happen - cyclical and recovery stocks lagging, and tech and “stay-at-home” stocks leading. On other days, like Tuesday (Dec. 15), there will be a broad market rally due to optimism and 2021 related euphoria. On other days (and in my opinion this will be most trading days), markets will trade largely mixed, sideways, and reflect uncertainty.

    However, if a stimulus deal passes before the end of the year, all bets are off. It could mean very good things for short-term market gains.

    In the mid-term and long-term, there is certainly a light at the end of the tunnel. Once this pandemic is finally brought under control and vaccines are mass deployed, volatility will stabilize, and optimism and relief will permeate the markets. Stocks especially dependent on a rapid recovery and reopening such as small-caps should thrive.

    Due to this tug of war between sentiments though, it is truly a challenge to predict the future with certainty.

    Therefore, to sum it up:

    While there is long-term optimism, there is short-term pessimism. A short-term correction is very possible. But it is hard to say with conviction that a big correction will happen.

    The premium analysis this morning will showcase a “Drivers and Divers” section that will break down some sectors that are in and out of favor. As a token of my appreciation for your patronage, I decided to give you a free sample of a “driver” and “diver” sector. Do me a favor and let me know what you think of this segment! Always happy to hear from you.

    Driving

    Energy (XLE)

    Energy is a sector largely dependent on sentiment, with several question marks.

    On one hand, if you are bullish, all of this vaccine news bodes well for a full economic reopening by the second half of 2021. That means travel, and therefore fuel demand, could surge back to pre-pandemic levels. WTI crude futures on Tuesday (Dec. 15) extended gains to trade around 1% higher at $47.5 a barrel due to cautious optimism on further US stimulus in addition to the vaccine(s).

    On the other hand, there are very real short-term concerns. There are fresh concerns over global fuel demand as countries, states, and cities across the world tighten coronavirus restrictions. Germany and the Netherlands will enter a new lockdown, while the UK government imposed tighter Covid-19 measures on London. In New York City, Mayor Bill De Blasio warned that the city is on the path towards a second full shutdown. Governor Andrew Cuomo already banned all indoor dining. The newly inaugurated Mayor of Baltimore, Brandon Scott, also banned all dining - both indoor and outdoor. OPEC also lowered its projections for global fuel consumption in Q1 2021 by 1 million barrels a day as well. The organization will meet on January 4th to evaluate if they can move on with supply increases. Much anticipated data from the EIA is also due on Wednesday.

    This is such an unpredictable sector experiencing great volatility. It is almost as if energy is either the S&P 500’s leader or its laggard. There is never anything in between. These are simply risky and major percentage swings on a day-to-day basis.

    It is a very difficult sector to make a bullish call on. There are still simply too many headwinds to be overly euphoric. While energy is still largely undervalued, and the RSI is no longer overbought, the volume is not stable. Most importantly, nobody truly knows what oil’s long-term prospects are, with the increased adoption of renewable energy and ESG investing.

    This year we have seen that when energy rallies, it eventually pulls back. Judging from the chart, that inevitable pullback could possibly come again. For the month of December, the ETF is up nearly 8%. But I would be more confident in either calling BUY or HOLD or a pullback - not during such a volatile time.

    While there is vaccine optimism now that there wasn’t before, conditions are largely the same on the ground with regard to COVID-19 and travel demand. Therefore, my call is to take profits and SELL.

    Diving

    Communication Services (XLC)

    I really don’t like this sector and I will explain why. Although the Communication Services ETF touched a 52-week high recently, the gains have not been as stable or as robust compared to other sectors. But this is generally par the course for communications stocks. This is a sector that continuously underperforms other sectors both in the short-term and long-term.

    While traditionally this is a good sector to find value in, right now I just don’t see it. I see downside risk without the same type of upside potential as exists in other sectors that may benefit more from a successful vaccine roll-out and economic reopening.

    Furthermore, the ETF’s volume is already low, and has been in decline. This screams volatility to me.

    I just can’t see how you would benefit buying into this sector. It is hard to foresee how this sector will truly benefit from a vaccine and 2021 reopening relative to other sectors. Therefore, I give it a SELL call.

    Thank you for reading today’s free analysis. If you would like to receive daily premium follow-ups, I encourage you to sign up for my Stock Trading Alerts to also benefit from the trading action described - the moment it happens. The full analysis includes more details about current positions and levels to watch before deciding to open any new ones or where to close existing ones.

    Thank you.

