These are the most popular stocks for day trading

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Equities

Goldman Sachs recently reported that a basket of stocks favoured by retail day traders had outperformed their hedge fund basket by nearly 20% when the coronavirus sell-off was at its worst.

Retail day traders have helped fuel the market recovery from the March 23rd low, struck as fears over the economic impact of the Covid-19 pandemic reached their zenith.

Here’s what our signals tools have to say about some of the most popular stocks amongst day traders.

Moderna

Moderna is a hotly watched biotech company whose stock has seen a surge in popularity as markets try to bet on the winner in the race for a Covid-19 vaccine.

The stock is up 144% since March 23rd and over 230% year-to-date. Our Analyst Recommendations tool shows a consensus “Strong Buy” rating amongst Wall Street analysts, with the average price target of $87.64 representing a 35% upside even after months of incredible growth.

Tesla

Even CEO Elon Musk tweeting that the stock in his own company was overvalued couldn’t put the brakes on the Telsa stock rally this year. Day traders have helped drive this stock up 131% since March 23rd. Since January 1st the stock is up 140%.

The stock broke above $1,000 for the first time on June 10th, although it has since struggled to hold this level. The rally has left Wall Street analysts struggling to catch up – the average price target of $678.82 represents a -32% downside. Hedge funds snapped up three million shares in the last quarter, and news sentiment around the stock has been almost evenly split between bullish and bearish.

Snap

Snap is up 106% since March 23rd, although on a year-to-date basis the stock is up a more ‘modest’ 35%.

Our signals tools are sending bearish signals, however. Although the consensus rating amongst analysts is a “Buy”, at $19.91 the average price target represents a downside of -14%. Hedge funds dropped five million shares in the last quarter, and company insiders sold $206 million worth of shares.

MGM Resorts

MGM Resorts has been hit hard by the coronavirus pandemic, with its stock down 44% for the year. However, traders who bought it at the depths of the March sell-off would have netted a return of 103%.

The average price target amongst analysts of $17.92 represents an upside of just 1%, and the stock has a “Hold” rating. Hedge funds scooped up 48 million shares in the last quarter, while company insiders bought $24.5 million worth of the stock.

Spirit Airlines

SAVE is another stock that is down heavily on the year, but has surged from the March low. Since the market bottomed out, Spirit Airlines has recovered 102%, although it remains down -51% since January 1st.

Analysts rate the stock a “Hold”, although it has an average price target 11% higher than the current price of $20.56. Hedge funds trimmed their holdings by one million shares in the last quarter.

European shares soft ahead of FOMC meeting, Wall Street erases 2020 losses

Morning Note

Shares on Wall Street wiped out all of 2020’s losses even as the US was officially declared in recession. The S&P 500 is now up 0.05% for the year, after rising 1.2% on Monday on what looks like a mad fear-of-missing-out trade. The broad index finished at 3,232.39 on the cash close having gained another 38 pts and is now just 160 points away from its all-time high at 3,393.52 and trades with a forward PE multiple of 23.4.

In other words, unless earnings bounce back significantly faster than consensus estimates, then it’s very richly priced. It’s remarkable that equity markets can be this stretched on such a catastrophic economic contraction – but that is what unlimited Fed liquidity does.

European equities soft as markets await FOMC

Equity markets in Europe were lower again with investors looking ahead to the Federal Reserve two-day meeting, which starts today. Some big names in France – Airbus, Safran, Thales, and Dassault turned sharply lower despite opening in the green this morning even as the French finance minister unveiled a €15bn support plan for the aerospace industry. BP shares fell 1% as investors further digest the restructuring and job cuts.

With its dividend yield running at 9% it will have to cut pay-outs to shareholders sooner or later. The FTSE 100 may test the 6400 support level today after dropping under the 50-hour simple moving average support, whilst the DAX is hovering around the 12,700 level, with a possible support zone found at the big 78.6% Fib level around 12,565.

Candlestick price comparison chart for the FTSE 100 and DAX stock market indices

European markets still seem a bit unsure whether they should follow the US with another leg higher or show some more restraint given the economic uncertainty – and the fact Europe just doesn’t have the same amount of big tech – the S&P 500 technology sector is up 11% YTD, in line with the Nasdaq 100. German trade data was weak as exports in April suffered the biggest decline in 30 years. Exports –24%, imports –16.5%.

