The Dow’s Squeeze Box; Rivian Reminds Us It Exists
Friday Four Play: The “Squeezed Like S’mores” Edition
The Dow Jones Industrial Average is about to melt like the gooey center of s’mores over a hot fire. If technical indicators are worth their salt, this melt will happen soon.
The question is, will it be a melt up or a melt down? (And will there be chocolate?)
Oh boy! Mr. Great Stuff’s been hitting the vape pen again!
Laugh it up, fuzzball. Then look at this daily chart of the Dow:
Let’s get half technical here (the best kind of technical).
That red squiggly line is the Dow’s 200-day moving average. That blue squiggly line is the Dow’s 50-day moving average. And right now, this duo of graham crackers has the Dow squeezed like a marshmallow in a 100-point trading range.
It’s a trading range that’s just wide enough to give the appearance of market volatility — aka big 100-point intraday price swings — but it’s just narrow enough to keep the Dow from going anywhere meaningful.
Since late May, these graham crackers … err, trend lines have grown increasingly close.
Barring June’s head fake, the Dow hasn’t broken out in either direction. The 200-day moving average offers up stiff resistance, while the 50-day is providing stout support. Now here’s the crux.
As the Dow’s 50-day trend line continues to rise, sooner or later, something has to give.
Given the market’s propensity for volatility this year, a 100-point trading range just isn’t wide enough. A marshmallow will only squish so far before it bulges out the sides, you know.
Now, in any normal year, I’d say to prepare for the Dow’s bottom to fall out. Economic growth is stagnating. Earnings projections are falling for the current quarter and beyond. COVID-19 continues to rampage across the country.
A downside breakout and bear market trend for the Dow should emerge here.
However, this is 2020!
We have Fed Chairman Jerome Powell and his magically unlimited stimulus buying up everything in sight. We have the U.S. Congress debating on another trillion-dollar relief package.
And we have a massive influx of retail traders with said relief money … with nothing better to do than plow that cash into the market.
One of these two camps has to break eventually. When earnings season kicks off next week, we could see Wall Street wake up from its stimulus-induced euphoria long enough to correct prices and send the market careening to the downside.
Or … traders could take another hit off the stimulus pipe and start buying hand over fist again.
Whatever actually happens, you still need to prepare for the worst — or at least prepare for a significant spike in market volatility. It’s the only way to keep from getting covered in sticky Dow marshmallow fluff.
Oh! I almost forgot the chocolate.
My trading buddy Brian Christopher has a sweet solution to the market’s rising volatility. Brian spent forever pinning down one of Wall Street’s greatest flaws. (What? Lockdown inspired everyone differently…)
Exploiting this flaw helped Brian create “Flow Trading” — a perfect volatility strategy. Flow Trading flips the script on volatility and stacks the odds in your favor.
And now for something completely different … it’s time for your Friday Four Play:
No. 1: Reserving Remdesivir
So, Gilead Sciences Inc. (Nasdaq: GILD) is back with more data on its antiviral drug remdesivir (bless you!). You know, the leading candidate for treating COVID-19? The one that will cost more than $3,000 for U.S. patients with health insurance?
Turns out, the latest data shows that remdesivir (bless you!) reduces the risk of death for extremely sick COVID-19 patients by 62% when compared to current standard treatment for the disease.
I don’t know about you, but I can’t wait to drop three grand on a 62% chance to not die.
But Gilead isn’t ready to release remdesivir (bless you!) to the world just yet. The drug is still in phase 3 testing, and the company says its findings warrant more study in additional trials.
“We are working to broaden our understanding of the full utility of remdesivir,” said Gilead Chief Medical Officer Dr. Merdad Parsey.
The news has GILD stock up more than 2.5% today, but the stock remains trapped below price resistance at $80. Seems like GILD investors are remaining reserved regarding remdesivir (bless you!).
No. 2: Rivian’s Riveting Race
While Nikola Corp. (Nasdaq: NKLA) laid out its Badger bait, rival Rivian came swinging for first place in the electric truck race.
Upstart Rivian, with its more conventional-styled electric trucks, just raised $2.5 billion in funding like it was nothing. Better still, it’s dead-set on beating Tesla Inc. (Nasdaq: TSLA), Nikola and the whole electric gang to pole position in the electric truck market.
CEO RJ Scaringe stated: “We’re focused on making sure that we deliver. … We really value active humility and letting our actions speak louder than our words.”
My take? He could’ve just said: “Y’all keep talking … wait till we start walking.”
Though, I also want to know who’ll be the first to call these things “e-trucks.”
Why isn’t this bad news for latest-and-greatest ‘Stuff Pick NKLA? It’s good news by association. Rivian isn’t publicly traded — just yet anyway, though it hinted at being open to doing so if that funding itch hits just right.
