Three Top Plays for The January Effect

We’re rapidly approaching the start of 2021 and the January Effect, when market players scoop up the prior year’s biggest losers in hopes of high percentage returns. The new crop of hopefuls is smaller than in prior years because many stocks are trading close to 52-week or all-time highs, restricting the available equity pool. It’s also important to do your homework, if interested in this classic trade, because many losers are destined for even lower prices.

U.S. laws require that investors pay capital gains tax when they sell shares for a profit, except in retirement accounts, which gets taxed at the time of distribution. This requirement induces many folks to keep their strongest stocks through December to lower annual tax bills. In turn, these winners often get sold aggressively in January, freeing up capital that can be risked on bottom fishing, value hunting, and all the other reasons that market players buy cheap stocks.

Let’s look at three prime candidates for the January Effect.

Intel

Intel Corp. (INTC) has done just about everything wrong in 2020. Delayed product rollouts and weak management have allowed smaller rivals to pick up critical market share, making the tech icon one of the worst mega-cap performers, with a 16% year-to-date loss compared to the Nasdaq-100’s 40%+ return. Even so, sidelined investors are hoping for a management shake-up and could pick up shares aggressively in 2021.

Tyson Foods

Tyson Foods Inc. (TSN) and many meatpackers ignored the growing pandemic in the first quarter and failed to take precautions to keep their workers safe. The ensuring scandal cost lives, with widespread infections at plants all across the Midwest and South. Supply chains then broke down, raising prices while lowering revenues. The industry is now in recovery mode but the stock is still down more than 24% for the year, making it an ideal January Effect candidate.

Boston Scientific

Boston Scientific Corp. (BSX) has posted weak or negative growth in the last three quarters. In addition, recalls and lawsuits have plagued the company for many years, raising questions about research methodology and quality control. The stock posted an all-time high in December 2019 and fell to a three-year low in March. The subsequent recovery failed in September, yielding a steady downtick that’s now brought the annual loss to a painful 26%.

For a look at all of today’s economic events, check out our economic calendar.

Disclosure: the author held no positions in aforementioned securities at the time of publication.

Electronic Arts Could Break Out in 2021

Nasdaq-100 component Electronic Arts Inc. (EA) rallied to a three-month high on Monday after announcing the acquisition of U.K.-based game developer and publisher Codemasters for $7.98 per-share in a transaction expected to close in the first quarter of 2021.  The rally marks the next step in a recovery from a three-month intermediate correction that erupted after the stock traded within four points of 2018’s all-time high at 151.

Surging Video Game Sales

Video game sales exploded in the first quarter when millions around the world found themselves at home with few pastimes, beyond streaming entertainment. The release of next generation game consoles has put a second fire under sales, with NPD Group noting that consumer spending across video game hardware, content, and accessories rose 35% year-over-year in November, 35% higher than in 2019. Year-to-date spending totaled a remarkable $44.5 billion, or 22% higher than the same time period in 2019.

Electronic Arts expects the deal to enhance the growth of the game maker’s racing franchises. Codemasters now offers a library of racing-themed games that include Formula One, DiRT, DiRT Rally, Grid, and Project Cars while EA’s Need for Speed franchise and Real Racing mobile game should fit nicely into EA SPORTS global franchises. The company also believes that “brands will enable our teams to innovate further, and meaningfully increase the delivery of content and experiences to a growing global audience for racing entertainment”.

Wall Street And Technical Outlook

Wall Street consensus is mixed due to the company’s history of sub-par performance. It’s now rated as a ‘Moderate Buy’ based upon 8 ‘Buy’ and 9 ‘Hold’ recommendations. No analysts are recommending that shareholders close positions and move to the sidelines. Price targets currently range from a low of $124 to a Street-high $165 while the stock opened Monday’s U.S. session about $6 below the median $144 target.

Electronic Arts got bought heavily after the March low, lifting within striking distance of the 2018 high while accumulation surged to an 18-month high. The stock reversed in August and reached the .618 Fibonacci rally retracement before turning higher in November. It’s now trading just 10 points below the prior peak while a buying surge into that level will complete the next stage in a potential cup and handle breakout pattern, with upside potential to 220.

For a look at all of today’s economic events, check out our economic calendar.

Disclosure: the author held no positions in aforementioned securities at the time of publication.

Starbucks Breaks Out To All-Time High

Starbucks Corp. (SBUX) broke out above 2019 resistance last week and rallied to an all-time high above 100. The company reaffirmed fiscal year 2021 earnings-per-share (EPS) guidance in an ‘Investors Day’ presentation and raised projected growth for years 2022 through 2024. Stronger than previously forecast metrics are expected in both North American and global operations, with China comparable store sales growing 2% to 4% annually, compared to previous 1% to 3% guidance.

Starbucks Raises 2021 – 24 Guidance

The coffee giant beat Q4 2020 earnings in October by a wide margin but fell after issuing Q1 guidance well below estimates. Revenue contracted a sizable 8.1% year-over-year while both North American and global comparable sales fell by wide margins. Higher average ticket size offset losses to some extent but the weak revenue signaled continued fallout from the COVID-19 pandemic and in-house capacity restrictions around the world.

Telsey Advisory Group analyst Bob Derrington raised the price target to $102 after last week’s presentation, noting “Starbucks hosted its biennial Investor Day in a virtual presentation that included senior management members who discussed a number of key operating and financial metrics in support of its Growth at Scale agenda, emphasizing responsible growth that includes doing the right thing for both people and the planet within its longer-term plan”.

