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Alan Farley

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The S&P 500 index has been battered and bruised in the past six weeks, dropping nearly 35% before bouncing on March 24, but not all components have suffered equally. A handful of mavericks are bucking the downward tide, selling products and services that could benefit from the pandemic or exhibiting usual relative strength that is hanging tough at higher support levels, despite intense selling pressure.

There aren’t many surprises near the top of the index performance list, with video-conferencing and blue-chip biotech companies leading the charge. Even The Kroger Co. (KR) in the seventh slot makes perfect sense, given the mad rush to stock up pantry shelves to deal with weeks or months of quarantine and shelter-in-place orders. Other leaders aren’t quite as intuitive, like gaming software and hardware manufacturers, which are holding relatively close to rally highs.

Citrix Systems, Inc. (CTXS) makes cloud-based video conferencing software. This is one of the stocks that mysteriously found its way into the portfolio of Georgia Senator Kelly Loeffler after her briefing on the coronavirus in late January. Looking back, bullish price action pierced five-year resistance in the upper $60s in 2016, generating a strong uptrend that topped out near $117 in the third quarter of 2018.

The stock carved a bull flag into August 2019 and turned sharply higher, breaking out to a new high at the same time that outbreak headlines hit the news media. That impulse stalled quickly, yielding a vertical decline that shook out a large supply of weak hands, ahead of a recovery wave that hit new highs nearly two weeks ago. Expect high volatility if you want to own this issue because predatory algorithms are doing their best to shake out short-term traders.

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Regeneron Pharmaceuticals, Inc. (REGN) is developing antibodies to combat the coronavirus. The stock posted an all-time high above $600 in the third quarter of 2015 and turned lower, finding support at the 50-month exponential moving average (EMA) near $350. It carved a series of lower highs and lower lows into 2019’s five-year low at $271 and bounced, carving a strong advance that pierced the trendline of lower highs in February. Price action has been testing that resistance level for the past six weeks.

Accumulation readings have surged in the past two months, lifting the on-balance volume (OBV) accumulation-distribution indicator to the highest high since September 2017. The current conflict has unfolded at the narrowly aligned .618 Fibonacci retracement of the four-year downtrend and the .786 retracement of the 2017 into 2019 selling wave, with a breakout opening the door to a long-awaited test at the bull market high.

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NVIDIA Corporation (NVDA) stock is trading more than 50 points below February’s all-time high at $315, but the graphics card giant is still holding the 50- and 200-day EMAs, unlike the vast majority of the big tech universe in March. The company is benefiting from a surge in online gaming by Americans who have been sent home to spend their time working for their employers rather than playing “Fortnite” or “Call of Duty.”

The stock topped out at $293 in October 2018 after a historic uptrend that started in the upper teens in 2015. It sold off more than 50% into December and tested that level successfully in June 2019, ahead of a recovery wave that completed a round trip into the prior high in February 2020. The subsequent breakout failed a few days later, triggering a 135-point decline, but the stock has recouped nearly 80 of those points, suggesting that there’s plenty of firepower for an eventual test of the rally high.

The Bottom Line

A few S&P 500 components have shaken off intense selling pressure and could hit new highs in coming months.

Author: Alan Farley

Source: Investopedia: The 3 Strongest Stocks in the S&P 500

Short- and long-term bond yields have crashed to all-time lows in reaction to the coronavirus slowdown and the Federal Reserve’s 50-basis-point rate cut. Low yields will encourage risk taking through equities and real estate, but they’re unlikely to restart the slumping economy because money is already “cheap” and employers have entered a defensive mode that is focused on survival rather than debt assumption.

The bond rally has contributed to a perfect storm for high-yield stocks, which now pay far more than bonds or bank accounts. This group is also highly defensive as a rule, filled with soup and cereal companies that are built to withstand economic downturns and even bear markets. We saw the first wave of a fresh rotation into these instruments during Monday’s big bounce when defensive plays outperformed FAANG and other growth stocks by a wide margin.

