U.S. Market Wrap and Forecast for Monday

January’s Non-Farm Payrolls report added 49,000 new jobs while the unemployment rate fell from 6.7% to 6.3%. December jobs were revised sharply lower, continuing a bleak employment scenario as the Western world works through the last stages of the winter’s second pandemic wave. The equity market yawned and bonds sold off after the news, squaring positions into the weekend so that short-term options market makers get paid.

Ford vs. Tesla

SP-500 Volatility Index (VIX) fell to the lowest low since early December. GameStop Inc. (GME) shareholders declared their loyalty in a widely read Reuters article, ready to become the bagholders of a new generation. Ford Motor Co. (F) CEO Jim Farley (no relation) declared the new Mustang Mach-E will compete successfully with Tesla Inc.’s (TSLA) Model Y, forgetting that brand is everything in the third decade of the new millennium.

Snap Inc. (SNAP) recovered after a 9% post-earnings decline, lifting to an all-time high. Fitness juggernaut Peloton Interactive Inc. (PTON) fell into the 140s despite beating top and bottom line estimates and raising first quarter guidance. The company has to compete with real fitness centers in coming quarters, lowering expectations about their vertical growth trajectory. Wynn Resorts Ltd. (WYNN) hit an 11-month high despite a 58.5% year-over-year revenue decline, offering shareholders an opportunity to get out with their capital still intact.

Heading into Monday

Fourth quarter earnings season draws to a close next week, with reports from Dow components Cisco Systems Inc. (CSCO) and Walt Disney Co. (DIS) as well as Twitter Inc. (TWTR), and General Motors Co. (GM). Disney is trading near an all-time high even though their wildly successful streaming service has done little to replace income lost from empty movie theaters, dry-docked cruise ships, and socially-distanced theme parks.

Sky’s the limit for U.S. equities, at least until the Biden administration hits a brick wall with their massive stimulus bull. At least to the point, left-leaning politicians have avoided most of the logistical mistakes made by the Obama administration in 2009.  The Republican Party is trying to rebrand itself after the departure of Donald Trump and their infighting has allowed the Democratic-controlled Congress to move aggressively on economic policy.

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

Stock Pick Update: October 21 – October 27, 2020

In the last five trading days (October 7 – October 13) the broad stock market has retraced a half of its previous week’s advance of almost 4%. The S&P 500 index set a new record high of 3,588.11 on September 2. But then the market fell below February 19 high of 3,393.52. Recently it set a local low of 3,209.45 before going back above 3,500 mark. So, the decline still looks like a downward correction of a 63.7% rally from March 23 corona virus low at 2,191.86.

The S&P 500 index has lost 2.06% between October 14 and October 20. In the same period of time our five long and five short stock picks have gained 0.08%. So stock picks were relatively stronger than the broad stock market . Our long stock picks have lost 0.54% and short stock picks have resulted in a gain of 0.69%.

There are risks that couldn’t be avoided in trading. Hence the need for proper money management and a relatively diversified stock portfolio. This is especially important if trading on a time basis – without using stop-loss/ profit target levels. We are just buying or selling stocks at open on Wednesday and selling or buying them back at close on the next Tuesday.

If stocks were in a prolonged downtrend, being able to profit anyway, would be extremely valuable. Of course, it’s not the point of our Stock Pick Updates to forecast where the general stock market is likely to move, but rather to provide you with stocks that are likely to generate profits regardless of what the S&P does.

This means that our overall stock-picking performance can be summarized on the chart below. The assumptions are: starting with $100k, no leverage used. The data before Dec 24, 2019 comes from our internal tests and data after that can be verified by individual Stock Pick Updates posted on our website.

Below we include statistics and the details of our three recent updates:

  • October 20, 2020

Long Picks (October 14 open – October 20 close % change): CSCO (-1.63%), NI (+2.03%), CMG (+1.38%), XOM (-1.06%), SHW (-3.41%)
Short Picks (October 14 open – October 20 close % change): WMB (+1.33%), APD (-1.83%), JPM (+0.07%), NVDA (-4.51%), WEC (+1.47%)

Average long result: -0.54%, average short result: +0.69%
Total profit (average): +0.08%

  • October 13, 2020

Long Picks (October 7 open – October 13 close % change): CMS (+2.71%), RTX (+0.35%), EQIX (+4.46%), OKE (+8.35%), FB (+6.53%)
Short Picks (October 7 open – October 13 close % change): COP (+4.21%), TWTR (+2.02%), NVDA (+1.78%), AWK (+1.39%), FDX (+3.37%)