Wall Street And Technical Outlook

Wall Street consensus has deteriorated in 2020, with the current ‘Moderate Buy’ rating based upon 9 ‘Buy’ and 11 ‘Hold’ recommendations. No analysts are recommending that shareholders close positions and move to the sidelines. Price targets now range from a low of $82 to a Street-high $120 while the stock closed Friday’s U.S. session more than $3 below the median $106 target. Higher targets and fresh upgrades are likely in response to last week’s bullish guidance.

Starbucks topped out just below 100 in July 2019, following a multiyear uptrend, and entered a decline that broke a trading floor in the mid-80s during the first quarter’s pandemic decline. It found support at a 20-month low near 50 in March, giving way to a vertical recovery wave that reached the prior high in mid-November.  The rally into December has completed a cup and handle breakout, forecasting a measured move into the 150 level.

For a look at all of today’s economic events, check out our economic calendar.

Disclosure: the author held no positions in aforementioned securities at the time of publication.

Three High-Flying Biotech Stocks

The biotech sector is wrapping up a bullish year, with iShares Nasdaq Biotechnology Index Fund ETF breaking out above the 2015 high and posting a 25% year-to-date return.  The COVID-19 pandemic has put a fire under many lesser-known names, including companies researching compounds and therapeutics not directed at defeating the virus. Many of these issues will close near all-time highs on Dec. 31, perfectly positioned for additional 2021 upside.

Let’s look at three mid-cap biotech stocks trading near all-time highs. It’s tough to choose just three because broad-based buying interest is moving the sector, lifting newly profitable companies as well as perennial laggards. Mid-cap is often the sweet spot when speculative fervor runs high, as it is right now, because shareholders are less likely to wake up to a 40% or 50% overnight haircut, triggered by a FDA denial or ill-timed secondary offering.

Beam Therapeutics

Beam Therapeutics Inc. (BEAM) develops precision genetic medicines and therapies for a wide variety of illnesses that include sickle cell, leukemia, and central nervous system disorders. The company came public at 24 in February 2020 and carved a trading range between the upper 20s and mid-teens, finally breaking out in October. The stock has more than doubled in price in the last month and has gained ground in every session since Nov. 25.

Pacific Biosciences of California

Pacific Biosciences of California Inc. (PACB) designs and manufactures DNA sequencing systems for a wide variety of research and therapeutic applications. The stock underperformed for years, trading as low as 2.20 during the first quarter’s pandemic decline. However, it’s risen tenfold since that time, breaking out above the 2011 high in the upper teens. Strong support in the mid-teens could offer a low risk buying opportunity during a pullback.

Fate Therapeutics

Fate Therapeutics Inc. (FATE) develops cellular level immunotherapies for cancer and immune disorders. The stock hit an all-time low in single digits in 2016 and entered an uptrend that posted a new high in 2018. The upside has exploded in the fourth quarter of 2020, more than doubling the stock price to an all-time high in the low 90s. Bullish price action just posted two sessions of five times average daily volume, highlighting intense demand.

For a look at all of today’s economic events, check out our economic calendar.

Disclosure: the author held no positions in aforementioned securities at the time of publication.

Walt Disney Breaks Out To All-Time High

Dow component Walt Disney Co. (DIS) is trading at an all-time high on Wednesday after Wells Fargo upgraded the stock to ‘Overweight’. The rally completes an historic 150 point round trip that started from the November 2019 high at 153.41. However, quarterly profits and revenue have crashed since that time due to the COVID-19 pandemic, which forced partial or total shutdowns of worldwide movie production, theme parks, and cruise ship lines.

Easing Pandemic Headwinds

Movie production has sprung back to life but no one knows if patrons will be ready to watch flicks in closed ventilation systems after the distribution of vaccines. Meanwhile, quarterly performance has relied on the huge success of the streaming service, which now boasts more than 70 million subscribers worldwide. Even so, Disney reported a 23.1% year-over-year revenue decline in the third quarter, highlighting dependence on blockbusters through the Star Wars, Pixar, and Marvel franchises.

Wells Fargo analyst Steven Cahall pounded the table on Wednesday, insisting that Disney “is set to complete its transformation into a global streaming content company including the deep Disney brands (Disney+), general entertainment (Star, Hulu, Disney18+) and eventually global sports (ESPN+). We expect global subscribers to go from 117 million today to conservatively 250-300 million in about 5 years. Global content spending would be greater than $22 billion (excluding sports) with DTC revenues of greater than $25 billion.”

Wall Street And Technical Outlook

Wall Street consensus has surged since the first quarter downdraft, with a ‘Strong Buy’ rating based upon 16 ‘Buy’ and 3 ‘Hold’ recommendations. No analysts are recommending that shareholders close positions and move to the sidelines. Price targets currently range from a low of $136 to a Street-high $182 while the stock has opened Wednesday’s U.S. session about $7 below the median $162 target. There should be plenty of upside with this humble configuration.

The stock has completed a V-shaped pattern off the deep March low and broken out to an all-time high. However, accumulation-distribution indicators have not kept up with bullish price action and are situated below both 2019 and September 2020 peaks. This establishes a strong bearish divergence that raises odds for a failed breakout and downside into the November gap between 128 and 134, with the lower end offering a potential low-risk buying opportunity.

For a look at all of today’s economic events, check out our economic calendar.

Disclosure: the author held no positions in aforementioned securities at the time of publication.