However, not all high-yield stocks offer sound investing choices. Specifically, companies under extreme stress and long-time laggards raise dividends because it’s the only way to attract buying interest. There isn’t much point owning an equity that pays a 5.00% dividend when it’s dropping 15% or 20% per year on average. Exxon Mobil Corporation (XOM) offers a perfect example, paying a hefty 6.46% yield, but the stock topped out six years ago and just hit a 15-year low.

Verizon Communications Inc. (VZ) currently pays a 4.29% forward dividend yield. The stock posted an all-time high at $64.75 in 1999 and entered a multi-year downtrend that finally bottomed out in the low $20s during the 2008 economic collapse. It surged off the low into the new decade, lifting to $54.31 in 2013. Gains since that time have been modest, to say the least, with the stock trading less than three points above that peak in Wednesday’s session.

However, the slow grind against multi-decade resistance has lifted the 50-month exponential moving average (EMA) to the highest level in the stock’s public history. Taken together with solid accumulation readings, the long-term outlook is excellent, predicting an eventual breakout to new highs. Shareholders can collect the impressive dividend while waiting for that event, which could come more quickly if U.S. courts affirm the repeal of net neutrality laws.

Campbell Soup Company (CPB) currently pays a 2.92% forward dividend yield, which isn’t as exciting as other safe-haven plays, but the stock has been gaining ground in a steady uptrend since posting a seven-year low at the start of 2019. A well-executed reorganization plan has underpinned the 50% return before dividends in the past 14 months, illustrated by this morning’s impressive second quarter 2020 earnings report.

The stock topped out at $62.88 in 1998 following a multi-year uptrend and entered a long-term downtrend that bottomed out in the upper teens in 2002. A shallow 14-year uptrend stalled just five points above the prior peak in the summer of 2016, giving way to a painful and long-lasting downturn into the 2019 low. The stock has now retraced just half of the prior losses, indicating plenty of potential upside in coming months.

Dominion Energy, Inc. (D) and other utility plays offer traditional high-yield exposure and safe-haven status. This stock pays a 4.47% forward dividend yield and is also trading relatively close to an all-time high, allowing shareholders to enjoy the financial benefits of both worlds. Just keep in mind that political factors can influence these issues because many are highly regulated by state and local governments.

A multi-year uptrend topped out near $80 in 2015, giving way to a pullback that found support in the mid-$60s. A 2017 breakout attempt failed, reinforcing range resistance, ahead of a major decline that dumped the stock to a six-year low in June 2018. It has been on the recovery trail since that time, breaking out to a new high just 10 days ago. The coronavirus outbreak has triggered a failed breakout, but this pullback could eventually offer a low-risk buying opportunity near $80.

The Bottom Line

High-dividend stocks could outperform growth and cyclical issues in reaction to the lowest bond yields on record.

Author: Alan Farley

Source: Investopedia: 3 High-Dividend Stocks to Survive the Correction

The SPDR Select Sector Health Care ETF (XLV) sold off more than 3% in sympathy with broad benchmarks in Monday’s session, but it’s likely that Bernie Sanders’ ascension to Democratic front-runner contributed to the decline. The candidate has called for a dismantling of America’s private health care system, replaced by a government-run Medicare-for-All. Pundits don’t believe that this legislation would pass congressional muster, but we’ve learned in the past four years to expect the unexpected from Washington D.C.

The health care sector has been under fire since the election of Barrack Obama in 2008, with the original legislative debate going through all sorts of gyrations intended to wrest power from the industry. The Affordable Care Act, also known as Obamacare, rose from the ashes of that dispute, but the current front-runner for the Democratic nomination wants to throw out what remains of the now-popular law and take sick Americans on a journey into unknown territory.

Health care providers have come under periodic fire in the last decade, but their stocks have shaken off those headwinds, booking healthy profits under the new law. However, key players that include Dow component UnitedHealth Group Incorporated (UNH) have walked away from the program, instead focusing their efforts on more profitable employer and group health care plans. High-deductible coverage options have exploded all across the industry during the same period, infuriating policyholders while making a government-run solution seem more palatable.

The SPDR Select Sector Health Care ETF tested the 2001 low at $21.00 in 2009, finding support 63 cents above that level, ahead of a recovery wave that reached the 2008 rally high at $37.89 in 2012. The subsequent breakout attracted intense buying interest, lifting the fund into the mid-$70s in the third quarter of 2015. A modest correction into 2016 ended in the mid-$50s, giving way to a slow-motion uptick that reached new highs in the second half of 2017.