    Matthew Levy, CFA
    Stock Trading Strategist

  • Dow, S&P Dip Again on Lockdown Fears

    December 15, 2020, 9:49 AM

    Stocks closed largely down on Monday (Dec. 14) as fears of stricter lockdowns outweighed vaccine optimism.

    News Recap

    • The Dow Jones closed lower by 185 points, or 0.5% after earlier rising by as much as 200 points and hitting a record intraday high. The S&P 500 also declined by 0.4%, while the Nasdaq outperformed and gained 0.5%. The small-cap Russell 2000 once again rose, gaining 0.26%.
    • Although the day started with optimism as Pfizer began the rollout of its vaccine, comments from New York City Mayor Bill De Blasio put pressure on the Dow and S&P, and spooked investors about further lockdowns. De Blasio warned earlier in the day that New York could experience a “full shutdown” soon, due to infection levels not seen since May.
    • There is some cautious optimism that some sort of stimulus could be passed before the end of the year, however, congress remains deeply divided on several fronts. Namely, these partisan divides stem from liability protections for businesses, the scope of state and local aid, and weekly unemployment benefits.
    • We have reached the deadliest weeks of the COVID-19 pandemic. More than 300,000 total COVID-related deaths have now been confirmed in the U.S., with over 16 million confirmed cases.
    • After the U.S. FDA. officially cleared Pfizer (PFE) and BioNTech’s (BNTX) vaccine last Friday (Dec. 11), the roll-out officially began on Monday (Dec. 14). The first doses were administered to healthcare workers and nursing home staffers. Approximately 2.9 million doses were shipped to 636 sites across the country. Pfizer also said it would roll out a second batch of 2.9 million doses shortly after this initial batch. The FDA is also slated to publish its assessment on Moderna’s vaccine this week, before mass deployment.
    • Despite the start of the vaccine roll-out, shares of Pfizer and BioNTech both sharply fell 4.65 and 14.95%, respectively.
    • Companies dependent on an economic reopening lagged the “stay-at-home” and tech winners from early on in the pandemic. United Airlines (UAL) dropped 3.4% and Chevron (CVX) fell 3.26% compared to Netflix (NFLX) which gained over 3.8%, and Amazon (AMZN) which popped more than 1%.
    • Tesla (TSLA) also surged 4.90% as investors anticipate its inclusion into the S&P 500 after this week.

    While the short-term may see some pain and/or mixed sentiment, the mid-term and long-term optimism is certainly very real. Overall, the general consensus between market strategists is to look past short-term painful realities and focus more on the longer-term - a world where COVID-19 is expected to be a thing of the past and we are back to normal.

    According to Robert Dye, Comerica Bank Chief Economist: “I am pretty bullish on the second half of next year, but the trouble is we have to get there...As we all know, we’re facing a lot of near-term risks. But I think when we get into the second half of next year, we get the vaccine behind us, we’ve got a lot of consumer optimism, business optimism coming up and a huge amount of pent-up demand to spend out with very low interest rates.”

    Other Wall Street strategists are bullish about 2021 as well. According to a JPMorgan note to clients released on Wednesday (Dec. 9), a widely available vaccine will lift stocks to new highs in 2021:

    “Equities are facing one of the best backdrops for sustained gains next year,” JPMorgan said. “We expect markets to be driven by recovery from the COVID-19 crisis at the back of highly effective vaccines and continued extraordinary monetary and fiscal support.”

    JPMorgan’s S&P 500 target for 2021 is 4,400. This implies a nearly 20% gain.

    On the other hand, for the rest of 2020, and maybe early on into 2021, markets will wrestle with the negative reality on the ground and optimism for an economic rebound.

    Additionally, the rally since election week invokes concerns of overheating with bad fundamentals. Commerce Street Capital CEO Dory Wiley advised caution in this overheated market. He pointed to 90% of stocks on the NYSE trading above their 200-day moving average as an indication that valuations might be stretched:

    “Timing the market is not always well-advised and paring back can miss out on some gains the next two months, but after such good returns in clearly a terrible fundamentals year, I think taking some profits and moving to cash, not bonds, makes some sense here,” he said.

    In the short-term, there will be some optimistic and pessimistic days. Some days, like Monday (Dec. 14), will reflect what the broader “pandemic” trend has been - cyclical and recovery stocks lagging, and tech and “stay-at-home” stocks leading. On other days (and in my opinion this will be most trading days), markets will trade largely mixed, sideways, and reflect the uncertainty. However, if a stimulus deal passes before the end of the year, it could mean very good things for short-term market gains. It is possible that there could be a minor compromise reached before the end of the year, however, a more large-scale comprehensive package may not be agreed to until 2021.

