Stocks are snapping back up today – which was expected after last week registered as the worst for the Nasdaq since late March. Dark Edge Project team members had the chance to grab a one-day 50% gain on half of their AAPL trade not long after the open. Want to know how? Click here to learn more about the Dark Edge Project.
We’ve seen moves like this before, when a minor rotation out of tech is followed by a huge snapback rally. After all, the economy is still hurting, Covid-19 is still loose, and tech is one of the few sectors still making money.
Of course, this past weekend’s headlines helped the broader market. Pharma giant Gilead Sciences Inc. (GILD) announced it’s buying biotech Immunomedics Inc. (IMMU).
Japan’s Softbank Group Corp. (SFTBY) said it’s selling chip designer ARM to Nvidia Corp. (NVDA) for a record $40 billion. Verizon Communications Inc. (VZ) is entering the value market by acquiring prepaid phone plan provider Tracfone.
Last but not least, the long-running saga of Chinese social media TikTok has reached a new phase. Microsoft Corp. (MSFT) and Walmart Inc.’s (WMT) joint bid for TikTok failed, while Oracle Corp.’s (ORCL) is moving forward.
Reports out of China suggest Oracle will be entering into a “partnership” with TikTok rather than outright buying it. We’ll see this week what that really means and whether it passes muster with the White House, which has been pushing for a sale of TikTok’s U.S. assets since the summer.
In short, the market reality is that there is still plenty of stimulus money in the system that’s still pushing things up.
But Big Media would have you think differently. Almost every day now, some new shiny headline is pulled out as the latest bad thing to distract you. Maybe it’s some new angle on the upcoming election, or a development in the new Cold War with China. New outbreaks of Coronavirus are a Big Media favorite, and any hiccups in vaccine development get headlines too.
Now, these headlines will absolutely move markets. But the Reality Gap is that in between those headlines, all the stimulus will keep pushing stocks up, despite how overbought the market has become.
There’s just nowhere else for money to go right now.
That means we’re in for a rocky two months until the election. Instead of the clean shot up we saw in August, stock markets will be volatile now. Expect more pullbacks like last week’s, followed by snapback rallies.
We’re going to have to trade more patiently and more carefully now. Buy on pullbacks, and don’t wait too long before cashing in on rallies.
Three of this week’s earnings reports might be good opportunities to do just that. After markets close today, Lennar Corp. (LEN) will report its latest numbers.
As the largest home construction company in the U.S., it’s certainly going to be a bellwether for the homebuilding sector. And much like the other homebuilders, Lennar has been doing very well recently.
I expect good numbers and strong results.
Tomorrow after the close, both Adobe Inc. (ADBE) and FedEx Corp. (FDX) will report their figures. Adobe just had a big pullback, but I’m expecting good numbers and continued great performance from the company. So if there’s another pullback, buy on the dip.
Adobe deserves a spot in any portfolio.
FedEx, meanwhile, has been surprisingly strong throughout the summer, despite not shipping many of Amazon.com Inc.’s (AMZN) packages anymore. The stock is up 35% in five weeks on the back of other online retail shipping. In short – with the virus accelerating online purchases, there is a shortage of shipping capacity. UPS and the USPS have recently announced new surcharges along with FDX. I expect FDX is going to jump up on blowout earnings, but with the run-up the stock has had, it will sell-off if the report is in any way disappointing.
That’s the kind of volatility we’re going to be seeing from the markets going forward.
Great trading, stay safe out there, and God bless you,
D.R. Barton, Jr.