Asian markets were mixed with the ASX 200 rallying 2.44% and Chinese shares higher, whilst the Nikkei lost 0.38% as Japanese machine tool orders – an important leading indicator of manufacturing activity – fell 52.8% year-on-year last month.

FOMC meeting – Covid-19 necessitates caution

So far through this equity rally we’ve seen lack of harmony between interest rates and equities. Bonds didn’t really budge even as stocks started to ramp. As we flagged last week, the bond market has started to move, albeit 10yr Treasury yields retreated off their highs yesterday ahead of the FOMC meeting.

The combination of strong jobs, mortgage approvals and car sales numbers last week started to show in longer-date yields picking up. But this will not make the Fed see any reason to change its stance for now. The economic contraction in Q2 is still going to be severe, and unemployment remains exceptionally high by historic standards. The need for monetary policy to remain accommodative has not altered. And for all that the US is reopening, the WHO says the pandemic is getting worse globally.

The Fed is likely to leave rates and forward guidance unchanged. It will also stick to unlimited QE commitment, albeit it is tapering purchases. Although there have been signs that the US economy is bouncing back quicker than expected, unemployment is expected to remain elevated through the rest of the year and beyond.

Moreover, there are signs of Covid cases increasing in states which have reopened, and there is always the potential for a second wave this winter. This means the Fed will remain cautious, but it may want to signal that the next move on rates will be up and not down to quell talk of negative rates. The move in longer-dated Treasuries of late supports this view is now the market’s view.

Vroom prices IPO above target range

Meanwhile, keeping an eye on capital market health, another IPO in the US got away well. Vroom, an online used car seller, raised close to $500m in its initial public offering yesterday, pricing at $22, above the previous $18-$20 range, and implying a market cap of around $2.5bn. The company will start trading on the Nasdaq today with the ticker VRM. IPO activity is down this year for very obvious reasons, but there are signs the market in the US at least is coming back to life.

ZoomInfo stock has more than doubled since its IPO last week. We will be watching closely to see whether it encourages some of the larger names and ‘unicorns’ such as Airbnb, Robinhood, Instacart or Palantir to come back to the IPO table this year in spite of the pandemic.

GBPUSD gains in risk-on trade

In FX, the pound is coming off its highs to test the trend support around the 50-period moving average on the 1-hr time frame. Still sterling continues to make gains versus the dollar as the risk-on mood in markets supports cable. Having failed to secure 1.2750 bulls will need to retake this level soon to continue the thrust to 1.28 and open the road to 1.30. Immediate horizontal support at 1.2630.

Candlestick price chart and technical indicators for GBP/USD FX pair on June 9th

European shares cautious after Wall Street soars

Morning Note

Risk on resumes? Wall Street enjoyed one of its best days this year as hopes grew for a Covid-19 vaccine The Dow rallied 900 points, up almost 4%, while the S&P 500 rose 90 points, or 3.15%, to 2953, closing at its highest since March 6th. The close was just a little shy of the 2954 peak on Apr 29th, the most recent swing high.

European shares were firmer at the open before losing steam quickly. The FTSE 100 added to yesterday’s gains to trade above 6100 again on the open but then followed Frankfurt and Paris. US futures were off their highs. Asian markets were green across the board.

Indices are now at or slightly above the top of the recent trading ranges since the March trough. The question we have now is whether it makes sense for equities to take another leg higher and re-approach record highs against a backdrop of the worst economic slumps in decades. Hence, we would expect some pullback around these levels even if bulls muster again for a fresh drive. Economic reality may eventually hit home, the question is whether we first see a new leg higher and post-Covid high made.

Moderna shares rose 20% to $80 after the company said its early-stage human trial for a coronavirus vaccine produced positive results, with Covid-19 antibodies seen in all 45 participants. It’s early days but markets are prepared to see the glass half full at this stage. Four years is the fastest it’s taken to deliver a vaccine – for mumps in the 1960s. Technology may have moved on, but pinning all your hopes on a vaccine seems overly optimistic, which suggests these moves are driven by algos playing the news.

