Stocks ended last week on a sour note. Perhaps, Wall Street read last week’s newsletter and came to grips with valuations and 2021 earnings expectations. Although, based on what we’ve heard from President Joe Biden, stocks should continue to have the wind at their backs early in his administration.
In his economic address, Biden called for a $1.9 trillion rescue package. Meanwhile, the Federal Reserve should continue to hold interest rates near all-time lows. Big government spending and low interest rates has been the prescription for higher stock prices for a long time. Why would that change now?
That doesn’t mean profit taking is off the table. The NASDAQ is standing right on the bottom of its recent upward trend. If the index closes under 12,900ish, it breaks the trend and would likely trigger additional selling. Otherwise, the routine has been buy at the bottom of the trendline and sell at the top trendline. If stocks bounce higher at the start of the week, then the trend will continue to be your friend.
Hopefully, technicals and a non-eventful inauguration, fingers-crossed, lifts stocks in the week ahead. Fundamentals should take center stage next week as fourth-quarter earnings announcements move into full-swing.
ETFMG Alternative Harvest ETF (MJ) was far and away the top performing sector on our scorecard last week. Investors have high hopes for weed as the incoming administration signaled they’ll legalize marijuana during their term. Investors who want into the marijuana market might get a better price on MJ with some patience. The exchange traded fund (ETF) is deep into overbought territory and looks ripe for some profit taking.
As much as we’d like to hop on some of the hot performers, their charts scare us away. We have to go to the middle of the pack to find a price trend to our liking. Utilities Select Sector SPDR Fund (XLU) has consolidated since early December. Upward momentum could take the ETF above resistance at $63ish. If so, XLU could be in for a nice 5-7% run in the months ahead.
After analyzing the stock charts for the XLU’s holdings, we like the look of WEC Energy Group, Inc. (WEC) the best. The Milwaukee based electric provider’s shares have slipped since the middle of November, falling from $105-ish. WEC may have bottomed out at $84.44 last Tuesday. At a minimum, Tuesday’s low gives us a sense of downside, where we would take our losses and run.
If WEC were to close below $84, adios. Otherwise, a positive technical buy signal could lead to a near-term run to $95; after that, a potential return to triple-digits.