Month: July 2020

The charts in this video are powered by MarketSmith

The earnings season is heating up and there are several hundred major companies reporting this week. Some of them – AMZN, AAPL, FB, GOOGL, SHOP, SPOT, UPS. Given the weightings of the first four, their earnings reports will be market-moving events. For the most part, I expect any gaps to be faded in them – if they gap up, we might see a temporary sell the news events as expectations are highs given the moves in the past 2-3 months. If they gap down, the downside will probably be limited to their 50-day moving averages as the market still believes that the dips are buying opportunities because of the Fed’s open market purchases. 

The rotation into sectors that would benefit from the “re-opening” of the economy hasn’t happened yet. There have been the occasional spikes but for the most part, no follow-throughs. Restaurant stocks shined on Friday in red tape. Let’s see if they can continue higher next week.

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Bull markets correct through sector rotation. This is exactly what happened last week. While many tech stocks pulled back to their rising 20 and 50-day moving averages, we saw capital rotating into other sectors – transportation, solar, medical devices, homebuilders, biotech, gold and silver miners. In other words, the money is not leaving the market; it’s merely rotating into other sectors. This is why the dips in the indexes continue to get bought ferociously.

Positive results from Moderna’s vaccine study let to a one-day hefty rally in the industries that were hit the worst by COVID – casinos, hotels, restaurants, retailers, airlines. The problem is that they never followed through. On the contrary, we saw stocks that benefit from the rising COVID cases rallying for the rest of the week – VXRT, NVAX, DVAX, QDEL, APT, etc.

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The charts in this video are powered by MarketSmith

The stock market continues to boosts the winners in a social-distancing and work-from-home world. Stocks like AMZN, SHOP, NFLX, PTON have accelerated their ascent.

Speaking of frothy, SPACs (special purpose acquisition companies) are still on absolute fire as liquidity is chasing momentum and fairy tales.

Large-cap Chinese stocks joined the bull party last. BABA had a major breakout of a 3-year base which boosted the interest for small-cap Chinese stocks.

Every time there’s an announcement about a breakthrough in a covid vaccine or drug, so the so-called old-economy sectors of the economy bounce – financials, retailers, transportation and leisure, etc. We saw it again last Friday. Let’s see if this time lasts more than a day and we see a temporary rotation from digital to non-digital names.

The S&P 500 is setting up for a potential breakout and a few good earnings reports from the big banks might get it there.

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