Advanced Micro Devices Headed For Triple Digits

Advanced Micro Devices Inc. (AMD) is having an outstanding 2020, posting a 105% year-to-date return. Better yet, the stock has finally worked off extremely overbought technical readings incurred during the third quarter’s vertical advance and could break out, lifting into triple digits for the first time in its multi-decade public history. Right now, the sky’s the limit for AMD in 2021, barring unforeseen headwinds.

AMD Capitalizing On Intel Misfires

The chip manufacturer has Dow component Intel Corp. (INTC) to thank for its rising fortunes, with delayed product releases and corporate misfires opening the door for smaller rivals to grab precious market share. New customers are discovering lightning-fast chip sets backed up by glowing reviews, making a return to the old school tech behemoth less likely.  More importantly, INTC is still tripping over its own feet, with no plans to dump ham-fisted management.

President and CEO Lisa Su reiterated her bullish outlook on AMD at Credit Suisse’s 24th Annual Technology Conference on Nov. 30, sharing optimism about the personal computer market and noting new profit opportunities emerging in the near- and medium-term. She also advised the company’s game console portfolio is continuing to while ramp up while they add innovative products in the lucrative graphics and cloud server markets.

Wall Street And Technical Outlook

Wall Street coverage has grown more cautious in reaction to historic share gains, with a ‘Moderate Buy’ rating based upon 13 ‘Buy’ and 6 ‘Hold’ recommendations. One analyst now recommends that shareholders take profits and hit the sidelines. Price targets currently range from a low of $13 to a Street-high $120 while the stock opened Tuesday’s U.S. session about $3 above the median $90 target. Upside may be delayed into 2021, given this elevated placement.

The stock broke out above the 2000 ‘bubble’ high in January 2020 and entered a testing phase that carved an ascending triangle across the contested level. It finally confirmed the breakout in July and took off like a hot rocket, adding nearly 40 points into the September high at 94.28. Rangebound action found support in the 70s in November, yielding an uptick that’s now reached the prior high. Just a small catalyst should be needed at this point to lift price above 100.

For a look at all of today’s economic events, check out our economic calendar.

Disclosure: the author held no positions in aforementioned securities at the time of publication.

Three Retailers Trading At All-Time Highs

Wall Street analysts expect a strong 2020 holiday season despite the pandemic, with e-commerce sales continuing their torrid growth pace. Many brick and mortar retailers should outperform as well because well-constructed online sales portal will add to modest in-store purchases. However, storefronts without a strong internet presence are likely to flounder, with the growing infection rate keeping many customers out of virus-ridden closed ventilation systems.

Let’s look at three hybrid retailers hitting all-time highs as we get closer to the holidays and year’s end. These are big cap companies that have adapted well to the age of the Internet, with an expanding customer base utilizing curbside pick-up and package delivery as well as physical shopping trips. Of course, this is the ‘new normal’, with retailers that waited too long to open or expand online sales, like America’s struggling mall anchors, having a tough time paying the bills.

Walmart

Dow component Walmart Inc. (WMT) waited until 2016 to get in the e-commerce game, buying Jet.com for a hefty premium. They’ve now combined that operation into a robust site that’s emerged as the primary competitor to Amazon.com Inc. (AMZN). The company has also launched a membership program to rival Prime, setting the stage for an epoch retail battle. In the meantime, the stock is trading just five points below November’s all-time high while holding onto a 26% year-to-date return.

Target

Target Corp. (TGT) has emerged as 2020’s top retail performer, taking market share from equal-sized and smaller rivals during the first quarter’s pandemic decline. The company blew away Q3 2020 estimates in November, picking up additional market share through strong execution. Same day and drive-up sales exploded during the quarter, growing 200% and 500% year-over-year, respectively. As the company noted, customers have shifted spending from travel into the goods they sell, raising odds for continued strong growth in 2021.

TJX

TJX Companies Inc. (TJX) sells home basics, apparel, and home fashions through T.J. Maxx, Marshalls, Homesense, and Sierra stores. This ‘off-price’ operation provides a less robust online sales portal than Walmart or Target and has no curbside pick-up. However, it executes so well that investors keep buying the stock, which is trading less than one point under an all-time high. Even so, this issue will carry greater downside risk through the winter months due to the surging pandemic.

For a look at all of today’s economic events, check out our economic calendar.

Disclosure: the author held no positions in aforementioned securities at the time of publication.

McDonald’s Shareholders Hitting The Exits

Dow component McDonald’s Corp. (MCD) posted an all-time high at 231.91 in October and rolled over, slicing through support at the 50-day moving average. Three attempts to remount that barrier have now failed, raising odds for a secondary selling wave that drops the fast food giant another 10% to 20%. Volume readings are supporting this bearish call, with funds departing at a steady pace, dropping accumulation indicators to the lowest lows since September.

Third Quarter Sales Contraction

The stock sold off after Q3 2020 earnings on Nov. 9, despite beating top and bottom-line estimates by healthy margins. The company also declared a $1.29 per-share annual dividend during the release but that didn’t stop an aggressive decline that began with a 5% rally gap. In retrospect, it’s easy to see why shareholders hit the exits because Mickey D. reported a 1.5% year-over-year revenue decline and 2.2% drop in global comparable sales.

Overhead supply from the ‘bull trap’ continues to weigh on price action, inducing market players to sell modest recovery attempts. The second pandemic wave is adding to downside pressure, compounded by new lockdowns and shutdowns. McDonald’s has adjusted to the restrictions through drive-through and delivery options but the virus will continue to weigh on revenue, especially in parts of the world where restrictions are more severe than in the United States.

