The Week Ahead, S&P 500 Futures Are Up +1% And Poised To Reach 3,000by David H. Lerner
- If after reading this article you conclude that I haven't gotten over the short shrift stocks gave the China-US rift last week, you'd be right.
- The futures for our S&P 500 was open for bidding and the world just bid us up by another +1%. Can I love that and feel queasy at the same time? Yes.
- The world has bid us right up to the 200 MA, and we look like we are about to hop over it. Not so fast.
- I have to follow the message of the market and it is saying that it wants to go higher. Is it grounded in a certainty that stocks are undervalued? Or as some new analysis is telling us, that it's the newbie retail trader that is pressing the market ever higher?
Elevated US Futures and European Markets Close up in some cases +2.5%
Markets that are open seem to be ignoring the looming Cold-War between the US and China. Perhaps the optimism of the EU returning to normal has elevated German, French and Spanish bourses. I think that the bailout of Deutsche Lufthansa by the German government for $9 Billion and talk of fiscal policy to boost economies is what is behind the impetus. Perhaps it is the realization that negative interest rates haven’t worked and never will work, and that the hard work of economic reform must happen. A Europe that actually wants the world of business to thrive would be good for Europe and America as well.
What has me puzzled once again is the power of this rally in our market at this point.
I dutifully reported that the message of the market is that it wants to go higher, that even now stocks are perceived to be under-valued. That doesn’t mean that I understand the logic, I am only telling you what the charts were conveying to me. You have read it in several places I am sure that this 2999 level in the S&P 500 as the 200 MA line will be a contentious level. I merely pointed out in my last writing that I thought both as a psychological level and the half-way point of my measured move that I could see some choppiness at this same 3000 level. I admit I did not look at the 200 Day Moving Average, which I should, and was remiss. Never-the-less we are at the same juncture in any case. Now with the futures putting the S&P 500 nearly to 2990, it seems a foregone conclusion that either tomorrow or Wednesday will put is into the breach. Not so fast…
I’ll believe it when I see it
Let’s not count our chickens just yet. Also, again, I must admit, I just don’t get this last run to this elevated level. I know I said it 100 points ago, and I even got short and was severely spanked for it. After that, I fell in line, but that doesn’t mean I am all that comfortable with it. Yes, I am happy to be wrong. I am looking high and low for the justification, so I can rest easy and I know I can’t be the only one. You should know the saying now, the stock market rises over a wall of worry. I am not a bear, I know I seem to be repeating that a lot lately, I just think we have come too far to fast with a lot of open questions left unanswered. The market doesn’t seem to care that Biden is ahead in the polls with the possibility that someone like Elizabeth Warren, or even AOC (you never know) can be Veep. Or if even with all the fiscal stimulus; all the king’s horses and all the king’s men will actually be able to put back this economy together again. Will China and the US start another trade war/cold war/shooting war? Anyway, I agree that there are always questions and dire circumstances on the horizon. That is why I disdain perma-bears, it’s an easy option, it gets attention, and no one calls you on the carpet for being a scold. But, if you predict good outcomes, they come for you with knives out, right or wrong.
In any case, we seem to be going higher this week. Maybe
I have seen this movie before, where the US markets are closed, and our futures are influenced by Asia and Europe only to have a paradoxical effect on our markets the next day. I am especially wary since the stock market seemed to not react to China last week. So perhaps this surge higher is a head-fake and we have a retreat from this level this week. We should contend with this 3000 level at least a bit and then go a bit higher. I only say that because that is what the market seems to want to do.
Other market commentators are reaching for reasons, for this market move...
If the futures are predicting correctly there seems to be a disconnect somewhere. According to a very interesting little article in Barron’s over the weekend with the strident title “Day Trading Has Replaced Sports Betting as America’s Pastime. It Can’t Support the Stock Market Forever.” Jim Bianco was quoted as making the case that the retail investor is cashing in their 1200 stimulus check and trading with it. If that is really the case, then all bets are off and the newbie retail investor is the one bidding the market ever higher. This does not end well, but its a party while it is going on. I would accept that the market has good reason to go higher if it would act like a normal market. In other words, if China and the US seem to be headed for another trade war or cold war, then it should at least retreat a bit, and consolidate before it goes higher. Is that too much to ask? What gives the lie to the thrust of the above article is that why are the European bourses go so strong today? I am arguing against myself right now, but that is another conundrum. Hong Kong being taken over by the Communists will not be good for Europe either. There are a lot of missing pieces, and that is what makes markets so endlessly fascinating.
