Last week we were concerned the market could get a haircut. Wall Street went straight buzz cut last Thursday. Freefalling off post-covid highs splintered bullish trend lines and put the rebound in serious jeopardy.
This week started off with a thud, prices dropping aggressively at the opening bell. But then, buyers returned with the indexes staging a major reversal and rebound. Ordinarily, dramatic U-Turns from deep red to dark green are big time bullish. However, last week’s action simply gave us a near term top and bottom.
For now, Investors are just dancing in the middle until one of the guardrails is broken. If buyers win and carry prices through the lid, then the bull sees red and charges higher. On the other hand, should sellers gain control of the wheel and crash through the bottom rail, then bears could be on the hunt to devour profits.
As one might expect, our market measuring sticks took a hit last week. Momentum is barley bullish after Monday’s jump, leadership remains in plus territory and the market type moved to sideways and volatile. That means we could see some major moves up and down, but when you add it up, prices might end up close to where they started.
A lot probably depends on the street’s interpretation of second quarter earnings season, which will get started in three short weeks. Ah, but who knows, the way 2020 is going, the world might really end before then (https://nypost.com/2020/06/13/reading-of-mayan-calendar-suggests-end-of-the-world-is-next-week/).
It won’t be the actual results that matter. Instead, it will be forward guidance for the third quarter, giving investors insight into how the economy is rebounding. If executives see results moving towards normal, then the stock market is likely to pick up where it was prior to coronavirus. On the other hand, if third quarter guidance is underwhelming, it’s likely to spell trouble.
Another wildcard will start to make its mark as well, the Presidential Election. Many times, for better or worse, stock prices can move in tandem with the incumbent’s poll numbers as we move closer to election day. Not necessarily because traders are picking a side, rather Wall Street doesn’t like uncertainty. Everybody knows what to expect from a sitting President; whereas, the challenger is less predictable, no matter what they say/promise.
Technology stocks were the driver of the COVID-19 rebound and were the least affected during last week’s nosedive. Investors who feel like they missed out on tech’s run might consider an exchange traded funds (ETF) like Technology Select Sector SPDR Fund (XLK) or SPDR FactSet Innovative Technology ETF (XITK).
XLK is in a similar position as the indexes, trading between guardrails. Meanwhile, XITK is on the verge of breaking out to new highs. If it can get past $140, it is likely to race higher.
Zoom Video Communications, Inc. (ZM) is a big driver for SPDR FactSet Innovative Technology ETF’s (XITK) performance as its top holding. The web-conference company is breaking out to new highs as we type and is likely to go higher in the near-term. But, buyer beware, it is expensive by most valuation metrics.
We will zoom past ZOOM in XITK’s portfolio of well-known and some essentially anonymous companies to seek more value. Of the nearly 100 companies in the ETF’s holdings, SolarEdge Technologies, Inc. (SEDG) offered the best combination of fundamentals relative to the rest of its XITK peers, in our opinion.
May all your longs go up and your shorts go down!