Wall Street And Technical Outlook

Wall Street has been slow to react to growing headwinds, posting a ‘Strong Buy’ rating based upon 21 ‘Buy’, 6 ‘Hold’, and no ‘Sell’ recommendations. Price targets currently range from a low of $209 to a Street-high $265 while the stock closed Friday’s U.S. session just $1 above the low target. This humble placement usually supports higher prices but the reverse may be true in this case, with analysts asleep at the wheel due to end-of-year strength in other market segments.

McDonald’s failure at the 50-day moving average exposes a trip into the 200-day moving average near 200. That isn’t so bad but the stock has also failed a breakout above the 2019 high at 222, setting off long-term sell signals that favor a breakdown at the round number and downside into the November 2019 low at 187, which also marks a key Fibonacci retracement. Fortunately for bulls, a bounce from that level could complete a major breakout pattern in 2021.

For a look at all of today’s economic events, check out our economic calendar.

Disclosure: the author held no positions in aforementioned securities at the time of publication.

Three High Flying Oil And Gas Stocks

Brent and WTI crude oil contracts traded to 9-month highs last week, underpinned by growing optimism about 2021 economic strength. North American oil and gas stocks gained ground as well, but most sector equities are still underperforming the contracts by a country mile. Even so, a handful of mavericks are leading the sector, close to 52-week or all-time highs even though futures are situated well below their 2018 rally highs.

Let’s look at three high-flying oil and gas stocks trading on U.S. exchanges. These are issues to watch in coming months because market leaders tend to outperform for long stretches in recovering markets since they’ve already proven their resiliency in tough times. And 2020 has certainly been a downer for the majority of oil and gas plays, with the highly-liquid SPDR Select Sector Energy ETF (XLE) posting a negative 36% year-to-date return.

Goodrich Petroleum

Goodrich Petroleum Corp. (GDP) explores, develops, and produces energy products in Louisiana, Texas, and Mississippi and has posted a decent 12% return so far in 2020.  The stock hit an all-time low at 2.39 in the first quarter and turned sharply higher, reaching 200-day moving average resistance in April. It completed a breakout above that barrier in October, surged into the green for the year, and could lift into the mid-teens in coming months.

Renewable Energy Group

Renewable Energy Group Inc. (REGI) produces and distributes advanced biofuels, utilizing corn, inedible animal fats, and used cooking oils. This outstanding performer has posted an impressive 121% return so far in 2020. The stock fell to a 2-year low in 2019 and turned sharply higher, completing a breakout above 2018 resistance in the low 30s in August. It’s almost doubled in price since that time and should continue to prosper under a climate-conscious Biden administration.

Liberty Oilfield Services

Liberty Oilfield Services Inc. (LBRT) provides hydraulic fracturing services for onshore oil and natural gas exploration and is trading close to breakeven for 2020. The stock fell to a two-year low in single digits in the first quarter and turned sharply higher into June, stalling at 200-day moving average resistance. The stock has just completed a breakout above that formidable barrier, setting the stage for potentially strong 2021 upside.

For a look at all of today’s economic events, check out our economic calendar.

Disclosure: the author held no positions in aforementioned securities at the time of publication.

 

 

Visa Could Rally 40% in 2021

Dow component Visa Inc. (V) price action has tracked the evolution of world economies during the COVID-19 pandemic, with credit and debit card spending plunging in the first quarter and recouping a good share of losses during the second and third quarters. Surprisingly, U.S. sales numbers are ticking higher in the fourth quarter despite surging infections around the world, forcing analysts to lift 2021 growth targets, especially in the United States.

Visa Breakout Pattern

Better yet, Visa has completed the last stage of a cup and handle pattern, with a breakout having the potential to lift the digital payments giant at least 30% to 40% in 2021.  Accumulation readings have already hit new highs, highlighting growing optimism about economic growth under a Biden administration. Even so, the winter of 2020 – 21 could throw a few curveballs, especially if hospitals get overwhelmed or the U.S. election dispute takes an unexpected turn.

Visa reported that November spending levels were similar to October on Wednesday, with U.S. payments volume up 6% year-over-year. Debit rose a healthy 19%, highlighting the switch from paper checks to digital transactions for everyday goods, while Credit declined 5%, indicating that more customers were using savings to pay for things. Unfortunately, other countries didn’t fare as well, with the United Kingdom, Italy, and Germany reporting lower payment volumes.

Wall Street And Technical Outlook

Wall Street has been wildly bullish on Visa for years, with a current ‘Strong Buy’ rating based upon 14 ‘Buy’ and 4 ‘Hold’ recommendations. No analysts are recommending that shareholders close positions and move to the sidelines at this time. Price targets now range from a low of $195 to a Street-high $250 while the stock opened Wednesday’s U.S. session about $13 below the median $223 target. This placement should support plenty of upside after a breakout.

The stock topped out at 214 in February after a multiyear uptrend and sold off more than 40% during the pandemic decline. A two-legged recovery wave reached the prior high in September, giving way to a secondary downdraft that found support at the 200-day moving average. Price action bounced back to the prior peak in November, ahead of narrow sideways action that has now completed weekly- and daily-scale cup and handle breakout patterns.

For a look at all of today’s economic events, check out our economic calendar.

Disclosure: the author held no positions in aforementioned securities at the time of publication.

