Up, up…. And the DOW finished in the plus column for the seventh day in a row. The senior index was the top performer last week, which is not surprising as the DOW had a lot of catching up to do. Enjoy the run as some profit taking is likely right around the corner.
The S&P and DOW are cranking our relative strength reading close to 70. Generally speaking, 70 is the upper guardrail and 30 is the lower guardrail. Sellers tend to show up when levels hit 70 and buyers hit the switch at 30.
With the economy apparently on the upswing and more stimulus coming from the Federal government, any profit taking should have a limited lifespan. As such, investors might consider buying any dip and adding to their strongest performers.
Earnings should continue to be a driver for stock prices as companies deliver bullish surprises at the strongest pace in at least seven years. Quarter to date, 363 of the 447 (81.2%) S&P 500 companies that have released their financial report cards made the honor roll, exceeding Wall Street’s consensus estimates. Heavily discounted top lines have shined too with 269 of the 447 (60.7%) generating more revenue than predicted.
Analysts project S&P 500 earnings of $23.77 for the second quarter. That’s up from $19.50 in Q1. As things stand right now, Wall Street believes earnings will rise dramatically in the third quarter to $31.82. Although that’s not back to pre-COVID levels, such a robust rebound would likely build corporate confidence and possibly accelerate the economic recovery.
By the first quarter of next year, analysts believe earnings will bypass pre-COVID levels and seem to expect a blisteringly good 2021. If they are right, stocks should follow suit and be considerably higher by this time next year – fingers crossed.
Community and Regional banks moved to the top our sector performance leaderboard last week. Oil and gas also put in a good week’s work, checking in at number three. But the one that caught our eye, a least a little bit more than the rest, is SPDR S&P Aerospace & Defense ETF (XAR).
By now, you’d have to be Air-bnbing’ Theodore John Kaczynski’s home in the woods to not know the coronavirus caused devastation to the Aerospace industry. There are glimmers though, this past weekend had the most air travelers since the lockdowns ended, but still down almost 70% year-over-year. The more people travel by air without getting sick, the faster the industry can find some normalcy. Whatever that turns out to be?
XAR just broke out of and extended sideways trading range and has underperformed the markets by a wide margin. If buyers do take some time off in the next few days or so, support at $90 might be a nice entry point.
Virgin Galactic Holdings, Inc. (SPCE) just completed a secondary offering of shares at $19.50, raising more than $450 million for the budding spaceship company. SPCE traded as high as $27.50 three weeks ago. News of the secondary offering drove the stock lower. Shares caught a bid today and buyers returned right above its 50-day moving average of $18.65.
Virgin Galactic Holdings isn’t expected to turn a profit anytime soon, but sales are forecasted to liftoff, from $2.69 million this year to $98.13 million in 2021. That sort of topline growth is going to catch the attention of a lot of individual and institutional investors.
It’s a high risk, high reward play. However, we probably have seen the worst of it for SPCE with its COVID low of $6.90; whereas, its 52-week high is $42.49. If they can hit their 2021 sales mark, we would not be surprised to see the stock in that neighborhood again. Shorter-term, experience says equity prices tend to recover lost ground due to secondary offerings, sometimes rather quickly.
May all your trades be profitable,