Sep 7 Weekly Commentary and Stocks Selection

Hello readers,

Summer is over and as we mentioned in the last few weeks, September is traditionally a weak month for the Stock Market. But no one expected that the first week of September could be brutal like this. Majority of S&P 500 sectors saw sharp declines with some over 5% in a week:

Sector Weekly Performance

Financials, XLF: -3.17%

Industrial, XLI: -4.24%

Materials, XLB: -4.66%

Utilities, XLU: -0.50%

Health Care, XLV: -2.07%

Energy, XLE: -5.77%

Staples, XLP: +0.58%

Real Estate, XLRE: +0.18%

Communications, XLC: -0.21%

Discretionary, XLY: -2.52%

Technology, XLK: -7.45%

Only two S&P 500 sectors (Real Estate and Staples) registered a positive closing last week, and both are defensive in nature. Utilities fell slightly while the riskier, higher growth-oriented sectors like Technology and Discretionary took it on the chin. Communications escaped a larger decline because of the players like Frontier Communications (+23.37%) and AT&T (+5.38%). Frontier Communications rose sharply after Verizon announced its bid to acquire Frontier Communications at $20 BN as the Telecom industry is bracing for a convergence and merger battle.

The Stock Market rally, which rebounded in August, has suffered a major blow and the downward momentum (or at least sideways consolidation) is expected to continue in the next two months till the US elections. Long-term we still believe that Stock Market is in a Bullish trend, but the sharp declines have led us to foresee unusual bumps in the near future.

When a bear market starts, it often encounters sharp reversals only to sell the rally further down. This happened on Friday when the market was initially higher after unemployment reports but then faded and ended sharply. Not only this, but it also ended close to the bottom which is a bearish signal. S&P 500 and Nasdaq lost their 50 days moving averages and VIX increased to 22.48. Our experience is that when VIX stays above 20 and S&P 500 is below its 50-day moving average, then stocks struggle and even the stronger stocks pull back along with the broader market.

Major Indices:

The recent performance of major Indices is as follows:

Index Friday (5/9) Weekly YTD

S&P 500: -1.73% -4.25% +13.39%

Dow Jones Industrial: -1.01% -2.93% +7.05%

Nasdaq 100: -2.69% -5.79% +9.56%

Nasdaq Composite: -2.55% -5.77% +11.19%

Russell 2000: -1.90% -5.53% +4.14%

The RSP (S&P 500 Equal Weight ETF) also came down below its 20-Days EMA line and declined by -1.07% during the week but it’s decline is modest compared to Nasdaq 100 and S&P 500 leading us to believe that sector rotation is in play and money is rotating from high risk/high growth areas to other value oriented areas like Real Estate and Utilities. In other words, this is a risk-off environment, and investors are shying away from growth areas like Tech and Semis for the time being.

Based on the current market environment, it is recommended to cut down on exposure (especially to the high-risk and growth stocks) and stay focused on companies which have shown resilience, continuous earnings and revenues growth and are expected to continue the same in future. Meanwhile, it also gives us an opportunity to identify these stocks and keep them on our watchlist to buy discounted prices while the overall market environment is pressurizing them.

Important Events next week:

Wednesday: Core CPI (Consumer Price Index), Crude Oil Inventories

Thursday: Initial Jobless Claims, PPI (Producers Price Index), 30-Year Bond Auction

Friday: Consumer Sentiment

Important Earnings this week:

Monday (9/9): Oracle (ORCL)

Tuesday (9/10): Academy Sports (ASO), GameStop (GME)

Thursday (9/12): Adobe (ADBE), Kroger (KR)

Actionable Stocks:

Long-Term View: We still believe that the long-term trend is intact hence if investors have enough cushion on these stocks, then they could hold it for the long-term. In any case, once you have 10-15% profit on any stock then do not allow it to go down and end up in a loss. Cut down your losses or at least close the positions at par. We can always re-enter a stock later.

Long-Term Stocks:

MSFT:

Microsoft came under 400 only to bounce back and then faded. It remains our long-term favorite but in the short-term it is likely again to test its 380 level if market pulls back further.

NVDA:

Nvidia lost 13.86% last week. Line in the sand is 200 days EMA at 93.56 or previous low at 90.69. If NVDA falls to these levels, it is expected to rebound sharply otherwise it is a sell signal.

AAPL:

Apple tested its 50 days EMA and rebounded quickly. Apple investors are waiting for launch of its new iPhone 16-line, products upgrade and anticipated results; therefore, it is performing better than other Tech stocks. Any pullback to 200 level is likely to find buyers.

COST:

Costco lost only 1.76% last week showing its relative strength compared to other stocks. A further pullback to 800 or 793 levels will provide a better entry. Till then, keep it on the watchlist.

Medium- and Short-Term Picks:

META:

Meta also came under pressure along with the broader market sell-off. Keep it on watchlist for a better entry around 439-450 levels.

AMZN:

Amazon is still above its 50-Days EMA line and is likely to t test it again at 167. As mentioned last week, Amazon is well suited to move higher on the medium and long-term basis. Till then let us keep it on our watchlist.

Interesting Stocks for Watchlist:

As stated above, we are looking for stocks which have strong fundamentals, solid product moats and are likely to withstand the short-term market pullbacks. The following stocks seem promising to add to our watchlist and potential buys on pullback to their 50-day or 200-days EMA (Exponential Moving Average) lines:

LLY:

Eli Lilly, the Pharma giant, remains a favorite of fund managers and has shown a steady uptrend since Covid-19. Although down 5.97% last week, the stock is a suitable candidate for long-term appreciation and could be the next one to cross the Trillion-dollar mark. Wall Street is excited about the wave of weight loss drugs and Eli Lilly is one of the leaders in this area.

ONON:

ONON remains strong and is likely to hold its recent low at 42. A sharp pull back to 36 provides a much better entry.

CBOE:

CBOE Global Markets Inc manages options and future market exchanges. The stock has shown strength during the last three months and is likely to continue its trend. But wait for a better entry on a pullback to 204 or 200 amid market jitters.

ZM:

ZM failed to move above its buy point of 75. Till then it is better to wait and watch.

NEE:

As mentioned in last few weeks, this utility stock is ideal to park some money and get a nice dividend (2.55%) along the way. The stock is holding its recent breakout and is likely to move upward and test previous highs of 86.52 once the market stabilizes.

BYDDF:

Tesla’s biggest Chinese rival BYD showed strength and lost only 2.3% last week. Any further pullback to the 26.50 level will provide a better entry with a stop loss around 23 level. This company has led China EV sales with a 9% increase in August from July. Please note that being a Chinese stock, it is highly volatile and could swing 5-10% easily in one day.

IOT:

Samsara provides sensors and cloud-based software to manage vehicle fleets and operates an Internet of Things platform offering GPS tracking. It made a breakout and soared to an all-time high, but it is likely to close the gap at 42.4 before resuming its uptrend. Looks strong for the long-term rise.

NTRA:

Mentioned last week, Natera pulled back slightly but is still in actionable range. It is likely to resume its upward journey after a consolidation pause.

TTD:

Mentioned last week, the Trade Desk is likely to perform well in future amid good fundamentals. It has recently staged a breakout from 102.40 and could provide a test of its recent highs at 114.09

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Disclaimer:

The information provided here is for educational / learning purposes only and should not be taken as purchase or sell recommendations. Trading / Investing in Stocks and derivatives is highly risky and could result in a substantial or complete loss of invested capital.

Employees and Owners of MJ Software LLC are not registered Financial Advisors with FINRA or SEC and for any financial advice please consult a registered financial advisor.