Market Radar 17. January 2023
Market
Now let’s hit the drum!
Stock market traffic lights jump to green
Meanwhile, not only the ETF with the symbol RSP, which keeps the 500 stocks from the S&P 500 equally weighted, receives the daily stamp “buy or top-up”, but also the much better known SPY ETF, which holds the 500 stocks measured by market capitalization.
The situation is different in the Nasdaq 100. Here, the ETF with the symbol QQQE, which keeps the 100 stocks equally weighted, also receives the daily stamp “Buy or top”; the ETF with the symbol QQQ, in which the 100 stocks measured by market capitalization are held, but only the daily stamp “Under observation”. For Wednesday, the QQQ could be upgraded to “bottoming or sideways”. Until it is upgraded to “buy or top-up”, however, a few days, possibly weeks, are likely to pass.
Why buy or increase shares at all? Well, because now everyone on the stock market will do that!
I see this in many stock market letters and model portfolios that control their cash quota via a market model or a stock exchange traffic light. These got yellow-green light on Friday of the first calendar week (6 January), which should now have jumped to green this Friday (13 January).
“Friday the 13th”? Wasn’t there something?
Okay, the weather in Hamburg last Friday – as they say here in the north – absolute “Schiet” weather. The calendar read, “Friday the 13th.” Let’s let the weather god “schieten” properly – we don’t have to do the same.
The Fed can also play the stock market god however it wants: The market is now tired of “falling” after Jerome Powell’s viola. Instead of letting only the string instruments play plaintive notes, the percussion instruments now also want to come into play: So let’s hit the drum hard: Let’s buy shares!
The market is right, not the Fed.
By the way, the statistics prove the market and not the Fed right: One of the best-known bond investors in the US, Jeffrey Gundlach of DoubleLine Capital, said last week:
“My more than 40 years of experience in finance strongly advise investors to be guided by market statements rather than the Fed’s statements.”
Why is that? For example, if US Treasuries with 2-year maturities had already reached the interest rate high, but the Fed wanted to raise interest rates further contrary to the opinion of the market – as is now to happen again in March – the market was almost always right. When we saw such a discrepancy between falling yields in the interest rate market and rising yields according to the Fed, there was usually an impressive rally in the stock markets afterwards.
Bitcoin rocks
There was already a violent bang last Thursday, which could also reverberate on Friday the 13th: The risk-on asset class par excellence has already been banging on the drum for two days: The ETF for Bitcoin (BITO) was able to gain over 10% on Thursday and Friday with increasing trading volume and “overrun” the technical interim high of mid-December without resistance. Marketradar has the day stamp “Buy or top-up”.
Schiet bleibt Schiet. Market remains market. Let’s just agree with the market now!
Get the Seasonal Tradingsignals on you cell phone
What do we see under the radar of the major stock indices?
Bulls everywhere you look.
Well, we’re exaggerating a bit: two industries still receive the daily stamp “wait and see or speculate on sell-off”: cybersecurities and healthcare providers. That’s why we want to take a closer look at these two industries:
Protect the cloud, right from the start
The ETF for Cybersecurities (CIBR) shows a lower low on the chart on January 6, but it was bought immediately. Brave investors could, now that everyone wants to bang on the drum, dare a countercyclical entry into stocks that sell security software.
Now that ChatGPT is on everyone’s lips and artificial intelligence will continue to spread, the attack surfaces on companies are also likely to increase. As AI grows, so do cyber risks.
For example, speculative traders could seek Tenable (TENB; Market capitalization: $4 billion). Tenable offers its customers a cloud-based application platform that can go into operation during the construction of a cloud infrastructure: In addition to protection against attack surfaces, the software can detect and correct misconfigurations and vulnerabilities in the cloud infrastructure.
In the chart of Tenable, as well as in the chart of the CIBR ETF, the lower low of January 6 was bought. Traders could place a stop loss below this marked low and speculate on more orders for the cyber industry – and thus on higher profits for these companies in the long term.
Tenable must be evaluated as turnaround speculation. The stock is only likely to take off if the risk-on will among market participants increases. In all likelihood, Tenable will be able to present an annual profit for 2022 for the first time in the company’s history – the new business figures will probably be published at the end of January / beginning of February.The P/E ratio for 2023 is currently set at about 70 and should fall to 30 by 2025 – and that without ChatGPT fantasy! – By 2025, sales are expected to grow by around 70%. Earnings per share are expected to increase by an estimated 300% by then.
A dash of takeover fantasy also exists at Tenable: at the latest since Google swallowed the cybersecurity company Mandiant for 5.4 billion USD, it is clear that the technical know-how of such companies is also coveted by big-tech companies.
Even healthy people sometimes limp
And why are healthcare providers doing so badly? Because it is a defensive industry that is likely to be reduced when rebalancing institutional investors’ portfolios as risk-on increases. You can also take a closer look at the largest health insurer in the US, UnitedHealth (UNH): Since the beginning of the year, the stock has lost 7.66%.
The quarterly figures reported by UnitedHealth on Friday were probably not good enough for market participants. In a risk-off environment, UnitedHealth would probably have been bought at these numbers. In a risk-on environment like the current one, traders prefer to look elsewhere.
What did UnitedHealth’s numbers say? In terms of sales and profit, market participants’ expectations were beaten by around 1%. The expected sales for 2023 were also above the market’s estimates. For expected earnings in 2023, UnitedHealth cited a range of $24.40 to $24.90 per share. The market’s estimates were $24.84.
UnitedHealth’s numbers were fine. Much larger jumps in sales are not to be expected from a health insurer. Still, the stock lost more than 1% on Friday amid unusually high volatility. Even healthy people sometimes limp.
DIY chains in the depot?
While screening stocks that are on the right side of a cup formation and could soon hit new highs, I noticed the two largest home improvement chains in the US: Home Depot (HD) and Lowe’s Companies (LOW). Both shares are coming into my portfolio today.
We see two prominent highs in Home Depot’s stock on December 6, 2021 and January 3, 2022. These are not 52-week highs, as these highs originated before January 13, 2022. From these highs, a wide-shaped cup is formed, which contains a multitude of small cups. But you better not pay attention to these small cups, otherwise we don’t see the kitchen cupboard anymore for all the cups! But let’s take a look at the current small cup, which started at the interim high of December 13, 2022, a month ago. It would be optimal if a small handle would now form, which finds its lower end at about $ 320. At the latest after that, the stock of Home Depot should shoot upwards. The next resistance is waiting at $360.
For Lowe’s Companies, the cups on the chart look similar. Lowe’s Companies was even able to close above the previous day’s high on Friday, Home Depot did not. But these are details that are not really noticeable in the big picture. Both stocks should continue to perform relatively simultaneously. The next quarterly figures for these DIY chains will be published in mid-February.
DIY chains are assigned to the consumer goods sector. Currently, the ETF for consumer discretionary (XLY) shows significantly more strength than the ETF for non-cyclical consumer goods (XLP). That speaks for stocks like Home Depot and Lowe’s Companies and against stocks like Coca-Cola (KO) and Colgate.