Apple Could Test All-Time High In December

Dow component Apple Inc. (AAPL) posted an all-time high at 137.98 in September and eased into a correction that unfolded through a symmetrical triangle pattern. Buying pressure is now picking up, raising odds the tech superstar will test, and possibly break, range resistance prior to year’s end.  A trio of benign forces should underpin this uptick, with positive seasonality, vaccine distribution, and the surging Nasdaq-100 index encouraging investors to come off the sidelines.

December ‘Window Dressing’

The Nasdaq-100 has now reached within 100 points of the September high, stoking buying pressure throughout the tech universe. This is great news because 2020’s top performers, including the famed FAANG quintet, have underperformed so far in the fourth quarter, with capital rotating into 2021 recovery plays. However, market leaders often end the year at their highs because funds buy shares in December to ‘dress up’ annual reports to investors.

Apple news flow has been quiet in the last month or so, characterized by a Loop Capital upgrade, App store developments, and a few product and partnership announcements. Everyone is waiting on iPhone 12 sales statistics but CEO Tim Cook is unlikely to provide metrics until the end of the 2020 holiday season. This news vacuum can be good news for investors because it fosters speculation on sales strength without the threat of a sudden reality check.

Wall Street And Technical Outlook

Wall Street consensus has grown more cautious in recent months due to Apple’s 68% year-to-date return, with a ‘Moderate Buy’ rating based upon 23 ‘Buy’, 6 ‘Hold’, and 1 ‘Sell’ recommendation.  Price targets currently range from a low of $75 to a Street-high $150 while the stock is now trading about $7 below the median $129 target. Share gains should be relatively easy to achieve into year’s end, given this humble placement.

The stock broke out above the February 2020 high at a split-adjusted 81.22 in June, entering a powerful trend advance that added more than 50 points into the September high. It sold off to 103 a few weeks later, setting the boundaries of a symmetrical triangle that should resolve to the upside. Price action posted the first higher high in this pattern in the first hour of Tuesday’s session, raising odds for a triangle breakout and test of the rally high.

For a look at all of today’s economic events, check out our economic calendar.

Disclosure: the author held no positions in aforementioned securities at the time of publication.

 

 

 

Costco Could Hit 500 in 2021

Costco Wholesale Corp. (COST) has posted impressive growth for years, lifting into the 39th slot in SP-500 index capitalization. The big box retailer sharply increased market share in the first quarter, staying open as an essential services provider while many rivals were forced to close or curtail operations. That benefit has underpinned sales throughout 2020, generating a series of all-time highs. It currently boasts a 31% year-to-date return after booking a 44% return in 2019.

Costco Looks Ahead To 2021

The stock posted an all-time high at the start of Tuesday’s U.S. session and pulled back, highlighting mixed sentiment about COVID-19 beneficiaries while Pfizer Inc. (PFE) and Moderna Inc. (MRNA) load vaccines into refrigerated containers for distribution around the world. However, mega-retailers will benefit from the pandemic far longer than the majority of smaller companies that attracted intense interest in the second and third quarters.

Telsey Advisory Group analyst Joseph Feldman raised his price target to $430 on Tuesday, maintaining an ‘Outperform’ rating. He pounded the table in his commentary, stating “we forecast a total comp of 12.5% vs. 5.3% last year. Excluding a projected net gas and FX headwind of about 150 bps, we estimate a core merchandise comp of 14.0% vs. 4.8% last year, with a US comp, ex-gas, of 14.0% vs. 4.3% last year. Overall, we expect another strong monthly sales report, highlighting high member loyalty, the focus on value, and improvement in digital.”

Wall Street And Technical Outlook

Wall Street consensus has been solid as a rock for years, with the current ‘Strong Buy’ rating computed from 17 ‘Buy’ and 5 ‘Hold’ recommendations. No analysts are recommending that shareholders close positions, even though price has nearly doubled in the last two years.  Price targets now range from a low of $310 to a Street-high $435 while the stock opened Monday’s U.S. session about $4 above the median $386 target.

Costco has posted a nearly endless string of higher highs and higher lows since 2009, making it one of the SP-500’s top long-term performers. High volatility hit the uptrend in February 2020 when debate first erupted about potential COVID beneficiaries. It carved a broad triangle pattern into June and broke out, adding more than 100 points into October. The stock is now attempting to break resistance at that level and mount 400 for the first time.

For a look at all of today’s economic events, check out our economic calendar.

Disclosure: the author held no positions in aforementioned securities at the time of publication.

Three Chip Stocks Hitting New Highs

PHLX Semiconductor Index has posted fabulous returns so far in 2020, lifting more 40% since the last trading day of 2019. Sadly, many well-known names topped out with broad benchmarks in September and are working off overbought technical conditions through trading ranges or lower prices. As an alternative, let’s look at a smaller group that’s hitting new highs as we wrap up the month of November, well-positioned for even higher prices between now into year’s end.

A number of 2020 sector leaders have taken market share from Intel Corp. (INTC), which has fallen from grace after a series of self-inflicted wounds. The Dow component has lost 21% so far this year, in stark contrast with the broad-based SOX index, piling up misfires and delays driven by weak management and poor execution. The old school behemoth has lost significant business to more nimble rivals and could descend into oblivion in 2021.

Micron Technology

Micron Technology Inc. (MU) makes memory chips. The stock has booked a respectable 19% return this year but the rally off the first quarter low tells an even more bullish tale, doubling in price and lifting into a critical test at May 2018’s high in the mid-60s. A breakout could presage outstanding 2021 upside because the advance will face little resistance into the all-time high in the 90s, posted at the height of the Internet bubble in 2000.