    In the mid-term and long-term, there is certainly a light at the end of the tunnel. Once this pandemic is finally brought under control and vaccines are mass deployed, volatility will stabilize, and optimism and relief will permeate the markets. Stocks especially dependent on a rapid recovery and reopening, such as small-caps, should thrive.

    Due to this tug of war between sentiments, it is truly hard to say with conviction whether another crash or bear market will come.

    Therefore, to sum it up:

    While there is long-term optimism, there is short-term pessimism. A short-term correction is very possible. But it is hard to say with conviction that a big correction will happen.

    On Pessimistic Days, Tech is Crucial...But There are Concerns

    Tech shares led the markets on Monday (Dec. 14) and reflected a return of the “stay-at-home” trade - possibly due to Mayor De Blasio’s “shut down” comments about New York City. However, I believe these are short-term moves rather than a return of long-term trends. I do not believe there is “market nostalgia” for the way the indices traded largely from April through the end of October.

    Although I believe tech exposure is important during pessimistic trading days, I have many concerns about tech valuations and their astoundingly inflated levels. Last week’s IPOs of DoorDash (DASH) and AirBnB (ABNB) reflect this and invoke traumatic memories of the dotcom bubble era. I believe that more pullbacks along the lines of last Wednesday (Dec. 9) are inevitably coming in the short-term and would make me feel far more confident about initiating tech positions at lower valuations for the long-term.

    After exceeding an overbought RSI level of 70, the pullback last Wednesday (Dec. 9th) brought it back down to a healthier level. While its current RSI of 63.30 is still pretty high, it is not quite overbought and still a hold. But monitor this. If the index goes on another bull-run and exceeds 70, then you may want to consider selling some. While an overbought RSI does not automatically mean a trend reversal, it does not help the overvaluation of the market and possible correction. The NASDAQ’s pullback last Wednesday (Dec. 9), after it exceeded a 70 RSI, reflects that.

    The decline in volume since the start of the month is also quite concerning for volatility purposes. Low volume, especially a declining trend, means that there are fewer shares trading. Lower volume also means less liquidity across the index, and an increase in stock price volatility.

    On pessimistic days, like Monday (Dec. 14), having NASDAQ exposure is crucial because of all the “stay-at-home” stocks that trade on the index. However, positive vaccine news always induces the risk of downward pressure on tech names - both on and off the NASDAQ. But what concerns me most are sharp sell-offs due to overheating and mania. Don’t ever let anyone tell you “this time is different” if fears of the dot-com bubble are discussed. History repeats itself - especially in markets.

    It is very hard to say with conviction to sell your tech shares though. A further correction would not shock me in the least. But again, there is so much unpredictability right now, and truly anything could happen. The one thing I can confidently say though, is that if the RSI exceeds 70 again, then you should consider selling. For now, however, the NASDAQ stays a HOLD.

    For an ETF that attempts to directly correlate with the performance of the NASDAQ, the Invesco QQQ ETF (QQQ) is an excellent option.

    Thank you for reading today’s free analysis. If you would like to receive daily premium follow-ups, I encourage you to sign up for my Stock Trading Alerts to also benefit from the trading action described - the moment it happens. The full analysis includes more details about current positions and levels to watch before deciding to open any new ones or where to close existing ones.

    Thank you.

    Matthew Levy, CFA
    Stock Trading Strategist

  • Markets End Week (Dec. 11) in the Red, Reflecting Uncertain Short-term Sentiment

    December 14, 2020, 12:03 PM

    What Happened Last Week:

