Melt-Up Alert: Amazon Finally Leading, Let's See What Other Tech Names Are Going To Lead

Summary

We are right at the edge of a tipping point for a euphoric rally phase.

I'm not trying to scare you out of the market. We still have good gains coming. I just want you to have situational awareness.

Amazon will be the general to lead the charge. Some prior leaders my take a rest, but with a market like this, it has all the ingredients to keep going.

I think CES will give a temporary impetus to new highs to keep the rally going.

A General Leads

I like to say that for stocks to be in a sustainable rally, the generals, the leadership stocks, must lead from the front. For nearly all of this year, I have been tracking Amazon (AMZN) and noting its lack of leadership. Amazon hit its all-time high in 2018 and approached it again this summer only to fail in two two attempts. Perhaps it was a lack in my imagination of not believing that the market could reach new highs without AMZN. It was clear to me that the market rally would accelerate into year end, so it would follow that I would call for AMZN to rally into year end after proving to be such a huge driver in the past. Being early is not the same as being right. That said, it's clear that now AMZN had a big step-change in performance, with a decided acceleration just yesterday. AMZN could easily add another 100 points before year end getting close to old highs. I was thinking this would happen after Cyber Monday and frankly be breaking out to new highs by now. All that said, with nearly a half-dozen false starts AMZN is now on the move. To see what I mean and where I think AMZN can go leading into its earnings report let’s look at the chart here.

saupload_DmqhGG4KQkHvNafgYQ8QQxGgB4jBMG4s6h8Jqj4KaQUFoFNHyIh76B_wEzaiFgIlLrtmbNzfOZ52r7tW0Kb-i8JhbIr25dQh9Shpt-DngotvK_9E24ZNDsoiSH7XzcOtGIFCqEpe_thumb1.png

I admit that the bottoming action in this chart is messy. One also could say that this is a rounded bottom as well as an inverse "head and shoulders" I drew. However you want to characterize it, yesterday’s jump above resistance says AMZN is ready to take charge. When a large-cap name, one of the largest mind you, jumps like this in the context of a well-established rally the die has been cast. AMZN is going higher. Like a relay race, other leaders may be handing the baton to AMZN to take us even higher. An easy way to model how far AMZN can get in the next few weeks, or sooner, you take the recent low about 1710 and subtract it from the prior peak in this corrective phase, which is about 1845, which gives you 135 points of upside. Adding that back to 1845 would take us to 1980, just 55 points from the 2018 high of 2035.

So what was the momentous news that gave us an 80 point/4% jump? The holiday shopping report which was short on specifics touting record sales. Was anyone not expecting record sales and good Prime membership growth at AMZN? No, this was more of an excuse. This is evidence of the FOMO impulse going on in the context of a greater melt-up rally. As I said earlier this week, can anyone deny this melt-up? It's clear that we are now knee deep in a rally that has an emotional component in it. On Monday we saw strong equity ETF investments by both individuals and institutions, and that this action only started in October and is decisively picking up steam which corresponded with the S&P Chart.

Yesterday we learned that investors at Bank of America are buying more stocks than ETFs. This is just additional evidence of the melt-up and that the retail investor is paying attention.

I say the retail investor is now coming into the market

Bank of America clients bought billion worth of stocks in individual companies in 2019, exceeding the billion worth of ETFs they purchased. From 2008 to 2017, the bank’s clients consistently sold individual stocks and piled into passive vehicles. This is not limited to just Bank of America. The majority of market participants have moved their equity investment to passive ETFs. What I'm extrapolating, and certainly arguments can be made against, is that the retail investor is getting involved in the market. I don’t mean to be snide, but you can set your watch to a market top by how much enthusiasm the retail stock investor has. Yes, investing in ETFs is prudent, and you can be very conservative investing in individual equities, but adding this data item with the prior information, that ETF investment as moved decisively from bonds to equities, and then this information, you gotta believe that the stock market is getting a lot of sponsorship, so to speak. Are we oversold is the next question. Technically yes, but we can remain oversold for a very long time.