Rivian news could be good for NKLA and TSLA stock, since those investors don’t have anywhere else to invest. It’s much like how Virgin Galactic Holdings Inc. (NYSE: SPCE) keeps rallying on SpaceX news. Granted, this is only up to the point that Rivian delivers or quivers, to win the electric truck race or not.
Mr. Great Stuff, lately it’s been nothing but “electric vehicle” this and “Cybertrucks” that with you. OooOOoOoh, hydrogen fuel cells go brrrr. Why should I care?
I hate to break it to you like this, but electric vehicles (EVs) — no matter how and with what you power them — are the next generation of personal cars, bar none. What’s up in the combustion engine world? I mean, for the common consumer. Another Ford Bronco?
Largely, these huge sums of electric-avenue funding mean more for gas-powered cars than they do for EVs. At some level, it’s been decided that the time for “aggressive growth plans” is now … and that’s a clear-as-day sign of gas power’s beckoning demise.
Or at least as gas cars take a back seat to EVs. As in, the third-row “way-back” seat of an old Buick.
Anyway, since we can’t invest directly in Rivian yet … we’ve got the next best thing: the power play that every electric vehicle will need, no matter the badge on the Badger.
No. 3: Get Street High
With most of us stuck in our houses for days at a time, it should come as no surprise that Netflix Inc. (Nasdaq: NFLX) is doing well.
What else are you gonna do under quarantine but binge-watch Netflix? Other than order useless crap from Amazon.com Inc. (Nasdaq: AMZN), I mean.
Goldman Sachs acknowledged Netflix’s greatness as a pandemic entertainer today by lifting its price target on the stock to $670 — the highest such target on Wall Street. Goldman said that Netflix will blow away subscriber estimates in next week’s second-quarter earnings.
The consensus currently expects Netflix to add 8.2 million subs, but Goldman thinks the streaming giant could add 12.5 million.
Blowout subscriber growth would surprise many analysts. The general consensus is that The Walt Disney Co.’s (NYSE: DIS) Disney+ service will eat away at Netflix’s subscriber base. But these analysts aren’t taking into account that paying for both Disney+ and Netflix is still cheaper than paying for cable TV — by a long shot.
It’s a happy world where consumers get both Netflix and Disney+, while saving money by cutting the cord. The pandemic just sped things up a bit.
For investors, keep an eye on NFLX stock. It trades at all-time highs heading into next week’s earnings. A “sell on the news” event isn’t out of the question in this market.
No. 4: Game On!
Outside of Amazon boredom-buying and Netflix binge-streaming, the other growing American pandemic pastime is apparently video games. In fact, game sales surged to a record $10.86 billion in the first quarter, according to NPD Group. (The whole Great Stuff team has contributed quite a bit to that tally.)
After the past week, however, Nvidia isn’t just king of the GPUs — it reigns supreme over the U.S. semiconductor market. With a massive 70% year-to-date rally, Nvidia has passed Intel Corp. (Nasdaq: INTC) as the largest chipmaker in the U.S. by market cap.
And it’s not just video games driving growth.
Nvidia’s chips are used in everything from gaming PCs and crypto-mining rigs, to data centers, artificial intelligence and smart vehicles. Anywhere that you need graphics and massive data processing, that’s where Nvidia chips go.
Nvidia’s data center business nearly hit $3 billion in revenue last year. Those same sales hit $1 billion in the first quarter of 2020, an 80% spike from last year.
This is why Susquehanna Analyst Christopher Rolland lifted his price target from $420 to $450 earlier this week. And its why other analysts are quickly reassessing their stance on NVDA.
Now, naturally, I’m uncomfortable investing in NVDA right now. The stock trades at all-time highs, and I think that you’d get better prices if you wait for a pullback. Keep NVDA on your radar and wait for the right dip to scoop your chips.
Great Stuff: The Full Scoop
Thanks for tuning in to another week of Great Stuff! Now how many of you are thinking about making some s’mores right now? (Curse your predisposition to the munchies, Mr. Great Stuff!)
While you’re waiting for whomever you sent out to the s’mores store to get back…
I hope you’re ready for a whooooole fresh-and-fancy earnings season! You can bet that we’ll bring you Olympic-Games-like coverage to every main event (well, kind of). And if you’re not ready for the volatility that comes with said earnings season…
Remember this: Brian Christopher’s Flow Trading flips the script on volatility and stacks the odds in your favor. And I don’t want you getting squished in the s’mores squeeze-out!
Please, click here now. The sake of your portfolio’s marshmallow fluff depends on it!
Until next time, stay Great!
Editor, Great Stuff