August 18 Weekly Commentary and Stock Picks

What a difference 10 days make. Ever since VIX spiked to a high of 65 last Monday (8/5), everything is now looking normal, the market rally has rebounded after a brief tumble and has resumed its upward trajectory. As we have noted earlier that when the S&P 500 is above its 50 days Moving averages then stock break outs survive and when it is below its 50 days Moving average line then most stocks struggle. The Stock Market registered its best week of 2024 as the recession fears subside and inflation finally is getting close to the FED target of 2% raising the prospects of interest cuts in September and beyond. Retail sales jumped, while the Jobless claims fell for a second straight week. Stocks were also buoyed by lower Treasury note yields which fell on the weaker-than-expected US housing stars report and dovish FED comments (US housing starts fell -6.8% to a 4-year low of 1.238 million). Markets are therefore discounting the chances at 100% for 25 basis points rate cuts in the September FED announcement.

However, we should also note the following:

1. The rally has recovered to 61% Fibonacci retracement from the recent bottom (both Nasdaq Composite and Nasdaq 100) while S&P 500 has already passed this retracement level), signaling that a short-term pullback could be on the cards.

2. We are entering into a seasonally weaker period of the calendar year. Since 1950s, the period from Mid-August till Mid-October has been the weakest time of the year yielding a negative return. This could be attributed to a short-term pause, post-earnings correction, and a waiting period before the holidays season.

3. US elections are just around the corner. Market volatility normally increases before the US elections.

4. Geopolitical events: Tensions in the Middle East and Europe could also trigger profit-taking and a quick sell-off.

We, therefore, should be nimble and cautious during these times and should only consider investing in those stocks which on the long-term basis have solid prospects to grow steadily. Volatile stocks could swing heavily in either direction causing excessive undesired losses to the investors’ capital. Tech Stocks in particular while providing excellent growth prospects are more sensitive to this volatility and hence should be considered with caution.

Major Indices:

The performance of major Indices is summarized as follows:

Index Friday (8/16) Weekly YTD

S&P 500: +0.20% +3.93% +16.45%

Dow Jones Industrial: +0.24% +2.94% +7.88%

Nasdaq 100: +0.13% +5.47% +16%

Russell 2000: +0.26% +2.93% +5.92%

Important Events next week:

Wednesday: FOMC Meeting Minutes

Thursday: Initial Jobless Claims, Global Manufacturing Index (PMI), Existing Home Sales

Friday: FED Chair Powell speaks at Jackson Hole, New Home Sales

Important Earnings this week:

Monday (8/19): Palo Alto Networks (PANW)

Tuesday (8/20): Lowe’s (LOW), Toll Brothers (TOLL)

Wednesday (8/21): Target (TGT), TJX

Thursday (8/22): Ross Stores (ROST), BJ’s Wholesale Club (BJ), NetEase (NTES),

Cava Group (CAVA), Intuit (INTU)

Actionable Stocks:

Long-Term View: These stocks were mentioned as long-term holdings in our recent commentaries:

MSFT:

Although Microsoft is below its key support of 50-Day EMA, it is holding well at these levels. Aggressive investors could take a low exposure (less than 50%) at these levels with a tight stop loss below 387. Microsoft was hit hard due to its weak Azure Cloud Computing business growth, but it remains a long-term favorite.

NVDA:

Nvidia continues to fight back and is now above 50-days EMA line. It looks like it is setting up for another hike, but seasonal weakness could lead to a short-term pullback. A pullback to 114 area could provide a suitable entry for this long-term stock. It also looks to extend the AI lead by expanding into health care innovations including drug discovery and medical diagnostics. Therefore, it remains a long-term favorite for us.

AAPL:

Behaving like a real long-term leader, Apple has not only come back from 200 levels and now eyeing its all-time highs at 236.96. Seasonal factors, however, could cause short-term pullback but the stock remains our long-term buy.

COST:

Costco is setting up again for a move higher and pullback to its 50 days EMA (833.80) or 20 days (845.41) will provide a better entry for this long-term stock showing consistent upward trend.

Medium- and Short-Term Picks:

NVO:

NVO is forming another base. Currently at 134.89, a better entry point will be around 132 level with a tight stop loss of 8%.

GOOGL:

Still below 5 days moving average. Trying to form a base here. Google has some head winds in terms of a possible action by the Department of Justice for a break-up, but so far, the stock is trying to recover the losses incurred after a recent earnings announcement.

AMZN:

Amazon is trying to clear resistance at lower Bollinger band and 20-days EMA line. Wait once it crosses the 20-Days and 50-Days lines and remains steady at these levels for a better entry because a short-term pullback is expected.

Interesting New Stocks for possible action:

ONON:

The Zurich based company, through its subsidiaries and 10,000 worldwide stores, provides footwear and sports apparel products including ultralight and stretchable fabrics and accessories. The stock is currently actionable in a buy zone from a double bottom entry at 42.4. The stock has shown consistent earning growth and solid performance since last October.

DHI:

Any rate cuts from FED will benefit the Real Estate Sector and housebuilders. D. R. Horton looks attractive, has gained 13% since its last reporting on July 18 and has a P/E of 10.8 compared to 20 of S&P 500. Earnings have been increasing for the last several years and seem to continue this pattern. The dividend yield (0.7%) has also grown steadily over the years and as such Stock seem to have a 20% upside from current levels as per analyst estimates.

RACE:

Earlier mentioned in our Aug 4 commentary, since then RACE has increased by more than 10% and is expected to continue higher as stock is still actionable. However, a pullback from the current price of 459.70 to the top of the last base at 440.15 would provide a better entry.

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