Analysis, Perspective, Trading Strategy
In a Twitter Market Anything can Happen but Stock Picking is still the Key to Success
By Joe Duarte on August 11, 2019
what is becoming an increasingly disorderly world, investors are waiting
for the next shoe to drop (or tweet to hit) as they ponder if and when to head
for the exits or to once again buy the proverbial dip.
The financial markets ended the week of August 9, 2019 at crucial
chart pivot points for the major indexes, bonds, currencies and commodities,
a fact which suggests that traders have some big decisions to make.
Simultaneously, and complicating the decision making process for those
on the fence, a good number of stocks are on the verge of chart breakouts.
Thus in the current world where a tweet can launch a million algo
trading programs and create massive gains or losses in seconds, getting
ready for a potentially wild ride while picking the best possible stocks
to own and managing them properly, regardless of the plausibility of
the task, is the key to success.
Big Week Ahead for Bonds and MEL
The dance between the Federal Reserve, the bond market, and the Markets-Economy-Complex
(MEL) could take an interesting turn this week. With three central
banks (New Zealand, Thailand, and India) lowering interest rates last
week and a huge increase in mortgage refinancing in the U.S. following
the Fed’s recent rate cut, it’s clear that the general public is very
aware of the trend in interest rates and is acting accordingly.
Presently, due to cell phones, social media and the 24 hour news
cycle, the markets, the economy, and life are more than ever interconnected
and the reaction times to events by all participants in MEL have been
cut dramatically. In turn, this real time awareness of events, the
market’s response and the ensuing chain reaction, prods people to make
financial decisions which then feedback into the economy and back to
the markets either perpetuating the cycle or causing significant shifts
in MEL in a fraction of the time compared to past cycles.
For example, since the Fed and other global central banks have been
lowering interest rates, we have seen bond yields fall rapidly while
the stock market has been on a very bumpy ride. At the same time, we
have seen a rapid increase in mortgage refinancing. What we have not
seen, yet, is a major spike in housing purchases other than in earnings
reports for companies such as Skyline (SKY), which makes lower priced
and more affordable mobile homes than traditional builders. That means
that if we are going to get a big move up in housing activity beyond
mortgage refinancing we should start to see it in the weekly mortgage
data over the next three to four weeks.
Meanwhile, the U.S. Ten Year Note yield (TNX) is working out a new
trading range with 1-60-1.65% as the current bottom and 1.80% or so
as the top. Any break above or below these key levels will likely mean
that something extraordinary has happened and that things will ripple
through the MEL system.
And although there has been no official data yet
as to whether home buyers are coming off the fence in response to the
fall in mortgage rates, the S & P Homebuilders Index (SPHB) is
tracing out a very bullish chart pattern which suggests that the market
is starting to bet on such a development.
If we see increasing strength in housing, and a breakout in SPHB,
we can expect a whole new cascade of interconnected developments to
ripple through MEL, which could lead to even more interesting events
and changes in behavior from central banks. And so the cycle will evolve.
Astra Zeneca: a Dramatic Turnaround Story in the Early Stages
of Long Term Advance
It’s not always easy to find big winners in any single sector, much less
in the current market,. Yet, Astra Zeneca (NYSE: AZN), an old school
stock which has nowhere near the name recognition of some of its
grossly underperforming peers (think Pfizer), has been slowly building
quite a cancer pipeline under the radar, especially in the area of
difficult to treat advanced lung and prostate cancers. Moreover, the
cancer drugs are starting to pay off, both in patient results, and
on AZN’s top and bottom lines.
In fact AZN recently announced significant successes in late stage
clinical trials for Tagrisso in lung cancer and Lynparza in late stage
prostate cancer, which led to a chart breakout for the stock. If these
trials lead to FDA approvals, they will likely increase AZN’s already
growing marketplace footprint for its oncology division which had $4
billion worth of sales in the first half of the company’s current fiscal
Meanwhile, the company is expecting big things, having signaled very
positive guidance numbers for the second half of the year, powered
by its new medicines along with rising pipeline expectations. Indeed,
AZN, who’s most recent glory days were in the 1980s and 1990s has been
stealthily transforming into a biotech cancer powerhouse, while improving
on its diabetes and cardiovascular franchises.
Furthermore, aside from a very positive and evolving story plus a
great price chart, the internal technicals for the stock are very encouraging,
as AZN is nearing a breakout of its On Balance Volume (OBV) just as
its Accumulation Distribution (ADI) is starting to turn up. These are
both signs that money is moving into the shares. Moreover, as long
as the stock can stay above $43 it has the potential to move the mid
50s over the next six months barring a general market meltdown. Finally,
AZN just declared a $0.90 per share dividend for holders of record
on August 9.
NYAD is still in Recovery Mode
The New York Stock Exchange Advance Decline line (NYAD) has been
the most accurate indicator of the stock market’s general trend since
the presidential election of 2016, which is why its current posture
suggests that caution is still warranted in this market.
The big and very worrisome technical development is that the NYAD,
the S & P 500 (SPX) and the Nasdaq 100 (NDX) indexes are all in
similar postures to where they were before the October 2018 bear raid.
Certainly NYAD may be in the early stages of what could be an intermediate
term bottoming process, but until it can stay above its 20 day moving
average and eventually make a new high, its actions are cautionary.
Nevertheless, the market has not sounded the all clear, as the S & P
500 (SPX) and the Nasdaq 100 (NDX) indexes both failed to close the
week above their 50 day moving averages, which means that any further
weakness could lead to a break of recent support and perhaps a new
and more aggressive down leg.
Alertness and Prickly Selectivity are this Market’s best
When markets move hundreds of points in response to a tweet by President
Trump or anyone else, it’s a signal that traders are on edge and that
risk is higher than normal. Paradoxically, given the fact that global
central banks are now on a lower rate trajectory, it’s also not a good
idea to give up on stocks altogether.
The bullish side of things is that although the pickings are not
as plentiful as they were in December and January, there are still
areas of the market where choosy investors could find places to put
their money, at least for now.
So, if you stay alert, patient, and hedge your bets while being precisely
picky in what you own, you are more likely to pick winners in this
market, unless the whole thing breaks down as it well could if the
technicals don’t improve quickly.
It may also be useful to hope that no one tweets in your general
Joe Duarte has been an active trader and widely recognized stock
market analyst since 1987. He is author of Trading
Options for Dummies, rated a TOP
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