Market Radar 05. December 2022


Risk-on increase despite bad news

The US jobs report gave Wall Street a moment of shock an hour before the opening of trading on Friday.

Wage growth twice as high as expected.

Non-agricultural employment rose by 263,000 in November, well above the expected 200,000. Average hourly earnings rose by 0.6%, twice as high as expected.

In an anxious market environment, these figures on the labor market and labor costs could have been seen as the steep template for a sell-off in equities – no: must! According to the classical monetary economy, such a sharp increase in hourly wages provides the ideal breeding ground for rising inflation rates.

And what did the stock market make of this news after the opening of trading? At first, the moment of shock was “still in the bones” of market participants: the SPY opened 1.25% below the previous day’s close – at 402.25 points. In the course of trading, however, the US stock indices were robust, the 400 mark in the SPY was never at risk. The SPY closed at 406.91 points, a paltry 0.75% below the previous day’s high.

It gets exciting when you compare the development of the IPO ETF with that of the SPY ETF on Friday. The IPO ETF closed above Thursday’s high on Friday. Thus, for the first time in a long time, the IPO showed a leading character over the SPY.

On Friday, the strength of the IPO ETF thus exemplified the willingness of the stock market to trade risk rather than security.

As we’ll see below, there have been gains in industries and trends that are more of a boost to risk-on than risk-off behavior.

Market participants followed the trend on Friday and not the news.
We should follow them, because the upward trend does not want to be deterred by anyone at the moment.

As is well known, the market precedes the news and not the other way around – exceptions such as the corona pandemic or Russia’s attack on Ukraine only confirm this rule. This stock market wisdom is all the more true when bad news is ignored and used to increase positions.

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What do we see under the radar of US stock indices?

As mentioned above, some risk-on stocks preceded their risk-off parts yesterday.

Biotechnologist (XBI) closed 1.18% above Thursday’s daily high on Friday. Healthcare (XLV) closed below Thursday’s daily high, but was still relatively strong compared to other industries.

Cannabis showed “bite”

Fittingly, cannabis stocks had a really good run: the corresponding ETF (MJ) closed 4.6% above Thursday’s daily high. Cannabis stocks such as Tilray Brands (TLRY) and Canopy Growth (CGC) were among the day’s gainers on Friday, each gaining nearly 10%. There was no news about cannabis, so the will to accumulate alone made these stocks rise.

Bitcoin before stabilization?

Everything that has to do with Bitcoin was also strong. The regional bank Silvergate Capital (SI), which was mentioned on Thursday and acts as a service provider for transactions with digital currencies, was not able to continue the downward trend as I expected, but bucked it with a daily gain of 5%. However, Silvergate Capital is still trading 3% below EMA 9.

However, the world’s largest exchange for digital currencies, Coinbase (COIN), was able to cross the EMA 9 upwards in the chart on Friday. Since October 31, COIN closed above EMA 9 only on November 11. This had been a good start for short sellers. Had yesterday been another day like this?

The Bitcoin ETF (BITO) was able to rise by 1% compared to the previous day’s closing price. The ETF has been trading above EMA 9 for three trading days.

Nevertheless, these stocks and the Bitcoin ETF remain candidates for short rather than long for me.

Where Risk-Off continues to be ahead

But not everywhere Risk-On was able to score against Risk-Off: Consumer Discretionary Stocks (XLY) continued to lag behind Non-Cyclical Consumer Goods Stocks (XLP). And the semiconductor industry was also unable to stand up to the strong shares from the steel and metal processing sectors on Friday.

Are we seeing eruptions from shallow bases in the coming days?

At the moment, there are an unusually large number of stocks that form a flat base relatively close to their highs. Many of them could break out upwards in the next few days.

Biotechnology is on the rise again

With biotechnology experiencing such a strong boost on Friday, big cap biotechnology stocks such as Amgen (AMGN) or Regeneron (REGN) may now be on the verge of a breakout.

This was achieved on Friday by Alnylam Pharmaceuticals (ALNY). The biotechnology company, which is one of the most established in the industry with a market capitalization of $30 billion, is focused on the discovery, development and commercialization of novel drugs based on ribonucleic acid (RNA). RNA is less stable than DNA. In contrast to DNA, RNA is not present as a double helix, but as a single strand. The task of RNA is to transport and translate the information stored in DNA. But it also regulates gene activity. Alnylam Pharmaceuticals’ pipeline of RNAi therapeutics focuses on genetic drugs, cardiometabolic diseases, hepatic infectious diseases and central nervous system (CNS)/eye diseases. 

The stock of Alnylam Pharmaceuticals was able to overcome the resistance at $ 220 in the chart on Friday and will now complete a picture-perfect cup formation. What is missing now are handles or handles.

Enphase or Solaredge ?

Solar stock Enphase (ENPH) broke out to an all-time high on Friday. Competitor Solaredge (SEDG) was also among the top stocks of the day with a daily gain of 4%, but is trading 20% below the all-time high. Solaredge’s P/E ratio is only half as high as Enphase (ENPH). Enphase is already valued at a P/E of 50 for 2024, Solaredge at a P/E of just  25. At Enphase, EPS growth is expected to be about 50% over 2 years, Solaredge of about 100%.

If I had the choice, as a long-term investor, I would exceptionally rely on the weaker Solaredge share in this case.

Further training is postponed

The losers of the day on Friday were shares from the e-learning sector. This is not really surprising; these companies would benefit from an increase in unemployment. And the jobs report signaled quite clearly on Friday that it doesn’t seem to be rising. The more people are unemployed, the more people seek their chance in further education. If, on the other hand, there are jobs en masse, then you would rather earn money than continue your education. In the charts of Grand Canyon Education (LOPE), Adtalem Education (ATGE) and Graham Holdings (GHC) you could see stop-loss avalanches on Friday.

Long-dated US Treasuries with relative strength

It should also be mentioned that the ETF for US government bonds with maturities of 20 years plus (TLT) will receive the daily stamp “buy or accumulate” on Friday for the first time since December 20, 2021. The TLT was even less shocked than the SPY at the start of trading, closing 1.2% above Thursday’s high. Thus, the TLT ran ahead of both the SPY and the SHY (ETF for US government bonds 1 – 3 years). Bonds also rose on Friday in line with the motto: Risk-On increase despite bad news