Here is the bullish scenario
If Europe really embarks on fiscal stimulus as evidenced by the Lufthansa bailout and other fiscal actions done in earnest, and Europe ends the lockdown, at the same time we are here. Then maybe, maybe the US stock market is not nuts and we deserve to be at 3,000. Is that what the market is telling us, or is it a bunch of reprobates bidding up the stock market with abandon using their relief checks because the casinos are closed?
Earnings this Week
Tuesday, May 26:
AutoZone, Inc. (AZO), Bank of Nova Scotia (BNS), Booz Allen Hamilton Holding Co. (BAH), Heico Corp (HEI), Keysight Technologies Inc (KEYS), ORIX Co. (IX),
My take: KEYS is a 5G tech stock. No matter the report, how market participants react will have ramifications for other perceived 5G stocks by the market.
Wednesday, May 27:
Autodesk, Inc. (ADSK), Bank of Montreal (BMO), HP Inc. (HPQ), Nutanix (NTNX) Royal Bank of Canada (RY), Vipshop Holdings Ltd - (VIPS), Workday Inc (WDAY),
May take: ADSK is a way to play the industrial sector. You cant build or manufacture without designing it first. ADSK is the premier product, now cloud SaaS. Big fan of WDAY and NTNX I think they both do well on their earnings reports. If they sell off after their report I will buy them, in the case of NTNX I will add to my position.
Thursday, May 28:
Burlington Stores Inc (BURL), Canadian Imperial Bank of Commerce (CM), Coca-Cola European Partners PLC (CCEP), Costco Wholesale Co. (COST), Dell Inc. (DELL), Dollar General Corp. (DG), Dollar Tree, Inc. (DLTR), Okta Inc (OKTA), salesforce.com, inc. (CRM), Telekomnks Indn Prsr Tbk Prshn Prsrn-ADR (TLK), Toronto-Dominion Bank (TD), Trip.com Group Limited (TCOM), Ulta Beauty Inc (ULTA), Veeva Systems Inc (VEEV), VMware, Inc. (VMW),
My Take: VMW will be very interesting to watch as an indicator of the health of the cloud sector, OKTA, and CRM have been very strong lately if their reports aren’t perfect you could see them sell hard, especially if they continue to run up towards earnings day.
Last Week's Earnings of Interest
Alibaba Group (BABA) reported $9.20 earnings per share (EPS) for the previous quarter, beating the Thomson Reuters consensus estimate of $0.59 EPS by $8.61. The company had revenue of $114.31 billion for the quarter, compared to the consensus estimate of $108.31 billion. During the same quarter in the prior year, the company posted $8.57 earnings per share. The company's quarterly revenue was up 22.3% on a year-over-year basis.
My take: I am no longer trading BABA or getting near any Chinese stocks. I believe that as each day passes we are getting closer to delisting Chinese stocks from US exchanges.
NVIDIA (NVDA) reported $1.80 earnings per share (EPS) for the previous quarter, beating the Thomson Reuters consensus estimate of $1.36 EPS by $0.44. The company had revenue of $3.08 billion for the quarter, compared to the consensus estimate of $3.00 billion. During the same quarter in the prior year, the company posted $0.88 earnings per share. The company's quarterly revenue was up 38.7% on a year-over-year basis.
My take: Nvidia is a great stock and everyone knows it’s a great stock. If the market sells off, NVDA would be a great stock to go long on a bounce. If you are trading it, enjoy the ride. At some point, you are going to need to get off. It’s at all-time highs, perhaps it goes even higher. Perhaps you should trim a little off the top. No one got poor by taking some profits.
Reminder: Please continue trimming positions. Sell off a few shares of each old position every day. Charge yourself a “fee” every time you go long a new position. The goal is to rebuild your cashback to at least 25%. Don’t do it all at once. Baby steps...
Disclosure: I am/we are long NTNX. 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.
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