Channeled price action into January 2020 mounted the triple digits at the same time that the stock hit channel resistance, yielding a trading range bounded by support at the 50-day exponential moving average (EMA) and psychological $100 level. The fund sold off to support on Monday and is trading lower by a few cents on Tuesday, waiting for the next large-scale impulse, higher or lower. A breakdown would bring 2019 support in the low $90s into play, while the 200-day EMA in the upper $80s marked a major line in the sand for sector bulls.

UnitedHealth Group hit a seven-year low at $14.51 in the fourth quarter of 2008 and turned higher, completing a round trip into the 2005 rally high in the mid-$60s in 2013. The subsequent breakout gathered momentum into the 2015 high at $125.99, ahead of a one-day correction during the August mini flash crash. The stock rallied to a new high in the second quarter of 2016 and posted steady gains into the December 2018 high at $287.94.

It was a tough year in 2019 for the health care giant, with a multi-wave sell-off finally ending at an 18-month low near $200 in April 2019. A third quarter decline posted a slightly higher low on the first trading day of October, completing a double bottom reversal that set the stage for a sustained uptick into 2018 resistance The stock broke out at year end, lifting into an all-time high at $306.71 last week.

This week’s decline has triggered a failed breakout over the 2018 high and psychological $300 level, igniting sell signals that raise the odds for a test at the narrowly aligned February low and 200-day EMA between $265 and $270. Ominously for bulls, the Oct. 15 gap between $220 and $232 remained unfilled and could generate a magnetic target if dip buyers don’t show up at short-term support.

The Bottom Line

Health care stocks are retreating in reaction to macro headwinds and the rise of Bernie Sanders in the 2020 presidential race.

Disclosure: The author held no positions in the aforementioned securities at the time of publication.

Author: Alan Farley

Source: Investopedia: Sanders Ascension Taking a Toll on Health Care Stocks

Dow component Exxon Mobil Corporation (XOM) sold off to a nine-year low on Friday after missing modest fourth quarter 2019 earnings per share (EPS) expectations by $0.04, marking the sixth time in the past nine quarters that the energy giant has missed estimates. Revenues fell 6.6% year over year to $67.17 billion, adding to a 15% decline in the third quarter of 2019. Revenues have now fallen in each of the past four quarters.

A hefty 5.60% forward dividend yield has failed to attract buying interest, with the company frustrating Wall Street analysts with a belt-tightening program to build cash flows during the longest expansion in U.S. history. Analysts took note of poor fourth quarter results, with Cowen and Goldman Sachs issuing downgrades. Expect more to follow in coming sessions, underpinned by a potential first quarter 2020 revenue squeeze as a result of the coronavirus outbreak.

Rival Chevron Corporation (CVX) hasn’t fared much better in recent years, reporting a 14.2% year-over-year revenue decline last week, but Chevron stock is still holding above critical support at the December 2018 low. Cowen also downgraded this stock in a Monday morning note, highlighting growing sector headwinds that have dropped the Dow Jones Industrial Average’s only two energy plays to the bottom of the component performance list.

Unfortunately for both companies, political headwinds continue to grow and could affect their value for many years to come. Several Democratic candidates want to tax the industry heavily to reduce fossil fuel use, while European climate activists that include Greta Thunberg want hedge funds to dump 100% of their traditional energy holdings. This type of pressure is likely to grow through the decade as the impact of global warming and rising seas makes radical solutions seem more palatable.

XOM Long-Term Chart (1995 – 2020)

Rapid price appreciation escalated in the mid-1990s, with the dismantling of the military-industrial complex following the fall of Communism opening new markets around the world. The uptrend topped out in the mid-$40s in the fourth quarter of 2000, giving way to a multi-wave decline that found support at a four-year low in the upper $20s in 2002. The subsequent recovery wave completed a round trip into the prior high in 2004, triggering an immediate breakout.