A vaccine – not treatment – is key of course to resuming life as normal – no social distancing on planes or in bars. It’s the holy grail right now and markets are prepared to take a leap of faith.

News from Europe is further supporting risk appetite with the old Franco-German engine at work. Merkel and Macron have agreed to push for a €500bn EU fund which would be in the form of grants not loans. With Germany on board now it should drive the holdouts in the Netherlands and Austria to agree. It will be funded by the European Commission borrowing money – coronabonds in all but name. This is an important breakthrough for the EU – at least it should be.

UK unemployment claims jumped, and wages fell, but the unemployment rate actually fell to 3.9% because of the furlough scheme keeping employees in their jobs. This is in marked contrast to the US, where there is no furlough scheme. The worry is that furlough simply delays the inevitable when companies do reopen, and at massive cost. For markets this could be seeing a big rise in unemployment and therefore hit to the economy even as cases of Covid-19 are fading.

After breaking out to new 7-year highs above $1764 yesterday gold has backed off and tested support at $1725 as the risk rally tempered the bulls’ passion. US 10 year Treasury yields advanced to 0.74% but have since pulled back to 0.70%.

WTI (Jun) seems to have safely negotiated today’s expiry after another big gain for crude on Monday indicated further confidence that oil markets are rebalancing more quickly than feared. Front month WTI traded at $32, with August now at $32.59. Brent futures traded above $35. Given the extent of the recent gains, there is ample room for a pullback from these levels.

In FX, the dollar was weaker apparently on better risk appetite, lending support to major peers. GBPUSD continued to break free from Sunday’s lows as better risk appetite boost sterling. Cable rallied into resistance at 1.2250, the past support level, and has now added around 1.5% this week. The pound continues face pressure though as a risk proxy – as previously noted sterling has become a RoRo (risk-on, risk-off) currency of late, as well as doubts around progress on talks between the UK and EU. The British government has just announced a new tariff regime for the post-transition world that would see 60% of imports without tariffs.

Today Jay Powell speaks at 3pm as he faces questions from Congress. In a prepared testimony he said: “We are committed to using our full range of tools to support the economy in this challenging time even as we recognize that these actions are only a part of a broader public-sector response.”

Chart: S&P 500 facing big test at the top of the range: confirmation of the breach of the late Apr swing high and push above the 61.8% retracement at 2934 opens path back to 3140 and the early March swing highs.

Disney earnings preview: analyst downgrade

Equities

Disney is a three-part business now – theme parks, films and streaming. Whilst streaming is going very well – thanks in no small part to lockdown – the other units are not performing so well.

DIS was downgraded to neutral from buy by MoffettNathanson ahead of the company’s earnings to be released after the market close on Tuesday (May 5th).

There are a number of risks that could lead this unprecedented event to have a longer impact, with earnings revisions massively skewed to the downside,” 5-star analyst Michael Nathanson wrote in the update.

Our Disney downgrade is also an admission that we believe the economic impact on the company will be longer than most anticipate, especially given the risks of a second wave of infections after reopening.

MoffettNathanson expects the theme parks unit revenues to fall 33% from $26.2 billion to $17.7 billion this fiscal year, which ends in September. Revenues are seen down 1% next year as the drag from Covid-19 lingers before bouncing back 22% in 2022. In films, the analyst sees earnings down 20% this year to $2.7bn on a 23% drop in revenues.

Stocks stage mild comeback after tough day, US jobless claims in focus

Morning Note

Stocks suffered yesterday as bulls hopes ran up against a wall of bad economic data, another drop in oil prices and banks’ earnings reports, but have recovered some composure in early trade today.

Wall Street fell about 2%, with the S&P 500 back under 2800 after a couple of shocking economic data releases ratcheted up the pressure on the bulls to find reasons to sustain the rally. US retail sales were sharply lower, falling around 8.7% month on month, the sharpest fall since it was first tracked in 1992. Britain followed suit, with UK retails down 4.3% in March from the same month a year ago, marking the steepest decline since records began in 1995.

Meanwhile the Empire State Manufacturing Index, a gauge of factory activity in New York state recorded its steepest ever fall to hit –78.2, far worse than the –32 expected. April will be even worse for these data sets, as much of the US was not shut down for the entirety of the survey period.

