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RoboStreet – August 26, 2021
Delta Data Bodes Well For Leisure Stocks
Despite the daily numbers of rising hospitalizations related to the delta variant, the most up-to-date data shows a definite slowing of new infections that have sparked some fresh optimism about the reflation sectors.
In a CNBC interview this past Monday, former FDA director Scott Gottlieb stated “I thought there was an indication the South was peaking, and I think it’s pretty clear right now the South has peaked. It doesn’t feel that way because we still have a lot of new infections on a day-over-day basis, and the hospitals still have some very hard weeks ahead,” he acknowledged. “They’re still going to get maxed out as the infections start to decline. The rate of expansion of this epidemic is below 1 in most of the South,” including Florida, Gottlieb said, “which shows a contracting epidemic.”
According to CNBC’s analysis of Johns Hopkins data, the seven-day average of new daily Covid infections in Arkansas is down 0.5% from a week ago, meaning it is more or less steady. In Louisiana, new daily coronavirus cases are down 14% from a week ago, based on a seven-day average, CNBC’s analysis found.
And remember we’re not talking about day-trading here. I’m looking for 50-100% gains inside of the next 3 months, so my weekly updates are timely enough for you to act.
The market found some footing this week after ending the prior week with a very defensive posture where utilities, healthcare, REITs, consumer staples, and mega-tech stocks were the sectors of choice. This week, there has been a rotation, albeit, a very selective rotation back into industrials, financials, materials, metals, transportation and leisure, and travel stocks.
From a technical perspective, the $SPY continued to make incremental highs. The value/reflationary stocks led the rally. Technology stocks are extended and are losing momentum.
The $DXY has broken above $90.60 resistance and has confirmed its break out. The next level of resistance is at $94. The $TLT was trading sharply lower and pushing bank stocks higher.
Based on the steep correction in the reflationary stocks, strong dollar and overbought technology stocks, the market will continue the correction in August/September. The $SPY short term support level is at $445, followed by $441. The SPY overhead resistance is at $450. I expect the next stage of correction to resume this week or next. I would be a buyer of value stocks on corrections and sell technology stocks on any rallies.
I would consider rebalancing portfolio at this point to be more market neutral. The second wave of the sell-off will continue for the next 2-4 weeks. Market corrections are never a one-way trade.
Based on our models, the $SPY can pull back 5-7% from the all-time highs in the next 2-4 weeks. Based on our models, the market (SPY) will trade in the range between $415 and $450 for the next 2-4 weeks.
The first evidence of rotation back into the leisure sector is taking place within the casino stocks that own the online betting companies. That’s logical in that heavy wagering on college football is about to begin. But what is more significant is how many cruise ship voyages are either departing from their home ports, or are readying to do so.
Similarly, the headlines for the cruise industry are just starting to turn more positive with industry leader Carnival Corp. (CCL) leading the way. For instance, yesterday’s headline was “After 17 months, Carnival Cruise Line is the first to return to Cabo San Lucas.” And “Carnival Panorama Becomes First Cruise Ship to Return to Mazatlan.”
Assuming the cruise line industry does see further momentum in the number of voyages being certified, there is excellent upside potential for the sector and CCL in particular. As 2022 approaches, revenues at Carnival are forecast to leap by 490% to $18.2 billion as all their global voyages are sold out due to strong pent-up demand by the global ocean cruising community. The company is also forecast to return to profitability. When we apply our proprietary AI models to Carnival, we get a very bullish read. Our AI-driven Seasonal Chart is indicating the stock to trade higher over the next 10, 20 and 50-day periods, making for a strong candidate to add to our RoboInvestor portfolio in the next couple of weeks per market conditions.
There is also unusual option activity in CCL where traders are piling into the $24 calls as the stock trades at $23.80 and just under its 200-day moving average.
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