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A Monster Look At The Week Ahead In Stocks
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The week of January 8, could be just as exciting as last week, and the focus will continue on some of the biggest winners from last week. In this commentary, we look at the week ahead in stocks and explore the S&P 500, Pfizer, Apple, Blackberry, the “FANG’s” and AMD.
Enjoy!
S&P 500
If last week was a sign for 2018, then we are off to very a good start. The S&P 500 broke out in a significant way to start 2018. I think that means the index might be able to rally to about 2,875 or so by March. It comes down first to the technical chart, but also earnings growth will continue to accelerate in 2018, and into 2019, based on current analysts estimates, helping to give the market a perfect backdrop for 2018.
The chart below shows a clear trend line that has now been in place for the S&P 500 since February of 2016 and tested at Brexit. I have called this in the past the February16/Brexit trend line, and for the most part, we can call it the “mean” for the market. Since 2016, the market has typically deviated by about 100 to 150 points from the mean both above and below. There were two such occasionsย in 2017, in March when the S&P 500 peaked about 100 points higher than then mean, and when it bottomed in August about 120 points below the mean.ย The chart shows the S&P 500 has now broken above the mean, which implies it could be heading towards a peak, which could occur by sometime in March, at about 2,875, 100 points higher from the mean, or trend line, at that time.
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It is undoubtedly a gutsy call on my part, but one that I’m not afraid to make, and have done plenty of times before. I can let my track record speak for so itself when it comes to this stuff. Feel free to explore the website and decide for yourself.
From a fundamental standpoint, the equity market is relatively cheap. At the end of first quarter in 2017, the S&P 500 was trading around 2,360, while 2018 operating earnings are estimated at $146.48, according to Dow Jones S&P Indices, placing the S&P 500 operating earnings multiple at about 16. Estimates are now calling for 2019 operating earnings of $160.03, putting the S&P 500 at only 17 times 2019 forward operating estimates, just a bit more expensive than the start of 2017.
S&P 500 Operating Earnings Per Share Forward Estimate data by YCharts
Can 2018 be as good as 2017 for the equity market?ย It could be better because looking at these estimates we do not know how much of Tax reform has been priced. We will find out after guidance starts coming about two weeks times.
Pfizer
Pfizer ($PFE) made some interest, yet random news early Sundayย morning, when it said, it would give up on discovering new drugs for Alzheimer’s and Parkinson’s disease. Could Pfizer be looking to make a deal with a smaller company? Or are they just completely out? Interesting ahead of the JP Morgan healthcare conference, when they present on Monday morning at 8:30 AM PST
Celgene
Updated 4 PM –ย According to the Wall Street Journal, Celgene is in talks to buy Impact Biomedicines, a privately held company, for $7 billion. Impact’s lead drug is fedratinib, for the treatment ofย myelofibrosis and polycythemia vera. The deal according to the Journal in three stages, with an upfront payment of $1 billion and the final two payment after approvals from the FDA, and commercialization.
The move could be viewed by as a positive, as the market has become concerned over Celgene’s dependence on Revlimid. This could help diversify the companies pipeline, and calm the market.
Apple
Apple ($AAPL) recovered most of its losses from the week earlier when rumors swirled about a massive decline in iPhone X orders. Again, we shall see when Apple reports fiscal first-quarter 2018 results on February 1. It just means Apple is prone to these rumors for the next couple of weeks. In a premium on-demand video I went through a couple of reasons why I don’t think Apple will see this significant iPhone X shipment downgrade. You can watch the video below for just $1.99.
Apple iPhone Shipment Maybe Better Than Feared from Michael Kramer on Vimeo.
On-Demand Content
Apple iPhone Shipment Maybe Better Than Feared
Why Biotech May Outperform In 2018ย
Blackberry
In our Friday commentary, we touched on Blackberry ($BB) for the first time, and I thought I was worth mention this a very different company that many of us remember. It is no longer a handset maker like we all remember. It has become more of a software company, one focused on cybersecurity for the most part. The investorย presentation is very well put together, and speak a lot about the new direction of the company, worth looking at. I have looked at the business here and there, and the game seems early enough that there is likely no rush to get into the name but surely worth following.
FANG’s
How about the FANG’s to start 2018? They have been crushing it, with Netflix ($NFLX) up by nearly 10 percent just in the four days of the year, while Amazon ($AMZN), Alphabet ($GOOGL), and Facebook ($FB) are all up just over 5 percent. We had noted in our ten prediction’s list for 2018 the FANG’s would lead the market higher in 2018, and so far they have not disappointed. It certainly helps that the FANG’s have broken out a big way to start the year, and will undoubtedlyย be a key to the market in 2018.
Facebook shares broke out crossing above $184.25. Additionally, the relative strength index (RSI) has also reversed and broken out of aย ย ย as well.ย A rising RSI,ย along with an increasing stock price areย bothย bullish indicators
Netflix
Netflix shares have also broken out as well, with the stock crossing over $204.50 and managed to hit a new all-time as well. But the stock is likely getting a bit extended, as it is now trading outside of its long-term channel, and the RSI is approaching overbought levels. We saw the same thing happenย into the third quarter results, where the stock ran up big into the print, and then stagnated afterward. Netflix is one of the first companies to report results, and areย set to report Monday, January 22, after the close.
Amazon
Amazon broke out in a big way to start 2018 as well, the chart below shows it all.
Google – I Meant Alphabet
Alphabet as well.
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AMD
Finally, Advanced Micro Devices ($AMD) was a huge winner last week, with the stock jumping by an astonishing 15.5 percent! The big move came on the news of a flaw in the design of Intel ($INTC) chips. Hype or hope is the real question. After a huge 2016, 2017 was a major disappointmentย in 2017, will 2018 be better? When we look at this weekly chart of AMD going back to 2006, we can see AMD has a long way to go to get back its old glory days, but we can see volume in AMD has increased dramatically since 2016. But the up-trend in 2016 has also been clearly broken with RSI that has trended lower as well.
Watch the trend in the RSI, should we see a divergence, meaning a rising RSI, with a falling stock price could signal a bottom is getting put in to place. Watch the RSI for a breakout.
Good luck next week!
Free Articles Written By Mike:
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Michael Kramer and the Clients of Mott Capital own shares of NFLX, GOOGL, CELG
Mott Capital Management, LLCย is a registered investment adviser. Information presented is for educational purposes only and does not intend to make an offer or solicitation for the sale or purchase of any specific securities, investments, or investment strategies. Investments involve risk and unless otherwise stated, are not guaranteed. Be sure to first consult with a qualified financial adviser and/or tax professional before implementing any strategy discussed herein.ย Upon request, the advisor will provide a list of all recommendations made during the past twelve months. Past performance is not indicative of future.
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Tags: #sp500 #fang #fb #amazon #facebook #alphabet #apple #blackberry #amd #pfizer #celgene #impact