Exxon Mobil stock posted strong gains during the mid-decade bull market, underpinned by rapid industrialization in China and other BRIC nations. The rally stalled in the mid-$80s in 2007, yielding two failed breakout attempts, followed by a vertical decline during the 2008 economic collapse. The downtrend ended in the mid-$50s in November, but the subsequent bounce failed a few months later, yielding a secondary downdraft that undercut the prior low in 2010.

Bulls took control into 2014, completing a 100% retracement into the 2007 high, followed by a breakout that posted an all-time high at $104.76. It failed the breakout in October, setting off a persistent downtrend that held in the mid-$60s in 2015. Unfortunately for bulls, that trading floor broke in 2018, yielding a multi-year low, followed by modest 2019 recovery wave. This bullish impulse also failed, generating an aggressive sell-off that has now dropped the stock to the lowest low since 2010.

The sell-off has broken support at the 50% retracement of the 12-year uptrend, exposing continued downside into the 2010 low, which is sitting on the 62% retracement. That level marks exceptionally strong support, indicating that the downtrend could end six to eight points below Friday’s closing print. The monthly stochastics oscillator has just entered the oversold zone, with both technical elements telling sidelined investors to wait until that price zone is reached because it could offer very favorable reward-to-risk setup.

The Bottom Line

Exxon Mobil stock has sold off to a nine-year low in reaction to weak earnings but could bottom out in the upper $50s in coming months, offering a long-term buying opportunity.

Author: Alan Farley

Source: Investopedia: Exxon Mobil Stock Could Bottom Out in 2020

Costco Wholesale Corporation (COST) stock surged 2.8% to an all-time high on Tuesday after Oppenheimer upgraded shares to “Outperform” and set a new price target at $336. The bullish call follows a September downgrade, highlighting the reduction of headwinds achieved by the phase one trade deal and the United States-Mexico-Canada Agreement (USMCA) agreement. Analyst Rupesh Parikh noted that Costco stock has underperformed the S&P 500 since August and could now play catch-up in a fresh buying surge.

The big box giant reported impressive 9.0% year-over-year comparative sales growth during the 2019 holiday season, compared to the 3.4% sector-wide increase reported by Mastercard Incorporated (MA) on Dec. 26. In addition, Costco stock is no longer technically overbought after grinding through a four-month trading range, raising the odds that this assault on new highs will attract significant buying power in coming weeks.

COST Long-Term Chart (1997 – 2020)

A 1997 breakout cleared 11-year resistance in the mid-teens, generating a powerful trend advance that topped out at $60.50 in April 2000. The stock dropped like a rock in the next two months, giving up more than 50% of its value before finding support in the mid-$20s. It traded within those range boundaries for the next seven years, ahead of a successful test at range support in the first quarter of 2003.

The subsequent uptick completed a round trip into the prior high in 2006, yielding more than a year of narrow sideways action, followed by a 2007 breakout that peaked in the mid-$70s in the summer of 2008. The stock fell about 50% during the economic collapse, holding 13 points above range support at the March 2009 low. That marked a historic buying opportunity, ahead of a steady advance that completed a 100% retracement into the 2008 high in 2011.

An immediate breakout eased quickly into a rising channel that persisted into the February 2015 high at $156.85. The subsequent decline broke channel support during August’s mini-flash crash, but Costco stock bottomed out in that session and bounced into a new channel that held intact into a June 2018 breakout. The stock has maintained this bullish trajectory into 2020, despite a steep decline in the fourth quarter of 2018.

The monthly stochastics oscillator, which hasn’t dropped into the oversold zone since 2015, crossed into a buy cycle in March 2019 and reached the overbought zone in May. It has held that lofty level for the past nine months, signaling impressive relative strength that could persist through most of 2020. Remarkably, the indicator came within a session or two of a major sell signal prior to this week’s upgrade and breakout to a new high.

COST Short-Term Chart (2017 – 2020)

The on-balance volume (OBV) accumulation-distribution indicator topped out in 2015 (red line) after a long accumulation phase and dropped into a sideways pattern that persisted into a breakout in the third quarter of 2018. It tested new support for six months and took off in the strongest buying surge in five years, posting a long series of new highs. This bullish activity, when taken together with years of channeled price action, points to long-term institutional sponsorship that is likely to persist through the early years of the new decade.