Applied Materials

Applied Materials Inc. (AMAT) makes semiconductor equipment for mainstream and leading-edge fabrication and is benefiting from the developing technology war with China.  The stock has risen 36% so far in 2020 and just completed a massive cup and handle breakout above the 2000 high in the mid-50s. In addition, it’s gained more than 40% since the end of October, capitulating on strong Q4 2020 top and bottom line results.

On Semiconductor

On Semiconductor Corp. (ON) makes chips for power generation, electric vehicles, cloud computing, and industrial production. It’s lesser known than other chip stocks in this review but has also benefited from Intel’s misfortunes, with accelerating sales surprising many analysts. The stock has just broken out above the March 2018 peak in the mid-20s and is trading at an all-time high. It’s also more than tripled in price off the March 2020 low at 8.17.

For a look at all of today’s economic events, check out our economic calendar.

Disclosure: the author held no positions in aforementioned securities at the time of publication.

General Motors Nears All-Time High

General Motors Co. (GM) rallied within five cents of 2017’s all-time high at 46.76 on Tuesday, at the tail end of a spectacular uptrend off March 2020’s all-time low at 14.32. The uptick translates into a 325% advance in the middle of a pandemic that’s threatened to upend the world economy. GM CEO Mary Barra can thank Elon Musk for a good part of the upside, with Tesla Inc.’s (TSLA) historic uptrend setting off sympathetic rallies throughout the EV space.

GM Raises EV Commitment

The automotive giant is increasing its financial commitment to EVs from $25 billion to $27 billion and expects to offer 30 all-electric models globally by the middle of the decade. Barra also chose to stick with a winner this week, abandoning President Trump’s lawsuit to challenge California emission standards and throwing her hat into Joe Biden’s ring, with a commitment to adhere to more climate-sensitive policies.

Executive VP Doug Parks outlined the initiatives at a Nov. 19 conference, confirming 30 EVs at all price points, with more than two-thirds available in North America. To complete the task, the company is hiring 3,000 electrical system, infotainment software, and controls engineers, plus developers for Java, Android, iOS, and other platforms. GM will also look at third-party licensing for its Ultium EV architecture, batteries, and propulsion systems, along with its Hydrotec fuel cell technology developed with Honda.

Wall Street And Technical Outlook

Wall Street consensus has tracked the rise in share prices, with a ‘Strong Buy’ rating based upon 11 ‘Buy’ and 1 ‘Hold’ recommendation. No analysts are recommending that shareholders close positions and move to the sidelines. Price targets range from a low of $20 to a Street-high $65 while the stock opened Wednesday’s session at the median $45 target. This placement suggests GM is fully-valued, with earnings likely to drive future price action rather than long-term initiatives.

This is General Motor’s fourth trip into this price zone since coming public in 2010. Heavy selling pressure emerged during 2011, 2013 and 2017 advances so it’s best to remain skeptical because the rally has now reached 2017 resistance. In addition, the 8-month uptrend has carved just one consolidation pattern, with support now centered in the mid-30s. As a result, the reward-to-risk profile won’t be favorable until overbought technical readings work out of the system.

For a look at all of today’s economic events, check out our economic calendar.

Disclosure: the author held no positions in aforementioned securities at the time of publication.

 

General Electric Up 70% In The 4th Quarter

General Electric Co. (GE) rallied to an 8-month high in the first hour of Tuesday’s U.S. session following an Oppenheimer upgrade. The stock has risen more than 70% so far in the fourth quarter, underpinned by growing optimism the four-year downtrend has finally come to an end. The former icon of innovation fell an astounding 82% from the 2016 high into May 2020’s 29-year low, and more than 92% since posting an all-time high in August 2000.

GE Paying Off Old Debts

The company is working off an enormous debt load after years of bad management. The crash in bond yields is making the job easier, along with key personnel changes designed to end a near-comatose corporate culture. Unfortunately, bad timing is playing a role in GE’s recovery because the aviation division is posting huge losses due to the collapse in air travel and MAX-737 grounding. Fortunately, that crisis will ease as we get closer to wide-scale vaccine distribution.

Oppenheimer analyst Christopher Glynn upgraded General Electric from ‘Market Perform’ to ‘Outperform’, setting a price target of $12 while noting the “rating reflects our view of more pointed read-through of cost reduction initiatives, resulting in early stages of clearer breadth of operating momentum across segments. We believe working capital performance could surprise to the upside in 2021, considering GE is working through widespread facility consolidations and managing working capital amidst that during 2020”.

Wall Street And Technical Outlook

Wall Street is finally jumping on board the bull train, with a ‘Moderate Buy’ rating based upon 8 ‘Buy’ and 5 ‘Hold’ recommendations. No analysts are recommending that shareholders close positions and move to the sidelines. Price targets currently range from a low of $5 to a Street-high $12 while the stock is trading about $1.30 below the high target. This placement makes sense because this is a long-term recovery play rather than a short-term trading vehicle.

General Electric undercut the 2018 low at 6.40 during the pandemic decline, reversing after trading just below the 2008 low at 5.51. The uptick that started in the fourth quarter has established a ‘2B’ buy signal while continued upside that reaches or exceeds the February 2020 high at 13.26 will confirm a bullish double bottom reversal. That level has come into narrow alignment with the 200-week EMA, with a breakout establishing the first uptrend since 2016.

For a look at all of today’s economic events, check out our economic calendar.

Disclosure: the author held no positions in aforementioned securities at the time of publication.

