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8/27/2019 10:14:05 AM Eastern Time

NICE BOUNCE
By Charles Payne, CEO & Principal Analyst

 Click here to download PDF version

Yesterday, calmness returned to the market, but it happened on a late August day on Wall Street, which means light volume and skewed outcomes.  

Big news from the G-7 meeting came from a one-page communique that acknowledged the World Trade Organization (WTO) is antiquated and needs to be “modernized.”  I take that as a de facto admission China has flouted the rules and the rest of the G-7 supports the United States.

This is better than trying to rally the troops: getting Europe to ignore the riches of China’s Belt and Road Initiative (BRI), which would be harder to come by if they took a more forceful stance.

So, the market rallied with all 30 stocks in the Dow closing higher, and all sectors other than Materials finished higher.

S&P 500 Index

+0.84%

 

Communication Services (XLC)

+1.17%

 

Consumer Discretionary (XLY)

+0.70%

 

Consumer Staples (XLP)

+1.01%

 

Energy (XLE)

+0.25%

 

Financials (XLF)

+0.80%

 

Health Care (XLV)

+0.83%

 

Industrials (XLI)

+0.41%

 

Materials (XLB)

 

-0.05%

Real Estate (XLRE)

+0.54%

 

Technology (XLK)

+1.14%

 

Utilities (XLU)

+0.78%

 

The market breadth was fine - new lows dwarfed new highs, underscoring the lingering carnage.

Market Breadth

NYSE

  • Advancers: 1,968
  • Decliners: 972
  • Up volume: 2.07 billion
  • Down volume: 805.3 million
  • New highs: 61
  • New lows: 133

NASDAQ

  • Advancers: 2,054
  • Decliners: 1060
  • Up volume: 1.22 billion
  • Down volume: 490.2 million
  • New highs: 36
  • New lows: 138

More on Durable Goods

Karina Hernandez: Research Analyst, Wall Street Strategies

With talks of a recession along the way, I crunched the numbers of the latest second quarter (Q2) Gross Domestic Product (GDP) report, understanding their numbers to a broader scale. Personal consumption expenditures remain strong at 4.3%. Private investment tumbled 5.5% due to challenges in global growth and tariffs.

I saw a trend in private investment from 2015-2016, where private investment fell into a "recession," possibly due to oil prices. However, the overall economy did not contract due to strong consumers. My thesis is that from what's yet to come will heavily depend on consumers.

See my in-depth segment, where I shared my letter to the Business Roundtable:

https://www.facebook.com/CharlesPayneFox/videos/435807913689540/

The United States of America-China Chamber of Commerce (USCCC) branch shows cracks in the notion American businesses can’t or won’t move supply chains. Moreover, only 30% say they are in China to make stuff to export to the United States. That’s great news and should be articulated, as the public demands more accountability.

If you have relocated or are considering relocating China-based manufacturing facilities to other

countries because of the tariffs, where have you located, or where are you relocating to (check all that apply)?

Options

Responses

Percentage

No plans to relocate

144

60.3%

Southeast Asia

59

24.7%

Mexico

25

10.5%

Indian Subcontinent

20

8.4%

United States

14

5.9%

What specific outcome of any trade deal is the most important to your company?

Options

Responses

Percentage

Return to status quo

102

42.7%

Equal enforcement of Chinese regulations for foreigners

35

14.6%

Increased market access

29

12.1%

Improve IPR protection

24

10.0%

End Chinese industrial policies

17

7.1%

Purchase more U.S. goods by China

7

2.9%

What is your primary strategy in China?

Options

Responses

Percentage

Produce goods or services for China market

103

43.1%

Produce goods or services for U.S. market

30

12.6%

Produce goods or services for markets other than China and the U.S.

22

9.2%

Approach

As we took profits on two positions on Consumer Discretionary and Materials, we lowered our weight on materials and raised cash.

Communication Services

Consumer Discretionary

Consumer Staples

1

2

1

Energy

Financials

Healthcare

1

1

2

Industrial

Materials

Real Estate

3

2

1

Technology

Utilities

Cash

2

0

4

 

Today’s Session

What the Heck?

During the last several weeks the market has seen brutal volatility that has left many investors shaken, although the market’s resolve seems to underscore most are hanging in there. 

This morning equity futures have improbably been trending higher.  The two biggest down sessions over the last four weeks were triggered by events that were supposed to spell doom. 

Date

Event

Dow Jones

August 5, 2019

Yuan moves below 7 to one dollar

-768 points

August 14, 2019

Two and ten yields invert

-800 points

This morning the market seems to be yawning instead of panicking which leads me to ask what the heck is going on. 

The two- and ten-year yield have been inverted all morning.

  • Two year 1.537%
  • Ten Year 1.515%

The Yuan continues to get weaker against the US Dollar.

  • Yuan 1 = $7.16

If the market can rally against the tide of events that just hit like atomic bombs, then you know there is a serious pent up demand to own US stocks.

Long Idea: DexCom, Inc. (DXCM) @ $176.16
Industry: Health Care; Appliances & Equipment
Click here to view the trading alerts that followed this recommendation

Trading Parameters
Status Closed
Entry Price$176.16
Entry Limitsee comments
Stop LossN/A
Target$210.00
Adjusted Target $215.00


Options Trade Parameters
Status Closed
Type Call
Option Symbol DXCM200117C0
Entry Price $18.30
Strike Price $175.00
Expiration Date 1/17/2020
  Add to Position Tracker

BACKGROUND: DexCom, Inc., a medical device company, focuses on the design, development, and commercialization of continuous glucose monitoring (CGM) systems in the United States and internationally. The company offers its systems for ambulatory use by people with diabetes; and for use by healthcare providers. Its products include DexCom G6, a CGM system for diabetes management; DexCom G5 mobile CGM system to communicate directly to patient's mobile device; DexCom G4 PLATINUM system for continuous use by adults with diabetes; and DexCom Share, a remote monitoring system. DexCom, Inc. has a collaboration and license agreement with Verily Life Sciences LLC and Verily Ireland Limited to develop a series of next-generation CGM products. The company markets its products directly to endocrinologists, physicians, and diabetes educators. DexCom, Inc. was founded in 1999 and is headquartered in San Diego, California.

SKINNY: DXCM posted a strong second quarter, generating record new patient in all lines of business. Guidance remains strong and trending up. Our target is $210.


Key Fundamentals
PEG  1.29
Book Value  7.55
Institutional Holdings  100.25
Price/Sales  6.53
Average Daily Volume  1.07M
Shares Outstanding  91.05M
Market Value  15.93B
Insider Activity  20 Buys 38 Sales
52-week High  176.59
52-week Low  105.05
Annual Earnings Estimate  1.4

Analyst Coverage
 JPMorgan Reiterates  Overweight
 Cowen Reiterates  Outperform
   



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