Three “Sell the News, Buy the Dip” Profit Opportunities This Week

Ever since the markets bottomed out in late March, the News Media, many of Wall Street’s analysts, and Big Government have agreed on one thing.

This rally – the fastest market recovery in U.S. history – shows how completely disconnected the market has become from the economy.

After all, unemployment numbers, though they’ve fallen in recent weeks, are still in the millions. Shops have been closed, and the Fed’s Main Street bailout program still hasn’t been launched.

Not to mention that the global data on the COVID-19 pandemic doesn’t look good. New cases globally hit their highest daily level ever just three days ago. Meanwhile, deaths seem to be steady at the 4,000 to 5,000 a day level.

In short, the health crisis is not yet under control, while the economic fallout seems disastrous.

And yet the markets have been soaring. Giving us this week’s Reality Gap: The News Media thinks the markets shouldn’t be going up – but the market is of a very different opinion.

Which brings us to last Friday. Economists and analysts were expecting the Bureau of Labor Statistics (BLS) to report -8 million jobs lost in May, with unemployment rising from 14.7% to about 20%.

Instead, the BLS announced that the economy gained +2.5 million jobs, with unemployment falling to 13.3%.

It seems the job market is recovering much, much faster than analysts and economists – the so-called “experts” – thought. Stocks, of course, took off on the news, and continued to rally on Friday and this morning.

But the bigger picture here may be even more optimistic. This is the first piece of really good news about the economy, and it suggests states reopening is having a large impact. Larger than the experts expected…

But in-line with what the markets were pricing in.

We always knew that either the economists or the markets were wrong about how long and deep the coronavirus slump would be.

Perhaps it’s the markets that were right all along, not the economists. The rally has been pricing in a shorter and less serious downturn than economists were predicting rather than the worst case the analysts focused on. Combined with trillions in stimulus, the effect has been this huge rally.

It could well be that markets had it right, and we don’t have to wait for the other shoe to drop. I’ll have more on this later this week.

In the meantime, there are three earnings reports this week that may mark a temporary pause in their stocks’ rallies.

Chewy Inc. (CHWY), the online pet supply delivery company, reports tomorrow. The stock never really dropped with the rest of the market, and has more than doubled since mid-March to new all-time highs. After all, people still need to feed their pets, making Chewy a great “stay-at-home” stock.

However, with the current share price more than double what it was almost three months ago, the earnings will have to be truly amazing to live up to expectations. Like Netflix Inc. (NFLX) and other stay-at-home stocks, Chewy’s earnings may end up disappointing, despite being really good. Expect this to be a sell-the-news situation.

The same applies to two other stocks, Adobe Inc. (ADBE) on Thursday and Lululemon Athletica Inc. (LULU), both reporting on Thursday. Adobe’s business model is real, sustainable, and very strong, so any sell-off should be milder than Chewy’s or Lululemon’s. But all three would need truly amazing earnings reports not to disappoint the traders that have hyped the stocks up recently.

Sell the news, but all three will turn into good “buy the dip” candidates.

Great trading, stay safe out there, and God bless you,

D.R. Barton, Jr.

P.S.: Subscribers of my newest research service, Dark Edge Project, have been loving the market’s bull run. Just last week, they had the chance to close four trades for profits of 100% each! That brings the total number of 100%+ gains to eight in just over one month.

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