Sidelined investors looking to get on board can buy right here if they have relatively high risk tolerance. More conservative players can wait for a pullback that might undercut new support at $307 and target the Jan. 9 unfilled gap between $295 and $297. That decline would also test the rising 50-day exponential moving average (EMA), suggesting that it would attract a healthy supply of dip buyers ahead of a potential bullish advance into the $330 to $350 zone.

The Bottom Line

Costco stock broke out above four-month resistance after a major upgrade and could reward shareholders with superior gains in the coming months.

Author: Alan Farley

Source: Investopedia: Costco Stock Breaks Out After Analyst Upgrade

The Charles Schwab Corporation (SCHW) turned the discount brokerage industry upside down in October 2019, cutting commissions on equity and options trades to zero.(See also: Schwab Cuts Base Commissions to Zero.) The move, intended to challenge Robinhood and other rapidly growing internet innovators, was matched quickly by other competitors, setting off an industry decline that dropped shares of TD Ameritrade Holding Corporation (AMTD) and E*TRADE Financial Corporation (ETFC) to multi-year lows.

Schwab followed up with November’s blockbuster news that it would acquire Ameritrade in a $26 billion all-stock transaction that is expected to close in the second half of 2020. The one-two punch has had a tremendously positive effect on Schwab stock, ending a six-month decline that dropped America’s largest discount brokerage to the lowest low since 2016. More importantly, it is now positioned perfectly for impressive 2020 returns.

The brokerage industry has struggled with lower trading volumes in recent years, driven by investors transitioning out of individual stocks and into passive management schemes that buy and sell popular sector finds. The rapid rise of artificial intelligence has also taken a toll, with algorithms undercutting traditional managed accounts, buying and selling funds within the parameters of pre-chosen allocations and goals.

Schwab’s automated “Intelligent Portfolios” now comprise a large share of investor capital, while the upcoming acquisition will allow the company to scale operations even farther, using its enormous size to lower third-party transaction costs. The move is likely to signal the demise of several start-up and traditional rivals in coming years, establishing the financial powerhouse as the Google of discount brokers

SCHW Long-Term Chart (1990 – 2019)

The stock turned sharply higher through the 1990s, posting seven stock splits into the April 1999 high at $51.69. That marked the highest high for the next 19 years, ahead of a bear market decline that relinquished more than 85% of Schwab’s value into March 2003. That marked a historic buying opportunity, ahead of a healthy mid-decade advance that stalled at the 50% sell-off retracement level in the summer of 2008. It posted a higher low in the low teens during the economic collapse but undercut that level in 2011, dropping to a six-year low at $10.56.

Committed buyers lifted the stock through 2008 resistance in 2014, but the rally made little headway, topping out in the mid-$30s just before the August 2015 mini flash crash. It posted a two-year low in February 2016 and turned higher once again, breaking out to new highs in a strong uptrend that completed a round trip into the 1999 high in December 2017. A 2018 breakout attempt failed after posting an all-time high at $60.22, setting off an intermediate correction that continued into the October 2019 commission announcement.

SCHW Short-Term Chart (2017 – 2019)

The monthly stochastics oscillator fell to the deepest oversold reading since 2011 in 2018 and crossed over, establishing a long-term buy cycle that is just now reaching the overbought zone. This placement predicts that additional gains are likely in the next one to three months, perhaps lifting the stock back above the 1999 high (red line). More importantly, it is now digesting the last remnants of multi-decade resistance, raising the odds for a historic breakout in 2020.

The on-balance volume (OBV) accumulation-distribution indicator broke out to a new high after the October catalyst while price gapped up to the .618 Fibonacci retracement level of the 2018 into 2019 decline. This marks a common reversal zone, so a downturn and gap fill is possible here, with the 50-day exponential moving average (EMA) now lifting into that support level. Taken together, a pullback into the mid-$40s could offer an excellent buying opportunity, ahead of rapid gains in the new decade.

The Bottom Line

Charles Schwab could dominate the discount brokerage industry in 2020 and beyond, making the stock a top pick for investors seeking superior returns.

Author: Alan Farley

Source: Investopedia: Charles Schwab Stock: A Top Pick for 2020

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