RSI is saying we are overbought already

Here are some RSI (standard 14 periods) numbers. RSI Over 70=Overbought:

Nasdaq 100=81

S&P 500=78

Tech=78

Healthcare=78

China stocks=75

What is RSI? The Investopedia definition:

RSI - Relative Strength Index

The relative strength index (RSI) is a momentum indicator that measures the magnitude of recent price changes to evaluate overbought or oversold conditions in the price of a stock or other asset.

The most oversold an asset can be is 100 - 81 is high. Traditional interpretation and usage of the RSI are that values of 70 or above indicate that a security is becoming overbought or overvalued. I want to stress that I'm not calling for you to sell out at this point. I think we have at least a month before any meaningful sell-off. We are building to an unsustainable rally. One thing though, we also could level off and chop around. I don’t think that will happen unless the news flow changes or the earnings period starting the third week in January is very disappointing.

So far the path of least resistance is up, perhaps way up

So far the news has been great, putting aside the realization that the Trade War with China is going into the background, the Fed has shuffled off the stage, oil prices have firmed, which is great for the heartland. Chips sales are firming. Chips are the new “Dow Theory Transports confirmation.” Meaning, that during the industrial age, the transports rails and later trucking confirmed the economy. Now chips are in everything and power everything from the cloud to cars. If chips sales are healthy, so is the overall economy and especially growth areas. Historically low unemployment and wage growth concentrated at the lower quintile of workers means consumption is buoyant. Look, you don’t need persuading that the conditions are great for the stock market, and all you need to do is look at your portfolio. You know that stocks are up. What I want to talk about is the dimensions of this rally and how far can it go. I want you to get the most out of this rally since it might be the bulk of gains going into the first half of 2020.

What I mean is, we could run very hard into late January, maybe a bit further into February, and have a correction. That's what I modeled earlier and I'm holding to that.

If AMZN is a leader who is going to lag from here?

Off the top of my head, I see Netflix (NFLX) lagging. It has too much overhead congestion. I admit that I thought that 320 would be its upper limit but at some point it needs to rest. Microsoft (MSFT), Apple (AAPL), and Facebook (FB) all will continue going up, but with possibly the exception AAPL. I don’t think we are going to get really big moves from the big-cap stocks. I think they will slope up gently. It's AMZN that's the rocket right now.

I think the excitement will shift to the second-tier tech names

I admit that I didn’t see Tesla (TSLA) as a breakout at first. I especially panned it after the ugly pickup truck introduction. I saw a well-defined “head and shoulders” formation, and then it was rejected. At that point, I slapped the mat and “cried uncle,” a rejected formation like that is a very bullish indication. TSLA has been rallying hard ever since. We have had a string of positive news, from China, giving it a tax break, and a group of Chinese banks lending TSLA .3B to fund the Shanghai plant. Also Dec. 30, we are expecting the first Chinese Model 3s being delivered. I want to say that, with this news, TSLA should be resting for a while. If TSLA bounces on this announcement then I would have to conclude that TSLA has even more room to run, as unimaginable as that seems. The next tier names are well known too - Adobe (ADBE), Salesforce (CRM) and the like. What I really think will keep things going in the short run is the chips sector.

Chips and electronics might be the star of the show, CES that is...

Lesser-known names like Applied Materials (AMAT), Teradyne (OTCPK:DYNE) and Lam Research (LRCX), these are the machines that make chips. Better known are the chips themselves, like Advanced Micro (AMD) and Micron (MU). I know it probably sounds crazy but there's probably another 10% in them before the correction happens. We have the CES, Consumer Electronics Show, Jan. 7 to Jan. 10. I think this could be an interesting catalyst for electronics. Who might benefit?