Today’s focus will be the US weekly initial jobless claims, expected to show again that more than 5m Americans claiming unemployment insurance last week. US 2yr yields sank to an 8-yr low on the news to 0.195% whilst stocks fell across the board amid a very weak day for risk.

The FTSE 100 broke down through the rising trend support line to close under 5600. In early trade Thursday the index was up 1%. Travel & leisure at the top indicated a better day for risk, but there is a caution about the move. I think we are back to looking for more good news on the virus now.

We’ve also had a bunch of bank earnings out that weighed on sentiment. With the largest US banks pretty well done with earnings, what is obvious is that the single biggest take-home is the extent of the increase in loss reserves. It’s a funny situation where the main thing we’ve learned also leaves with the biggest unanswered question – will these loan loss provisions be enough?

At Bank of America, credit loss provisions rose $3.8bn, from $1bn in the first quarter of 2019 to $4.8bn today. Citigroup hiked its provisions to $7bn from $2bn, a much bigger hike than others likely down to exposure to credit card debt, which is going to be probably the nastiest area of credit. Wells Fargo raised its reserves by $3.1bn and took a $950 impairment charge. JPMorgan provisions for losses jumped to $8.3bn.

Trading revenues were strong across the board after the massive dislocation in markets, huge volatility and widening of spreads. The strength there makes it a good time to be setting aside cash for loan loss provisions.

Couple of points to make:

1) The big banks are all to slightly varying degrees taking big upfront provisions for expected losses. This looks prudent – better to front load the bad news now so they can over deliver later down the line. If you’ve had a good quarter in trading – which they have – it’s sensible to effectively take those profits and put to one side now. Good news today won’t mean much, better to hold it back.

2) It’s guesswork. We still don’t know what kind of damage the economy will suffer, and we don’t know how quickly it can bounce back. That is to say; we don’t know the extent or duration of economic recession. Banks have been keen to stress the provisions for loan losses could well increase. JPM says it could be worth $45bn this year, implying a significant upward revision of loan losses in the worst-case scenario.

On the coronavirus outbreak itself, UK health secretary Matt Hancock says this morning that the country is reaching its peak but lifting the lockdown now would be premature. Some good news, but there is no time for celebration.

On the shape of the recovery, the W-shape is gaining more credence. The Economist Intelligence Unit is warning of a recession to be followed by a ‘possibly much worse’ downturn sparked by a sovereign debt crisis among highly indebted countries. Helen Thomas of BlondeMoney and a regular contributor to XRay, thinks a U shape is most likely. “The economic outlook is grim, with a double dip recession or even absolute stagnation the most likely outcome,” she says.

Oil took another dive yesterday as the International Energy Agency (IEA) warned that demand in 2020 would crumble, whilst US inventory data showed more massive builds of crude. The IEA said demand would fall by 29m bpd in April, around 30% of global demand, and by 9.3m bpd across the whole of 2020. The Energy Information Administration in the US said crude oil inventories rose 19.248m barrels vs 12.7 million barrels expected, the largest stockpile build on record. WTI plunged as low as $19.20, marking a fresh 18-year low.

In FX, the US dollar is staging a fightback as the dire economic outlook again makes it look like the least ugly sister. GBPUSD broke down through the 1.25 level and EURUSD has retreated below 1.09. For GBP we are monitoring the events around Brexit – the UK is keen to get on with it, whilst the EU and IMF would prefer to wait. Expect this to lead to fresh jitters around GBP once the coronavirus news starts to drop down the running order.

Equities

EasyJet shares jumped 8% expected to lose as much as £380m in the first half and has no idea when flights will resume but added that it can survive an extended grounding with a notional cash balance to last 9 months. That would be an absolute worst-case scenario and would burn through about £3bn – slightly more than £1bn for every quarter of grounding is expected. Management say they have already raised £1bn to cover 3 months initially. Investors are relieved for now and will be hopeful that once the lockdown ends people start booking up flights again.

