Sell in May and go away or stay for new all-time highs? Last week finished with fireworks and multiple breakouts. This week starts with another trade war induced decline.
No trend can last without pullbacks which often come when complacency reigns supreme and the giddiness is at all-time highs. Dip buyers have been dominating the tape for most of 2019. This probably won’t change any time soon.
In this week’s Momentum Monday we cover the price action in AMZN, AAPL, FB, and TWTR, which are outperforming in a mixed tape. We highlighted the comeback in financials and the a few setups in software, semiconductors and biotech.
Traders are still hungry of crazy IPOs. The meat-alternative producer Beyond Meat (BYND) started trading today. Its IPO was priced at $25, it opened near $45 and it finished the day at 65 after tagging 75 intraday. A small float and a good story can make wonders for nimble traders in a bull market.
On a side note, have you seen the ingredients of BYND products? Artificial coloring, tons of chemicals, in general – generic easy to copy stuff that no health-conscious person would convert to. The market can be quite irrational in a short-term perspective and BYND can easily tag $100 but over the long-term, the market is a weighing machine and BYND is one heavy vegetarian stock that is very likely to go back below its IPO placement price of $25. I have no current position in BYND.
The price action in some recent IPOs has been pretty fascinating: PINS, TW, TIGR, ZM, JMIA, etc. LYFT has been the only dud among the recent public offerings. A small float can cause a lot of troubles if the stock market enters in a pullback mode. The same IPOs that double in a week or so, can drop 50% or more just as quickly.
For those who don’t know yet, a float is the actual number of shares that is currently available for trading.
Float = Shares Outstanding – Restricted Shares.
Most insiders are restricted from selling their shares in the first six months after their company goes public. This is why many new public offerings start with a float that is a small fraction of the total outstanding shares. For example, Pinterest currently has a float of 75 million shares vs 510 million outstanding shares.
Bull markets correct through sector rotations; many and frequent rotations that can spin your head off if you try to keep up with them on a weekly basis. A couple of weeks ago, we saw capital leaving tech and healthcare and moving into the so-called “old-economy” sectors. Last week, we saw a rotation from hardware to software.
After a major rally, semiconductors are pulling back. Intel’s revenue projections are declining. Xilinx’s growth is slowing down. The semiconductor index (SMH) is up 33% year-to-date. A pullback is absolutely normal. All trends need pullbacks; otherwise, they cannot last long.
In the meantime, software stocks are finally waking up and starting to break out. Many of them are scheduled to report earnings in the next few weeks. Expectations are certainly quite elevated. Maybe, this is why we are not seeing a very enthusiastic market reaction to solid reports – AMZN, NFLX, MSFT, FB, etc.
