The stock market finds itself at a crossroads this week, with traders wondering if they’re in a bear market or if the signs blinking flash “all clear.”
At best, last week’s market activity didn’t clarify matters, says TheStreet’s Peter Tchir, as stock trading opened that week with an ominous tone:
-- Equities, bonds and most commodities were all down at the start of the week.
-- That created concern that some risk-parity strategies were in trouble.
-- There was a lot of chatter about the dollar losing its appeal as a reserve currency.
But a series of announcements indicating the possibility of at least a ceasefire in Ukraine, followed by a Fed that bent over backwards to create the so-called "dovish hike" led to an intense rally.
“After that, the Nasdaq 100 rallied more than 10% from its lows,” Tchir said.
That begs the question - is the worst behind eager buyers? Or is what we saw at the end of the week just another upward blip in a broader downtrend since the first week of the year?
Certainly, the Russia-Ukraine war is having a major impact on the markets.
“It seems less likely that we will get a ceasefire in Ukraine after last week,” Tchir said. “There had been some optimism, which I shared, but that has dissipated.”
Without an accord, both parties continue down the path of "Putin cannot win, but he cannot afford to lose either."
China is also a giant market issue
“If China, while saying they don't support the war, keeps buying Russian commodities, engaging in long-term, strategic deals with Russia and even, it seems, acting as their banker, then the sanctions will be far less effective,” Tchir noted.
There are also stories circulating about the immense hoard of commodities China has already accumulated. That could be seen as them "sanction proofing" themselves.
“We really need to look at supply chains through a national security lens and think domestic energy and commodity companies will be big beneficiaries, as well as companies that focus on logistics,” he added. “Also, Canada, Mexico and Latin and South America should do well as we align supply chains to those that are either more aligned with our values, or simply closer from a geographical standpoint.”
Additionally, Tchir has “yet to see” China back down in its support of Russia's economy. “I’m very nervous we could see some selling of Treasuries by China and other countries, which would act as a headwind for stocks.”
Lastly, the Federal Reserve has made its first foray into a new round of interest rate hikes.
“The market had set itself up for a "dovish" hike and convinced itself that is what we got,” Tchir said. “Yes, hikes will be slow and well telegraphed and data dependent, but away from the data dependency, the market may have fooled itself.”
Tchir sees two points to be made about the Fed right now, and its impact on the market.
- Post FOMC speakers have sounded very hawkish. Markets ignoring the recent speakers. Possibly because the Powell conference seems to allow us to ignore them, but I am always nervous that when the first speakers out of the gate seem to be trying to correct the market response, we should listen.
- Balance sheet reduction. The January minutes, which talked about balance sheet reduction, spooked the market. With that being said, I was surprised how few of the press conference questions were geared towards this subject. I think the balance sheet reduction, likely to be mentioned in more detail in the upcoming Minutes, pose a risk to the recent rebound.
The bottom line? Tchir views the market rebound as pleasant, but he’s treating it as a bear market bounce, rather than an all-clear signal.
“I'm watching China, the Fed and Russia, in that order, to try and assess whether to change that view or not,” he said.
As the new week starts, TheStreet’s market experts are weighing all of the above scenarios and is zeroing in on these stocks.
FedEx $220.88. 5-day performance 4.33%.
Federal Express (FDX) rolled out its fiscal third-quarter numbers late last week, and TheStreet’s Stephen Guilfoyle is weighing the numbers for a potential purchase.
That’s not easy, especially with a stock that’s been trading back and forth lately.
“As we know, FDX earnings tend to always be an adventure,” Guilfoyle said. “This is one reason why, though I’m often long both United Parcel Service (UPS) (I am long right now), and FDX (I am not long right now), if asked... I would say that I am invested in UPS and that I trade FDX.”
Now to the numbers.
For the three-month period ending February 28th, FedEx posted adjusted EPS of $4.59 on revenue of $23.6B. Though this adjusted earnings number presents as 32% year over year growth, it did fall short of expectations. The revenue print did beat Wall Street and was good for annual growth of 9.8%. GAAP EPS came to $4.20, after adjusting for business realignment costs ($0.31) and TNT Express integration expenses ($0.08).
Adjusted operating income increased 38% to $1.462B, and through an operating margin of 6.2% produced adjusted net income of $1.217B, or an adjusted $4.59 per share. Net income included a tax benefit of $78M ($0.29 per share) related to revisions of prior year estimates for actual tax return results.
“Overall, FedEx Express operating results increased, driven by higher yields, a net fuel benefit, and lower variable compensation expense,” Guilfoyle said. “These results were partially offset by the negative effects of the spread of the Omicron variant of the SARS-CoV-2 coronavirus regarding labor availability and shipping demand.”
Additionally, FedEx Ground operating results declined primarily due to increased rates for purchased transportation and employee wages, network inefficiencies, and expansion-related costs. “This was partially offset by higher revenue per package, two additional ground commercial operating weekdays, and a net fuel benefit,” Guilfoyle said.
FedEx Freight operating results nearly tripled, driven by a focus on quality and growth. Revenue per shipment here increased 19%, while average daily shipments increased 2%.
