Stocks went into blaze mode to start the summer with prices rising like heatwaves off desert blacktop in the noon sun. But, Wall Street’s temps for stocks fell a bit as Tuesday’s trading came to a close. Maybe, we are seeing the beginning of some rotation away from tech to other areas of the market, industries that haven’t recovered as much as the technology.
The tech-heavy NASDAQ nearly gave up all the day’s gains while the S&P 500 and DOW were up 1.23% and 2.17%, respectively. A few weeks ago, we mentioned that the two senior indexes had some catching up to do with the NASDAQ. Hopefully, that’s where we are after the start of the Memorial Day, shortened trading week.
Both the DOW and S&P 500 managed to trade through upper technical barriers that kept the pair in check for the last seven weeks. Investors should be hoping for follow through in the next couple of days. If the S&P and DOW can finish out the week higher than today’s closing prices then, much like the NASDAQ, the duo will probably zoom in on pre-COVID levels.
Indexes could get the boost we are hoping for by a lack of news in the next month. Companies that are on a calendar year will wrap up their second quarters at the end of June. With about five weeks left, we are entering pre-announcement season.
That’s when companies put out press releases to warn investors that sales and profits are likely to be considerably better or worse than previous guidance from management. Due to coronavirus lockdowns, Q2 is going to be lousy for most companies. However, if there is an absence of negative, pre-announcements, we’ll view the lack of bad news as good news. It might foretell pent up demand pushing June receipts beyond expectations.
ETFMG Alternative Harvest ETF (MJ) outpaced the rest of the sector ETFs we monitor for the second week in a row. It could be in for a pause, but then it could continue higher, to resistance around $16.
As pictures of crowded beaches and pool parties suggest, Americans are ready to return to leisurely activities. It looks as if Wall Street sees the images as well. Invesco Dynamic Leisure and Entertainment ETF (PEJ) was one of the top performing sectors last week, up more than 3.5%.
PEJ is based on the Dynamic Leisure & Entertainment Intellidex Index. The underlying index is comprised of common stocks of 30 US leisure and entertainment companies. These are companies that are principally engaged in the design, production or distribution of goods or services in the leisure and entertainment industries.
Like a Jack in the Box after the final wind, the Dynamic Leisure and Entertainment ETF popped through resistance that had been holding the ETF back since the end of March. If it continues to fully recover COVID 19 losses, PEJ could reach $42 after closing at $30.05 on Tuesday.
On the downside, we’d get nervous if the ETF fell below $24 and would likely unload PEJ if it closed below $19.
Airlines have totally lagged the rest of the market’s recovery. They’ve been grounded but appear to be taxiing and might be headed for the runway. Almost every airline stock chart we analyzed had the same characteristics. Tuesday’s price action smashed through a descending trendlines, which is usually a sign the trend is about to reverse. In this case from down to up, provided the “buy” signal isn’t a head fake. However, considering the industry has been flattened by the coronavirus, there probably isn’t much downside beyond the March and mid-May lows.
If we had to pick one airline, it would be Delta Air Lines, Inc. (DAL). In our opinion, they have the best combination of metrics. The one that stands out the most is Return on Equity (ROE). The measuring stick is a way to gauge management’s effectiveness at using the company’s net assets to generate profits. Of the airline stocks in PEJ, Delta owns the highest ROE at 25.95%. United Airlines Holdings, Inc. (UAL) is the next closest at 20.51%.
In the last year, DAL has traded as low as $17.51 and as high as $63.44. Analysts see the airliner heading to $37.07 in the next 12 months. That’s 44.5% higher than Tuesday’s final price of $25.65.
May all your longs go up and may your shorts go down.