 

Three Hidden Gems In The Nasdaq-100

Market players tend to focus their capital on just a handful of well-known Nasdaq-100 components, like Apple Inc. (AAPL), Microsoft Corp. (MSFT), and Tesla Inc. (TSLA). Another sizable group just trades the index as a whole, through Investo QQQ Trust or the CME index futures contract. However, many lesser-known components have carved stronger price action since March 2020, or have outperformed their Silicon Valley rivals for a decade or more.

Traders and market technicians can uncover these hidden gems by sorting a list of Nasdaq-100 index components by relative strength. There are many ways to accomplish this task but the most effective method I’ve found is to list securities by relative positioning above or below their 200-day exponential moving averages (EMAs). Not surprisingly, running a list in this mixed autumn market reveals three companies that required searches to find out how they make money.

Pinduoduo

Pinduoduo Inc. (PDD) was added to the Nasdaq-100 index in August. The Shanghai-based company operates a hugely-popular mobile e-commerce platform that specializes in apparel, appliances, and household goods. The stock now sits at the top of the index performance list, carving a series of new highs while better-known tech stocks grind through fourth quarter corrections. However, this isn’t a cheap security by any metric, with a 363% 2020 return-to-date.

Align Technology

Align Technology Inc. (ALGN) manufactures and markets Invisalign clear dental aligners and iTero intraoral scanners, as well as other products for dentists and orthodontists. The stock posted a 3-year low in March 2020 and turned sharply higher, completing a breakout above the September 2018 high near 400 in October. It posted an all-time high at 507 on Nov. 9 and pulled back, testing new gains. It’s now approaching support, setting the stage for further upside.

Cintas

Cintas Corp (CTAS) provides janitorial and safety-oriented uniforms and business services in North America, Latin America, Europe, and Asia. This is one of the top Nasdaq-100 performers in the last decade, despite their relatively humble business model. The stock got cut in half during the first quarter’s pandemic decline and bounced strongly, recouped 100% of the losses into June. An August breakout is now gathering steam, opening the door to significant upside.

For a look at all of today’s economic events, check out our economic calendar.

Disclosure: the author held no positions in aforementioned securities at the time of publication.

Boeing 737-MAX Set For Return To Friendly Skies

Dow component Boeing Co. (BA) rallied to a 5-month high and pulled back in Thursday’s session after the U.S. Federal Aviation Administration (FAA) announced it had cleared the troubled 737-MAX jetliner for a return to flight. Bloomberg then reported that EU approval could come as early as this week, removing the final hurdle to putting the plane back into service since the worldwide grounding in March 2019.

Continued Headwinds

The stock is trading above the 200- day moving average for the first time since November 2019 but Thursday’s reversal acknowledged continued headwinds that won’t be fixed by a return to flight. First, many folks will avoid air travel despite the rollout of effective vaccines because a large minority will refuse to take shots, deterred by the anti-vax movement. Second and more importantly, the virtual meeting space has grown hugely popular with corporations, allowing them to greatly reduce business travel budgets.

Baird analyst Peter Arment upgraded Boeing from ‘Neutral’ to ‘Outperform’ after the news, raising their price target from $165 to a Street-high $306. Ament believes that “risks of 737-Max delays are diminishing with a return to service now imminent” and expects vaccines to aid in the mega cap’s recovery to traditional growth. He also predicts a “multiyear air travel recovery” that requires investors to be patient, looking “further out with each year improving year-over-year”.

Wall Street And Technical Outlook

Wall Street consensus hasn’t changed much despite last week’s upgrade, with a cautious ‘Hold’ rating based upon 9 ‘Buy’, 10 ‘Hold’, and 1 ‘Sell’ recommendation. Price targets currently range from a low of $137 to a Street-high $306 while the stock closed Friday’s session just $1 below the median $200 target. It isn’t likely to stray too far from the round number in coming weeks, with the pandemic surging in a second wave and 737-MAX approval in the rear view mirror.

The stock broke down from a two-year double top pattern in February 2020 and fell to a 7-year low in double digits. It remounted the broken 200-month moving average at 160 in June and tested that level successfully ahead of last week’s news. However, June resistance at 234 remains in place while the 50-month moving average is descending into narrow alignment. This formidable barrier will be tough to break without major upticks in revenue and order flow.

For a look at all of today’s economic events, check out our economic calendar.

Disclosure: the author held no positions in aforementioned securities at the time of publication.

United Airlines Warns Of Rising Cancellations

United Airlines Holdings Inc. (UAL) reduced guidance on Thursday, noting a deceleration in bookings and increase in cancellations as a result of the surging COVID-19 pandemic. Major airline carriers had booked stronger-than expected traffic over the summer months, as the virus faded from the front pages in most parts of the world. Several CEOs upwardly revised dismal forecasts during that period, allowing complacency to overcome common sense.

Business Travel Will ‘Go Away’

Former Microsoft Corp. (MSFT) Bill Gates put a damper on Boeing Co. (BA) and the airline sector on Wednesday, declaring that 50% of business travel will ‘go away permanently’ because of technology like the virtual meeting software offered by Zoom Video Communications Inc. (ZM). He also predicted 30% of people will be working from home in the long-term, allowing corporations to become leaner and meaner, with fewer-owned properties and multiyear leases.