European markets cautiously higher, oil weak despite OPEC deal

Morning Note

After rallying into the Easter weekend, European markets were bit lacklustre on Tuesday but still trading marginally higher thanks to some decent numbers out of China and the continued hope that governments are getting a grip of the crisis. US shares closed softer on Monday, with the S&P 500 down 1%, but this was after the best weekly rally for Wall Street since 1974.

Asian shares rallied overnight after better-than-expected Chinese trade data. Exports fell 6.6% in March, against –14% expected. Imports slipped 0.9% vs –9.5% forecast. With the usual caveats around Chinese government data, these numbers are much better than feared and underpinned broad strength in Asian trade. The Nikkei 225 closed 3% higher, finishing at a one-month high, while shares across China were also up around the 1% mark for the day. US futures are trading higher.

Lockdowns are being extended: The bitterer the pill, the stronger the medicine. At least that is what many governments are hoping for as they extend lockdowns and seek a path out of the mess. France will only gradually begin reopening the country from May 11th, while India’s lockdown is being extended through to May 3rd. The UK seems set to extend the lockdown by another 3 weeks to May 7th. The hope is that the more pain now, the quicker you can reopen the economy. We’ll need it – France’s finance minister Le Maire says GDP will decline 8% in 2020.

Meanwhile in the US, Donald Trump is as belligerent as ever, saying he is working on plans to reopen the economy, despite being the global epicentre of the outbreak and deaths exceeding 22,000. Several state governors are taking steps on their own to do this. The risk lies, as everyone knows, in reopening too soon and needing to close down again. But if the US economy does get moving sooner than elsewhere, we could see stocks outperform too.

Earnings season kicks off today in the US with the big banks. JPMorgan and Wells Fargo get the show on the road. Bank of America, Goldman Sachs and Morgan Stanley report on Wednesday. Investors seem to be expecting heightened volatility around this quarter’s earnings releases, reflecting the deep uncertainty about how bad the numbers will be. Heightened volatility will undoubtedly support trading top line, but we will need to see what effect government support has had on things like impairment charges. And as ever, the real focus will be on the earnings outlook for Q2.

Despite the historic OPEC++ deal to cut output by 9.7m bpd over the next two months and commit to ongoing curbs for two years, WTI has slipped lower since reopening on Monday and is forming a support zone around $22.30/40. Brent is struggling to hold $32.

There is still a lot uncertainty over whether the reduction in output will be enough. Saudi energy minister Abdulaziz Bin Salman said it will be more than the 9.7m headline cut, indicating as much as 19.5m bpd will come out of the market initially. But the commitment still lacks what some think could be a demand crash worth 30m bpd. Whilst there is bound to be a rebalancing in oil markets due to supply coming off, either by design or by default, most think OPEC and allies haven’t done enough to prop up prices in the near term, albeit they do seem to have shown a willingness to prevent a complete collapse as inventory builds threatened to overwhelm the market.

Output in North America is already collapsing. The EIA sees output down 366k bpd in April to 8.71m bpd and a further drop in May to 8.53m bpd. It wasn’t’ long ago US output was around 13m bpd. In Canada the number of active rigs has declined to just 35 from as many as 240 in February. Bank of America says the deal by OPEC will stem the decline in the US – just 1.8m bpd being lost vs a 3.5m without the deal. It predicts demand for 2020 will be down 9.2m bpd, vs a prior estimate of 4.4m. Texas oil regulators could decide today to mandate 20% production cuts.

The biggest uncertainty for oil is how quickly does demand recover in the medium term? Indeed, this is the central question for risk assets in general.

In FX, the pound pushed up to its strongest in a month versus the US dollar. GBPUSD broke clear of the month range yesterday and continues to find near term support above 1.2530. Looking to hold the rally above the 61.8 retracement at 1.25150.The mid-March swing highs around 1.2650 offer near-term resistance to the bulls, as well as the 200-day moving average at 1.2657 . Daily MACD still positive. The UK and EU are trying to keep the Brexit show on the road and are due to set out how they plan to progress trade talks on Wednesday.

Chart: FTSE 100, 1hr, MACD signalling weakness, look for support around Thursday’s lows at 5,677.

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UK 100 Cash, 1-Hour Chart, Marketsx – 08.50 UTC+1, April 14th, 2020

 

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