Friday I stuck my neck out and got bullish because the charts told me so
Naturally, I am now on guard for how the stock market will make a fool of me, since that’s what happens 60% or more of the time, or so it feels. Since the markets are closed, I like to summarize information from media, like the WSJ, Barrons and the various financials shows that come along on the weekends. The biggest worry for me is this new jab at China, in the form of cracking down once again on Huawei. As I mention below, my fears have been assuaged in that regard. As you can see in this little “green shoots” section below, the futures are doing quite nicely, as are some positive pieces of data about the economy opening up.
Random Green Shoots
In the last two weeks driving in the US up 25%
Same-store sales at Wendy’s were off just 2% from a year earlier in the week ended May 3. They were down 26% in the week ended April 5.
While driving doesn’t necessarily equate to spending, retail visits show the same trend, according to Unacast, a mobility-data analytics company: off more than 50% in mid-April from a year earlier, but down just 32% this past week.
Real-estate brokerage Redfin Corp. said home-buyer demand as measured by customers contacting affiliated agents, after plummeting by one-third, is now above pre-pandemic levels.
Uber Technologies Inc. said rides had risen for three straight weeks, and were up more than 40% from the trough in large cities in Georgia and Texas
VIX down 7.55% on Thursday and down again almost 2% on Friday, and as of 630 pm Sunday evening the VIX is DOWN 0.72 31.89 and 2.21% from Thursday
Futures can change from hour to hour but right now the Dow is up 200, S&P up 24, and the Ndx up 75. That means that the China saber-rattling hasn’t spooked market participants in Asia. So what else to worry about?
Caution on Alphabet, an antitrust action
The Department of Justice and a group of state attorneys general may file antitrust lawsuits against Alphabet’s Google as soon as this summer, according to a Wall Street Journal report that published Friday afternoon and cited people familiar with the matter.
The states’ probes are centered on the Alphabet (GOOGL), subsidiary’s online advertising business. The Justice Department, which is also scrutinizing Google’s ad technology, is focusing more broadly on how Google leverages its dominant search business to stifle competition, sources told the Journal.
My take: This is the first large scale attack by State AGs and the federal government against a FANG. We know that congress has also shown dissatisfaction with Alphabet, but also Facebook (FB), Amazon (AMZN), Apple (AAPL). We may see some weakness from the big-cap techs which could keep the market moving sideways instead of leaping to 2950 at least at the beginning of the week. Or the larger market shakes this off while the big cap techs cool their heels. Perhaps the notion of the junior could services names taking the ball down the field takes hold here. Names like Workday (WDAY), or Adobe (ADBE), or Salesforce (CRM), or smaller names like Docusign (DOCU), or Bill.com (BILL), or NewRelic (NEWR), or its competitor Datadoog (DDOG), or how about Akamai (AKAM) or Cloudflare (NET). Full disclosure I am in BILL, NEWR, and Net. No disrespect against any of these names. I chose NEWR because DDOG did well, and I think both could continue to rise this week if momentum takes us into 2900-land like I think it will.
Caution on China Stocks…
A string of legislators and Administration officials are supportive of demand for every public Chinese company that wants to stay on a US exchange, that they must adhere to the same audit regime as US companies. This will make Chinese companies untradeable and certainly uninvestable until this is sorted out. Even my exception to the rule for trading — Alibaba (BABA) might be affected. I would advise easing off on Chinese stocks until they signal that they could allow US audits and corporate governance rules of the NY exchanges. BABA may well pass muster, but don’t know what we don’t know.
Pelosi acts like a leader, and good for her.
Meet the Press Nancy Pelosi was surprisingly bipartisan in approach and did not take the bait to
on the attack against the Republicans. I salute her sincerity and her humanity. She signaled her willingness to compromise to get this done. I think the market will respond positively to this attitude. What this means is that Pelosi realizes she needs the GOP to get things done. It must be that Pelosi is concerned about holding on the Democratic majority if she is seen as holding back on bringing legislative succor via Fiscal budgetary allocation. Pelosi likely does not want the biggest item on her list of legislative accomplishments a failed impeachment that distracted everyone while a viral conflagration was ravaging the coasts. It also means that there is an acute need out there, and that underlies a possible impetus for a future downturn in the markets. No, I am not talking at both sides of my mouth, we are making a run higher, and likely above 3000, but we have the September coming and that might coincide with frustration that the economy is not rocketing higher and that in the fall might find a Corona-boomerang.
For now, however, we can feel assured that Fiscal Bill #4 will be passed no matter how much the Senate Leader proclaims that this $3T bill is DOA. The Senate will mark up the House Bill to make sure that the States that have given away the store to State Pensions and otherwise profligate with their state revenue will not get bailed out by the other 50 States
Powell on 60 Minutes
Meanwhile, in what seems like the odd couple of the decade, Jay Powell a true old fashioned Republican is riding to Pelosi’s defense of big-spending — what odd times we are living in!