Average long result: +4.48%, average short result: -2.55%
Total profit (average): +0.96%

  • October 6, 2020

Long Picks (September 30 open – October 6 close % change): SO (+7.13%), SEE (+9.80%), MAS (-2.17%), EOG (-1.23%), FB (-1.27%)
Short Picks (September 30 open – October 6 close % change): CVX (+0.07%), VZ (0.00%), MS (+0.15%), PPL (+5.90%), NEM (-2.67%)

Average long result: +2.45%, average short result: -0.69%
Total profit (average): +0.88%

Let’s check which stocks could magnify S&P’s gains in case it rallies, and which stocks would be likely to decline the most if S&P plunges. Here are our stock picks for the Wednesday, October 21 – Tuesday, October 27 period.

We will assume the following: the stocks will be bought or sold short on the opening of today’s trading session (October 21) and sold or bought back on the closing of the next Tuesday’s trading session (October 27).

We will provide stock trading ideas based on our in-depth technical and fundamental analysis, but since the main point of this publication is to provide the top 5 long and top 5 short candidates (our opinion, not an investment advice) for this week, we will focus solely on the technicals. The latter are simply more useful in case of short-term trades.

First, we will take a look at the recent performance by sector. It may show us which sector is likely to perform best in the near future and which sector is likely to lag. Then, we will select our buy and sell stock picks.

There are eleven stock market sectors: Energy, Materials, Industrials, Consumer Discretionary, Consumer Staples, Health Care, Financials, Technology, Communications Services, Utilities and Real Estate. They are further divided into industries, but we will just stick with these main sectors of the stock market.

We will analyze them and their relative performance by looking at the Select Sector SPDR ETF’s .

Based on the above, we decided to choose our stock picks for the next week. We will choose our top 3 long and top 3 short candidates using trend-following approach, and top 2 long and top 2 short candidates using contrarian approach:

Trend-following approach:

  • buys: 1 x Utilities, 1 x Technology, 1 x Consumer Discretionary
  • sells: 1 x Energy, 1 x Materials, 1 x Financials

Contrarian approach (betting against the recent trend):

  • buys: 1 x Energy, 1 x Materials
  • sells: 1 x Utilities, 1 x Technology

Trend-following approach

Top 3 Buy Candidates

PPL PPL Corp. – Utilities

  • Stock broke above medium-term downward trend line – uptrend continuation play
  • Possible short-term uptrend continuation pattern – bull flag
  • The resistance level is at $29 and a close support level is at $27.50

WDC Western Digital Corp. – Technology

  • Stock broke above its recent downward trend line – possible short-term uptrend continuation
  • The resistance level of $45
  • The support level is at $39

WYNN Wynn Resorts Ltd – Consumer Discretionary

  • Possible breakout above short-term downward trend line
  • The resistance level of $77.50
  • The support level is at $67.50-70.00

Summing up , the Utilities, Technology and Consumer Discretionary sectors were relatively the strongest in the last 30 days. So that part of our ten long and short stock picks is meant to outperform in the coming days if the broad stock market acts similarly as it did before.

We hope you enjoyed reading the above analysis, and we encourage you to read today’s Stock Pick Update. There’s no risk in subscribing right away, because there’s a 30-day money back guarantee for all our products, so we encourage you to subscribe today .

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

Thank you.

Paul Rejczak
Stock Trading Strategist
Sunshine Profits – Effective Investments through Diligence and Care

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Disclaimer

All essays, research and information found above represent analyses and opinions of Paul Rejczak and Sunshine Profits’ associates only. As such, it may prove wrong and be a subject to change without notice. Opinions and analyses were based on data available to authors of respective essays at the time of writing. Although the information provided above is based on careful research and sources that are believed to be accurate, Paul Rejczak and his associates do not guarantee the accuracy or thoroughness of the data or information reported. The opinions published above are neither an offer nor a recommendation to purchase or sell any securities. Mr. Rejczak is not a Registered Securities Advisor. By reading Paul Rejczak’s reports you fully agree that he will not be held responsible or liable for any decisions you make regarding any information provided in these reports. Investing, trading and speculation in any financial markets may involve high risk of loss. Paul Rejczak, Sunshine Profits’ employees and affiliates as well as members of their families may have a short or long position in any securities, including those mentioned in any of the reports or essays, and may make additional purchases and/or sales of those securities without notice.