Apparently, while these figures haven’t provoked any significant ratings changes, there are a couple of cuts being made to price targets this morning. “I can find five sell-side analysts who are rated at five stars by TipRanks who have also opined on FDX since these earnings were released,” Guilfoyle notes.
All five still have either a "buy" rating or a "buy-equivalent" rating on FDX, The average price target across the five is $277.60, with a high of $285 (Jack Atkins of Stephens) and a low of $270 (Christian Wetherbee of Citigroup). “It may or may not be important to note that Wetherbee had come in with a $300 PT prior to these numbers,” Guilfoyle added.
FDX came into last Fridays trading a bit short-term overbought technically, but is still in a longer-term downtrend.
“The shares need to make progress against the 21-day EMA, 50-day SMA and 200-day SMA before investors decide to get in and stay in,” Guilfoyle said. “Otherwise many are doing exactly what I do with this name, trading it, because despite the trend, the shares do range back and forth significantly.”
Even trading at 11 times forward looking earnings, Guilfoyle would rather go out three months (by May), and get paid about $8.25 to take on $200 equity risk, than plunk down $217 to $220 to buy equity today.
“Just don't sell those puts and forget about them unless you buy the same number of puts with the same expiration but a lower strike... just to put a lid on potential losses,” he advised.
Moderna $175.68. 5-day performance 17.06%.
Moderna (MRNA) finds itself in clear rebound mode of late, after having lost 36% of its share value over the last 90 days.
Now, TheStreet’s Ed Ponsi says that as several parts of the world struggle with Covid-19 surges, MRNA could win in the long war against the pandemic.
“It's been two years since the start of the Covid-19 pandemic, and the numbers out of the U.S. are encouraging,” Ponsi said. “New cases have dropped to about 32,000 per day, based on a 7-day average. Just two months ago, that figure was close to 900,000 per day.”
Things are looking less optimistic elsewhere. In South Korea, for example, over 621,000 new cases were reported on Wednesday. That record figure is nearly 20-times the number of current daily infections in the U.S., and represents about 1.2% of that country's population.
In China, a rapid uptick in cases has led to restrictions in Shanghai and Shenzhen. Factories and museums are closed, and employees are being asked to work from home.
According to Ponsi, this disparity of results is likely due to the quality of the vaccines used in these respective countries.
“In a tweet earlier this week, former Food and Drug Administration commissioner Dr. Scott Gottlieb described vaccines used in Hong Kong as "less effective against Omicron than those predominantly used in the U.S.,” he said. “Hong Kong is currently suffering from a severe Covid outbreak. The Sinovac Biotech shot is viewed as the more popular choice there, and Moderna's jab is not currently offered.”
Does this situation present an opportunity for U.S. vaccine manufacturer Moderna ? Ponsi goes to the data to find out.
“Moderna was one of the hottest names in the early days of the pandemic, gaining over 500% in 2020,” he said. “The stock closed at an all-time high of $484 on Aug. 9. Since then, shares of Moderna have lost about 66% of their value.”
However, the stock is finally showing signs of life.
“Since the beginning of March, Moderna (blue) has outperformed the broader market,” Ponsi noted. “Moderna is also outpacing the pharma sector, represented by the S&P Pharmaceuticals SPDR ETF (XPH).
Last Wednesday. Moderna closed at its highest level in over a month. “The stock also managed to close above its 50-day moving average (blue) for the first time this year,” Ponsi added.
Additionally, Moderna faces no major resistance until it reaches the area between $263 and $276. The 38.2% Fibonacci retracement of the stock's decline comes in at $263.75, while Moderna's 200-day moving average (red) is just a bit higher, currently at $276.
The verdict? Ponsi’s a buyer of Moderna at current levels.
“The 38.2% Fibonacci retracement, the stock's next level of resistance, is $95 above last Thursday's closing price,” he said. “A rally to the $263 area would generate a gain of 55% from Thursday's close. My target is $250, which would represent a gain of just under 50%.”
APA Corp $40.40. 5-day performance 7.50%.
APA Corp (APA) is the holding company for Apache Corp., which is engaged in hydrocarbon exploration. The energy sector has been strong since September, and that’s enough of a trend for TheStreet’s Bruce Kamich to check how shares of APA are doing.
‘Reviewing the daily bar charts, we can see that prices have been climbing higher since August,” Kamich said. “APA has bounced off the rising 50-day moving average three times this year. Prices are above the rising 200-day line too.”
Trading volume has been active since late September and the On-Balance-Volume (OBV) line has been strong, while The Moving Average Convergence Divergence (MACD) oscillator has been mostly bullish since September.
Longer-term, the charts show Kamich that AMA prices have broken a downtrend from 2014. “The longer a trend is in force the more you need to pay attention when it is broken,” he said.
That scenario could leave an opening. APA - and crude oil prices - could trade sideways in the near term.
“Traders could use this sideways movement to build a long position in APA,” Kamich said. “The downside risk to $33. The $62 area is our initial price target.”
