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Morning Commentary

LEAVING THE MADNESS BEHIND

By Charles Payne, CEO & Principal Analyst
1/11/2021 9:36 AM

Friday was an interesting session that saw profit-taking in some of the hottest industries since the March 23rd bottom. Some of those funds trickled into traditional safe havens (Consumer Staples, Real Estate, and Utilities), but the rest found homes in other sectors with Consumer Discretionary leading the way.

The market listened to reports that Senator Joe Manchin was not an automatic yes on a $2,000 household stimulus, and decided he was angling for something else. But his state of West Virginia has the lowest household income of the 50 states, so it is unlikely he would veto that kind of largess.

Interestingly enough, he pressed the issue of Covid-19 vaccine development and distribution, but his state is receiving accolades for the handling of its distribution.

With that in mind, the market is looking at Consumer Discretionary spending to be a big winner. Beyond that sector, there was a general sense investors were just looking to wrap up one of the most eventful weeks in American history and to get some rest.

Keep an eye on Technology, which came on late in the week, but finished lower on the week.

S&P 500 Index

+0.55%

 

Communication Services XLC

+0.31%

 

Consumer Discretionary XLY

+2.06%

 

Consumer Staples XLP

+0.50%

 

Energy XLE

 

-0.12%

Financials XLF

 

-0.06%

Health Care XLV

+0.48%

 

Industrials XLI

 

-0.24%

Materials XLB

 

-0.48%

Real Estate XLRE

+1.08%

 

Technology XLK

+0.65%

 

Utilities XLU

+0.84%

 
 

Profit-Taking

I would be the first to admit there are not a lot of cheap stocks, per se. But I also think traditional valuations based on twelve months out are becoming increasingly ineffective in assessing value and opportunity.

But there are monster gains over the past ten months and some folks are anxious to cash in, so selling could beget selling. Even when the upside moves stall, we could see sellers take over faster than usual.

This is not an indictment on companies - just underscoring a different challenge. It’s not the worst problem to have but selling will unnerve some investors. Take a look at some of the biggest percentage losers: 

Some of these names have had mind-blowing rallies, including Enphase Energy (ENPH),* which is up 489% over the past six months.

These three-month gains are eye-popping, especially in names that are low-Beta and generally slow-moving stocks.
 

Friday Profit-Taking

Session

3 Months

6 Months

Lam Research (LRCX)

-2.5%

+44%

+51%

D.R. Horton (DHI)

-2.5%

-12%

+18%

Zions Bancorporation (ZION)

-2.5%

+53%

+18%

Enphase Energy (ENPH*)

-3.0%

+83%

+489%

Apache Corp (APA)

-3.1%

+72%

+20%

Avery Dennison Co (AVY)

-4.0%

+20%

+29%

Western Digital Co (WDC)

-5.3%

+36%

+12%

 

WSS Approach

We took profits on several names on Friday. We focused on those that had moved extremely fast toward our targets, and those where the value proposition changed slightly.

My goal is to maximize profits but within the confines of risk management. We are looking for greater volatility, and more names to make intraday reversals lower when monster gains take a pause.

Portfolio Approach

Our cash position has gone from zero to 20%.

Today’s Session

The market looks to stumble out the gate in what could become a Monday morning ritual until there are fewer fireworks in Washington, D.C. and more financial results are released.

This is fine with me, as we hiked our cash level and would rather buy names on the watch and buy list at lower levels.

That being said, there is no sign of panic, and all the drivers from macro (massive stimulus and stronger household and big business balance sheets) to micro (great stories from cloud, drug and gene mapping, and other innovations causing paradigm shifts) are still in place.

The market has come a long way, so let’s allow the process of shaking out weak hands and seeing where support is to play out this morning.  If you are not already a subscriber to our premium Hotline service, contact your account representative or email Info@wstreet.com to get started today. 


Comments
It's cool and foggy outside just like the market.

Lorin K on 1/11/2021 11:24:49 AM
I followed your lead on FCEL, great call!

Steve on 1/12/2021 3:48:39 PM
 

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