    • Markets throughout the week continued wrestling with short-term pain and long-term optimism.
    • After fresh record highs were reached the week before, the major indices ended the week lower due to a multitude of headwinds. Between Monday December 7th and Friday’s close December 11th, the Dow closed down 0.08%, the S&P closed down 0.77%, and the NASDAQ closed down -1.13%. The small-cap Russell 2000, however, notched another weekly gain, and closed up about 1.00%.
    • Sentiment is mixed, and the rally since election week invokes concerns of overheating, with bad fundamentals. Commerce Street Capital CEO, Dory Wiley, advised caution. He pointed to 90% of stocks on the NYSE trading above their 200-day moving average as an indication that valuations might be stretched. “Timing the market is not always well-advised and paring back can miss out on some gains the next two months, but after such good returns in clearly a terrible fundamentals year, I think taking some profits and moving to cash, not bonds, makes some sense here,” he said.
    • Judging by the jobless claims report which came in on Thursday (Dec. 10), the jobs recovery appears to have stalled. Weekly jobless claims increased by 853,000 last week versus the estimate of 730,000, representing a sharp increase from the 716,000 figure a week ago. This was also the highest number since September 19.
    • Although the Senate unanimously passed a temporary spending bill to avoid a government shutdown and buy more time to negotiate a stimulus package before the end of the year, stimulus negotiations between Republicans and Democrats continue to drag-on and weigh on sentiment.
    • The week before brought some initial signs of stimulus progress, however, Democrats and Republicans still have some critical differences. Much of the division stems from liability protections for businesses, the scope of state and local aid, and weekly unemployment benefits.
    • It is possible that there could be a minor compromise reached before the end of the year, but a larger-scale comprehensive package may not be agreed upon until 2021. The longer these talks continue, the stronger the headwinds will be for stocks, and the more damaging it will be for the U.S. economy.
    • DoorDash (DASH) and AirBnB (ABNB) both made their public debuts last week to much fanfare. Airbnb spiked 115% when it began trading publicly for the first time on Thursday (Dec. 10) while DoorDash closed 86% higher in its Wednesday debut (Dec. 9). However, according to Paul Schatz, president and chief investment officer of Heritage Capital, these debut rallies may indicate that the IPO market is getting ahead of itself, and invoke fears of "euphoria and greed" last seen in the market during the dot-com bubble.
    • The pandemic continues exceeding the previous records. After hitting 3,000 deaths a day for several days last week, Friday’s (Dec. 11) tallies, according to NBC News, showed 2,890 deaths and 226,024 new cases.
    • In the last week the U.S. has averaged 211,324 cases and 2,381 deaths per day, which is quite an increase from 168,493 cases and 1,419 deaths four weeks ago.
    • Not all is bad, though. The vaccine(s) remain a positive tailwind. After the U.K. became the first country in the world to approve the usage of Pfizer and BioNTech’s vaccine the week before, the U.S. F.D.A. ended the week by officially clearing the vaccine for emergency use. Millions of doses are expected to be shipped right away.
    • Since the vaccine was first announced on November 9, a broadening of the market’s rally began, largely led by small-cap stocks, and cyclical value stocks dependent on an economic recovery.
    • Consumer sentiment posted a surprising increase in December due to vaccine optimism. Although the economic recovery may stutter in the near term, a vaccine changes everything for 2021’s outlook. Corporate profits, for example, are forecast to grow more than 20% in 2021.
    • According to Robert Dye, Comerica Bank Chief Economist, he is: “pretty bullish on the second half of next year, but the trouble is we have to get there...As we all know, we’re facing a lot of near-term risks. But I think when we get into the second half of next year, we get the vaccine behind us, we’ve got a lot of consumer optimism, business optimism coming up and a huge amount of pent-up demand to spend out with very low interest rates.”
    • According to a JPMorgan note to clients released on Wednesday (Dec. 9), a widely available vaccine will lift stocks to new highs in 2021:  “Equities are facing one of the best backdrops for sustained gains next year...We expect markets to be driven by recovery from the COVID-19 crisis at the back of highly effective vaccines and continued extraordinary monetary and fiscal support.” 
    • JPMorgan’s S&P 500 target for 2021 is 4,400. This implies a nearly 20% gain from where the index closed on Wednesday (Dec. 9).

    In the short-term, there will be some optimistic days and pessimistic days. Other days, and in my opinion, which will be most trading days, markets will trade largely mixed, sideways, and reflect the uncertainty. However, if a stimulus deal passes before the end of the year, it could mean very good things for short-term market gains. It is possible that there could be a minor compromise reached before the end of the year, however, a more large-scale comprehensive package may not be agreed to until 2021.

    In the mid-term and long-term, there is certainly a light at the end of the tunnel. Once this pandemic is finally brought under control and vaccines are mass deployed, volatility will stabilize, and optimism and relief will permeate the markets. Stocks especially dependent on a rapid recovery and reopening, such as small-caps, should thrive.

    Due to this tug of war between sentiments, it is truly hard to say with conviction whether another crash or bear market will come.  

    Therefore, to sum it up:

    While there is long-term optimism, there is short-term pessimism. A short-term correction is very possible. But it is hard to say with conviction that a big correction will happen.

    Thank you for reading today’s free analysis. If you would like to receive daily premium follow-ups, I encourage you to sign up for my Stock Trading Alerts to also benefit from the trading action described - the moment it happens. The full analysis includes more details about current positions and levels to watch before deciding to open any new ones or where to close existing ones.

    Thank you.

    Matthew Levy, CFA
    Stock Trading Strategist

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