Let’s start with Roku Inc. (ROKU), I expect, will be announcing new products. Just realize that products are a driver for advertising for ROKU. As of the third quarter, Roku's active subscribers jumped 36% from the same period a year earlier to 32.3 million. Those accounts spent 10.3 billion hours streaming through Roku's hub, up 68% year-over-year. The ARPU - average revenue per user, grew a double-digit percentage in Q3, rising 30% year-over-year. The most important revenue for ROKU is derived from advertising. How about Universal Display (OLED)? CES debuts a lot of TV screens, and price points should drop for OLED-based displays. That might ignite OLED. Cree Inc. (CREE) is an LED lighting company. They also make specialized SiliconCarbide chips, very important for power applications including EVs. Other not so well-known names are Lattice Semi (LSCC), Microchip (MCHP) and Xilinx (XLNX). Some of these chips might show up in teardowns of new electronics products. Of course, we have the 5G product announcements and that should help Qualcomm (QCOM), Skyworks (SWKS) and Qorvo (QRVO). I would be amiss if I didn’t include Nvidia (NVDA), and even though I'm unhappy with the choice of CEO, Intel (INTC) should continue to rally.

Why would a rally in chips sustain the entire market?

That isn’t exactly what I'm saying. I just think that the rally needs something new to focus on, and no one is talking about CES, where some cool new electronics product or maybe a bunch might debut and that's another excuse to run the market up.

I'm not modeling it yet, because I still feel like it's a minor player, but what if energy starts to run? Let's leave that scenario out of the equation for now, but let's just keep in mind that this rally has a lot of positive inputs.

When you already have FOMO, it doesn’t take much to start a panic buying scenario.

In the back of a lot of market participants' minds is the concern that the moment that Jan. 1 comes around, that people will take profits. So I suspect that we really have not seen the crescendo of buying forming just yet. If potential profit takers don’t pull the trigger right away, you could see a lot more of FOMO - Fear of Missing Out. If you have tech still running helped along by CES, and AMZN starting to make new highs, then Alphabet (NASDAQ:GOOG) (GOOGL), Microsoft and a bunch of the smaller techs running, the rest of the market will follow. Like I’ve said we can get and stay oversold for quite a while. Strap in, this is going to be fun!

Insider Corner

Eastman Kodak (KODK) James V Continenza Chairman Buys ,416,000.00

My Take: Blast from the past. I think they are in the commercial printing market and some areas of image processing. Whatever they do, spending more than a million in KODK shares has caught my attention. This bear is watching and doing a bit of reading up.

Lovesac (LOVE) Andrew R Heyer Director Buys 8,079.40

My Take: I'm pairing this insider purchase with the prediction by Jharon Martis of Refninitiv Consumer Research that LOVE will have very good same-store sales.

My trades: I have not pulled the trigger on anything today. However, it looks like Roku is having a minor sell-off today. If we get follow through on Monday I would get long with calls. I have not done any trading but I have been adding to my long-term investments. I did add calls on LOVE yesterday right before the close. This insider buying is a nice confirmation.

Disclosure: I am/we are long LOVE. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

Additional disclosure: If ROKU continues to fall on Monday I would get long again using Calls

0
0
0
0
0
0
0 0 31
Submit comment
    No comments yet

Sell-Off Action Plan; Use This 'Fast Trade' Tip; Buy The Green, Not The Red

Aug 5 2020 - Amazon: Blowout Quarter, Path To Trillion Underway

Monkeys And Clowns: The Week In Review, Mistakes, And Triumphs

Jan 2 2019 - KEY OUTLOOK - Ride This Rally Hard, Keep Your Trades On A Tight Leash

Jan 27 AM - The Corrective Phase Has Begun, What To Do?

I Can't Believe I'm Saying This, But Uber Is A Melt-Up Trade

Nov 15 2021 - Roku: An Opportunity For A Netflix 2.0 Run?

Jan 3 2019 - Don't Panic Sell, Buy Instead: Time To Deploy Some Of Our Cash

Submit media
Enter your nickname

Show

Show

Enter your email address and we will send you an email explaining how to change your password or activate your account.

Back to login form

Close