 

Wynn Resorts Could Test 1st Quarter Low

Casino and resort operator Wynn Resorts Inc. (WYNN) fell to a 7-week low on Monday morning, with sector sentiment deteriorating at a rapid pace following months of weak visitation numbers in Macao and Las Vegas. A potential money laundering scandal at rival Las Vegas Sands Inc. (LVS) is adding to selling pressure, warning WYNN shareholders the stock could eventually test the first quarter’s multiyear low in the mid-30s.

Industry Slump Undermining Wynn Resorts Revenue

The Macao Gaming Commission and Coordination Bureau recently reported that August gross revenue fell an astounding 94.5% year-over-year while the Nevada Gaming Board’s latest release noted the July Las Vegas Strip gaming win rate dropped 39.9 % year-over-year. Domestic and international travel restrictions and COVID fears are driving the bearish metrics, ahead of a winter that could ignite a second pandemic wave.

Goldman Sachs analyst Stephen Grambling downgraded Wynn Resorts from ‘Buy’ to ‘Neutral’ earlier this month, removing the stock from their ‘Conviction List’ and dropping the price target to $95. Grambling justified the bearish call with troubling statistics about Macao operations, stating “Wynn holds outsized exposure to Wynn Macao and, after revising our forecasts to embed softer VIP in 2021, we find limited upside, given the stock’s recent run.”

Wall Street And Technical Outlook

Wall Street consensus now stands at a ‘Moderate Buy’ rating based upon 9 ‘Buy’ and 5 ‘Hold’ recommendations. No analysts are recommending that shareholders sell their positions and move to the sidelines at this time. Price targets currently range from a low of $72 to a street-high $120 while the stock is now trading on top of the low target. These predictions look way too high but the humble placement may limit downside, at least in the short-term.

Technically speaking, Wynn Resorts has been stuck in a downtrend since posting an all-time high near 250 in 2014.  The stock has lost substantial value since a recovery rally topped out near 200 in 2018, with the downside accelerating to an 8-year low in the first quarter of 2020. The bounce since that time has failed to remount the broken 200-month moving average, raising odds the decline will eventually test and possibly break the March low in the mid-30s.

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

Wynn Resorts Struggling To Rebuild Lost Revenue

Wynn Resorts Inc. (WYNN) got hit earlier than most American corporations by the COVID-19 pandemic, with Macao hotels and casinos shutting their doors for two weeks in February, in reaction to the first outbreak in Wuhan, China. The closure of Las Vegas resorts in March completed the revenue destruction, generating a Q1 2020 loss of $3.54 per-share, or $1.85 worse than expectations. Revenue plunged an astounding 42.2% year-over-year to $953.7 million, beating estimates by more than $75 million due to excessively bearish Wall Street calls.

Catastrophic Revenue Loss

Unfortunately for shareholders, gaming aficionados are still avoiding Macao like the plague as we enter the third quarter. The Macao Gaming Inspection and Coordination Bureau just reported that June revenue fell 97.0% year-over-year, following a 93.2% decline in May. Meanwhile, Las Vegas has run into major roadblocks since their reopening began in May, with a surging epidemic in the Southwestern states generating record numbers of positive cases, persuading many visitors to stay away.

Wynn Resorts discussed the continued impact of the pandemic in June, noting that “we expect to continue experiencing the adverse effects of the COVID-19 Pandemic throughout the second quarter of 2020.” The company then disclosed that Macao operations are experiencing an average daily loss of around $2 million, which isn’t a short-term liquidity issue due to $1.71 billion in free cash flow and $24.1 million in resolving credit earmarked for Macao operations.

Wynn Resorts Wall Street And Technical Outlook

Wall Street issued a wave of upgrades in the second quarter but their growing bullishness may be misplaced, given the exceptionally slow pace of business resumption. Nine analysts currently rate Wynn Resorts as a ‘Buy’, while just four have issued ‘Hold’ recommendations.  However, it’s astonishing that no one is recommending that investors sell the stock at this time, despite steep daily losses. It’s wise to keep that in mind if thinking about long-side exposure at these depressed levels.

The current technical outlook remains extremely bearish. Wynn Resorts fell a stomach-churning 77% off the late January peak at 152, finding support at an 11-year low in March. The bounce into the second quarter reversed at heavy resistance above 100 in early June, giving way to a steady decline that relinquished more than 40 points before a month-end reversal. So far at least, price action has failed to remount key levels violated during the selloff, telling market players the stock remains stuck in a decline that could test the deep March low.