United Airlines now expects fourth quarter capacity to drop ‘at least’ 55% compared to same quarter in 2019. It also guided for a 67% reduction in revenue, below prior forecasts. The company will also burn cash at a faster rate, eating up approximately $15 million to $20 million, plus $10 million of average debt principal and severance payments per day. None of these forecasts bode well for Delta Air Lines Inc. (DAL) or American Airlines Group Inc. (AAL).

Wall Street And Technical Outlook

Wall Street consensus has deteriorated in recent months, now standing at a neutral ‘Hold’ rating based upon 5 ‘Buy’, 7 ‘Hold’, and 2 ‘Sell’ recommendations. Price targets currently range from a low of $32 to a Street-high $54 while the stock is set to open Thursday’s U.S. session right at the median $41 target. Capacity news and vaccine updates should drive price action into 2021 with this mid-range placement, suggesting limited upside.

The stock posted an all-time high at 97.85 in 2018 and entered a narrow consolidation that broke to the downside in February 2020, also breaking multiple support levels going back to 2013. The 2016 low in the upper 30s is now getting tested while continued upside will run into a buzz saw of resistance in the 50s, where the 2017 low and 200-week moving averages are narrow-aligned. On the downside, bears will gain control of the tape if a selloff pieces rising 2020 lows near 30.

For a look at all of today’s economic events, check out our economic calendar.

Excitement Builds Ahead Of NVIDIA Report

NVIDIA Inc. (NVDA) reports Q3 2020 earnings after the close of Wednesday’s U.S. session, with analysts expecting a profit of $1.92 per-share on $4.42 billion in revenue. If met, earnings-per-share (EPS) will mark an 8% profit increase, compared to the same quarter in 2019. The stock closed unchanged after beating Q2 top and bottom line estimates in August but hit an all-time high less than two-weeks later.

NVIDIA Unveils Data Processing Units (DPUs)

The graphics powerhouse has benefited from rollout delays and weak management at Intel Corp. (INTC), taking market share in key semiconductor channels. The company unveiled a new class of processors called Data Processing Units (DPU) at an industry conference during the quarter, characterized as a “an innovative data-center-on a chip that is optimized to offload critical networking, storage, and security tasks from CPUs.”

Needham analyst Rajvindra Gill pounded the tables on the chip set recently, declaring “by offloading tasks to the DPU, the server CPU is optimized and doubles in performance. This leads to a dramatic acceleration in performance, a reduction in the infrastructure, which ultimately leads to lower total cost of ownership for the end customer” He sees major applications in AI in coming years, stating “we believe NVIDIA is at the forefront of this trend”.

Wall Street And Technical Outlook

Wall Street consensus is highly bullish, even though new coverage has been sparse during the quarter. It’s now rated as a ‘Strong Buy’, based upon 26 ‘Buy’, 4 ‘Hold’, and 1 ‘Sell’ recommendation. Price targets currently range from a low of $400 to a Street-high $700 while the stock opened Wednesday’s session about $55 below the median $585 target. There should be plenty of room for upside if NVIDIA beats earnings expectations after the close.

The stock broke out above the 2018 high at 292 in May and entered a trend advance that posted an all-time high at 589 on Sept. 2. Price action then eased into a triangular trading range, with support around the 50-day moving average. Buying interest has remained strong throughout the correction but long-term relative strength readings have flipped into sell cycles, predicting sub-par performance into 2021. That won’t be surprising, given the 126% year-to-date return.

For a look at all of today’s economic events, check out our economic calendar.

 

Tesla Breaks Triangle Resistance After S&P-500 News

Tesla Inc. (TSLA) is trading higher by more than 10% in Tuesday’s U.S. session after being added to the S&P-500 index, effective at the open of trading on Monday Dec 21. The move caught market players and true believers asleep-at-the-wheel after the S&P Dow Jones Indices committee snubbed the EV manufacturer in September. CEO Elon Musk is currently in quarantine after testing positive for COVID-19 and hasn’t commented on the inclusion.

Tesla Bulls Hoping For New Highs

Bulls hope the addition marks the start of a breakout but index changes usually trigger one-day ‘events’, rather than sustained trends in either direction. It looks like price action has already settled into a trading range between 440 and 462, which has technical implications going forward. In addition, the stock has just reached the midpoint of the two-month trading range, lowering odds for a rapid ascent, especially after mixed Q3 earnings in October.

Tesla’s SEC-mandated 10-Q recently disclosed that capital expenditures will increase to the $4.5 billion to $6.0 billion range in the next two fiscal years while cash flow is expected to exceed spending. As the document notes “our business is now consistently generating cash flow from operations in excess of our level of capital spend, and in the third quarter of 2020 we also reduced the use of our working capital credit facilities. We expect our ability to be self-funding to continue as long as macroeconomic factors support current trends.”

Wall Street And Technical Outlook

Wall Street consensus has deteriorated in reaction to historical share gains and uneven quarterly performance, with a ‘Hold’ rating based upon 9 ‘Buy’ and 10 ‘Hold’ recommendations. A stomach-churning 9 analysts now recommend that shareholders close positions and move to the sidelines. Price targets currently range from a low of just $40 to a Street-high $578 while the stock is now trading about $60 above the median $382 median target.

Tesla posted an all-time high at 502 just one session after the Aug. 31 five-for-one stock split and entered a symmetrical triangle pattern. The news gap triggered a triangle breakout but price action has already entered a test at new support so we’ll have to wait because a failure swing is possible. The 435 to 440 zone marks the line-in-the-sand between bulls and bears in this scenario while resistance at the September high near 462 has already repelled buying interest.

For a look at all of today’s economic events, check out our economic calendar.