Fears Congress $3T Fiscal Bill not enough so far. Says Fed Chief Powell “I was calling out risk on Wednesday, of long-run damage of business and workers if we don’t support them further. There will be a big decline in June. In order to make real economic progress, we need progress in medicine. Powell wants more economic response and that is why he is talking to 60 Minutes. “We need to do more at the Fed and at Congress. We are concerned that the more workers are out of work and the longer they are out that they lose their edge, and small businesses going under will destroy the job-creating machine” Powell; “there is more that we can do. There is no limit to how much to lend. We need government policies that help them to avoid insolvency. Extend unemployment, and support the local government” In June we could see 20% to 25% peak unemployment. This is not the second great depression, Powell tried to end with a note of optimism
My take: First let me apologize on the quotations above, they are not exact and I hope you watched the 60 minutes interview yourselves. So let me just say that if I wasn’t aware of Pelosi’s interview on Meet the Press, how I watched her try hard not to attack the GOP, and tried to appeal to help Americans, then this interview would have scared me. Let’s take a moment to reflect that a Republican Fed Chair is basically calling for profligacy, to spend way more money than we take in, and says “Now is not the time to worry about debt” That is an opposite world of the highest order. I think we can say that McConnel and Trump, and all the Senators that are saying we don’t need to spend more, are just playing poker. We will get fiscal bill number 4, and everyone is getting a check. Also, the next round of money for small businesses will likely not have as many provisions about how the money is spent. Finally, the states will get enough money to pay the police, teachers, and firemen etc. However, I don’t think we see $3T in new spending or repeal of SALT.
Draft Kings (DKNG) interview on CNBC
Jason Robins CEO, Sports coming back, strong number on NFL draft, live streaming of table tennis so people can watch while they gamble. Esports was very small about 2 months ago now esports is a huge growth area. Once people try esports they would like it. Also running fantasy sports from EA and that is very popular. Korean Baseball very popular and people are very hungry for it. The draft got huge growth in betting and engagement from this year over last year. I love being independent, we like working with Penn National gaming, and I love barstool sports.
My take: Loyal readers will know that I was a supporter of this name from the moment of the announcement of the reverse merger of the DEAC SPAC with DKNG. I don’t know if this is wishful thinking but I think DKNG has gotten a bit ahead of itself. If it does fall even a little I would rebuild my position. Right now I have $30 Calls with a January 21 expiration. I would love to collect more at the right price. So what is the right price? Somewhere 10% below the high.
Earnings Calendar for this week
Monday, May 18:
My take: I would stay away from Chinese stocks until the listing issue is resolved. I would use the earnings report to lighten or eliminate the position
Tuesday, May 19:
My Take: I want to know how HD and WMT are doing. How are their e-commerce initiatives going? What does HD results say about the housing market?
Wednesday, May 20:
Analog Devices, Inc. (ADI), Copart, Inc. (CPRT), Ctrip.Com International Ltd (CTRP), Lowe’s Companies, Inc. (LOW), McKesson Co. (MCK), Synopsys, Inc. (SNPS), TAKE-TWO INTERACTIVE SOFTWARE, INC (TTWO), Target Co. (TGT), ZTO Express (Cayman) Inc (ZTO),
My take: The most interesting is TTWO just to see if video games are still strong, the next interesting name here is SNPS, are they doing well? What does that say about renewed chip production?
Thursday, May 21:
Agilent Technologies Inc (A), Best Buy Co Inc (BBY), Hewlett Packard Enterprise Co (HPE), Hormel Foods Corp (HRL), Intuit Inc. (INTU), Medtronic PLC (MDT), National Grid plc (NGG), NVIDIA Co. (NVDA), Palo Alto Networks Inc (PANW), Ross Stores, Inc. (ROST), Splunk Inc (SPLK), Telekomnks Indn Prsr Tbk Prshn Prsrn-ADR (TLK), TJX Companies Inc (TJX),
My Take: NVDA and SPLK are the two main names that could move the overall tech stocks. MDT would be interesting as to how the non-C19 medical world is recovering.
Friday, May 22:
My take: Use the coming earnings to take profits in BABA. If you are following me then you are only trading BABA, the trade is over for now.
YRC WORLDWIDE (YRCW)
YRC Worldwide last posted its quarterly earnings results on May 11th, 2020. The transportation company reported $0.12 earnings per share for the quarter, topping analysts’ consensus estimates of ($0.80) by $0.92. The business earned $1.15 billion during the quarter, compared to analyst estimates of $1.13 billion. YRC Worldwide has generated ($2.44) earnings per share over the last year.
My take: I like the higher revenue and profits that are black instead of way in the red. I don’t know this space well or the reason why YRCW is a penny stock. I think this earnings report looks like the start of a turnaround. I am going to keep my out on this one.
AbbVie (ABBV) had its price target raised by analysts at SVB Leerink LLC from $107.00 to $122.00 on Monday. They now have an “outperform” rating on the stock. 34.5% upside from the current price of $90.71
My take: I think ABBV has a lot going for it. The acquisition of Allergan (AGN) is complete, and its aesthetic division is a sleeper. I know that ABBV bought AGN for its drug pipeline, but with the economy opening-up, people are gonna want their botox and lip injections and all the other stuff. ABBV has a beautiful dividend and a good growth story. I have added to my position in ABBV this week.
My Trade: I have indicated my activity throughout this note, so let me say that while I am feeling pretty positive about this week, that as we break above 2900, please start generating cashback. Yes, there is a good chance that we break above 2950, but we also can get another strong rejection. So let Billie be the hero, and you wait for the breakout to be confirmed. You can always add back that cash to names that are on the breakout. But if we are rejected, we can wait at a lower baseline to pick up the pieces for the run that does get us over the hump.
The information contained in this writing should not be construed as financial or investment advice on any subject matter. I am telling you what I am doing, not what you should do. Before you trade or invest educate yourself thoroughly on the company and stock you are trading or investing in. Your decisions are your own.
Disclosure: I am/we are long NET. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.
Additional disclosure: Bill.com (BILL), NewRelic (NEWR), Cloudflare (NET). and ABBV are holdings of mine
Editor’s Note: This article covers one or more microcap stocks. Please be aware of the risks associated with these stocks.