I don’t know yet if last Friday marked the bottom or not, but I sure like what I’m seeing.
The S&P 500 posted five consecutive up days this week for the first time since June.
Volume was bigger than average, which is hugely important. You can’t define a trend on low volume, so this is a good start.
Since Aug. 1, when the selling started, volume has exceeded 4 billion shares only 12 times, and four of those times were the first four trading days of this past week.
And while my proprietary Big Money Index (BMI) remains oversold, it ticked higher this week, giving us the first hints that it and stocks are about to climb higher.
Not to beat a dead horse, but I want to remind you that when the BMI fell to current levels in the past (going back to 1990), both it and the S&P 500 were higher one year later 100% of the time. And since 2016, they are higher 100% of the time one, three, six, nine, and 12 months later.
I also mentioned this in Thursday’s Power Trends, but it’s great to see growth stocks leading the charge. This is also important. Growth stocks have been beaten down in the extreme selling because they are impacted more than other kinds of stocks by high interest rates and a slower economy. And we all know the Federal Reserve has intentionally slowed growth to fight inflation.
If investors continue flocking to growth stocks, it will mean that fears are easing, and they are looking ahead to stable rates now and lower rates in 2024. This would be a major catalyst to kick off the end-of-year rally. Knowing growth has led the recent charge, let’s dig a little deeper and look at five top performers these last five days and run them through our Quantum Edge system to see whether they are likely to continue moving higher.
Shopify (SHOP)
E-commerce infrastructure company Shopify (SHOP) soared 22.4% on Thursday after strong earnings that beat analysts’ expectations for both profits and revenue. Management’s comments indicated that consumers continue to spend – a great sign for the economy and stocks.
SHOP’s Quantum Score is 62.1, which is not horrible but not great. The optimum score to buy stocks is between 70 and 85. As a reminder, my Quantum Edge system analyzes dozens of fundamental and technical factors to rate more than 6,000 stocks every day.
Shopify’s fundamentals rate lower than I need to see at 54.2. This week’s earning’s report clearly showed improvement, but concerns linger, like a negative profit margin of 61.8% and a rich valuation with shares trading at 91.2 times expected earnings.
The technicals rate 54.2, which is also lower than I like to see. They will improve given the recent pop, but the trend is not strong enough to make me a buyer here. The stock may continue to do well, but there are better opportunities.
Arista Networks (ANET)
Cloud networking company Arista Networks (ANET) is one of those better opportunities.
Its Quantum Score is an excellent 86.2, thanks to equally excellent fundamentals and technicals.
ANET’s fundamentals rate 83.4, with strong growth across the board, hefty profit margins, and virtually no debt.
The technicals rate even stronger at 88.2, which in part reflects the 21% pop since the company’s strong earnings report on Oct. 30. My system picked up three Big Money buy signals in the past week, building on multiple other buy signals throughout the year.
Source: MAPsignals.com
Arista Networks is a great company operating in a great theme of cloud networking. It’s growing now, and that growth should accelerate in the future as networking becomes critical to the convergence of artificial intelligence and quantum computing, which will open up some eye-popping possibilities. I will talk more about this in the future.
Intel (INTC)
The granddaddy of semiconductor companies, Intel (INTC), is also riding a post-earnings pop as buyers scoop up growth stocks. The company beat expectations for earnings and sales and lifted expectations for the current quarter.
In a good sign for tech stocks in general, management said sales of personal computers are strengthening after subsiding following a pandemic-related surge when everyone needed to work at home and stay in contact over Zoom. Management also talked about the first artificial intelligence (AI) PCs coming to market in a couple of months, which could boost sales.
INTC’s Quantum Score of 70.7 is solid. It squeaks into the optimum buy zone, thanks mostly to a strong technical rating of 85.3. Shares took a hit in the September volatility, but they are up nearly 45% for the year and have bounced back strongly over the last week.
I’ve seen no Big Money buy signals since the recent high on Sept. 12, and I will be watching to see if that changes in the year-end rally.
If I have a concern with Intel, it’s the fundamental rating of just 50. Earnings have declined for eight straight quarters, while sales are down seven quarters in a row. This could be about to turn, which is what management is predicting, but I would be more comfortable waiting for confirmation than jumping in now.
I see better semiconductor companies to buy right now, like one we’ll talk about below.
Amazon.com (AMZN)
Chalk another winner up to earnings. Amazon.com (AMZN) also handily beat earnings and sales estimates when it reported last week. Like Intel, the company is trying to return to solid growth after things slowed down following the pandemic surge when we all bought everything online.
AMZN’s Quantum Score of 65.5 is a mixed bag. Overall, that’s not a bad rating and close to our target buy zone. But again, this is mostly driven by technicals. They are hugely important, but not the whole story when predicting future prices.
Amazon’s technical rating of 79.4 is quite good, thanks mostly to its strong 2023 performance (up 64%) and boosted by its recent rebound. I saw multiple Big Money buy signals from May through September, but it’s only been sell signals since then. That’s not a surprise.
Source: MAPsignals.com
AMZN’s fundamental rating of 45.8 scares me off. Again, some of that is the post-pandemic slowdown, which I get. But in addition, the company’s profit margin is -0.5%. Its debt is high, more than double equity value. And the stock is pricey after this year’s run.
AMZN might do well in the future, but those drawbacks make it less certain than other options right now.
Advanced Micro Devices (AMD)
Advanced Micro Devices (AMD) gave investors a Halloween “treat” with its earnings after the close that day. The semiconductor company jumped 10% the next day and has moved higher since then.
AMD’s Quantum Score is a highly attractive 79.3, right in the sweet spot buy zone and with nice balanced strength among fundamentals and technicals.
The fundamental score of 83.4 is among the best around, with growth, profit margins, debt, and valuation all solid.
The technicals rate 76.5, which is also strong and highly predictive of higher prices.
AMD’s artificial intelligence chips are getting a lot of buzz right now, and the data points to future upside. Semiconductor stocks have been hit pretty hard in the recent selling, and I do think the best positioned ones will bounce sharply in the coming months.
We have a semiconductor company with an even higher Quantum Score in my Quantum Edge Trader service. It’s our biggest winner so far, and I expect more upside from it as well for the same reasons.
What happens next will be telling, and I’ll be watching closely to see if recent buying continues and if growth stocks – specifically tech stocks – continue to lead the way. I’ve said all along that tech would lead the next Big Lift, and we could be at the starting blocks right now.
Whether we are or not, we know stocks with muscular fundamentals, strong technicals, and Big Money inflows will lead the way. These are the stocks my Quantum Edge system helps me find, and I encourage you to own them as well to make the most of what’s coming.
Talk soon,
Editor,
Jason Bodner’s Power Trends
