The market continues to break as another COVID outbreak appears to be running rampant in the US. Investors are worried a second wave now could cause sizable economic impediments and push back the timeline to economic recovery.
The S&P 500 has come from over 3,200 in the second week of June to fighting a battle around 3,000, which is being supported by the 200-day moving average at 3,020 (which we bounced off this morning) and a Fibonacci retracement level which I have indicated below.
Above is the S&P 500 I charted out utilizing TradingView's trading tools.
The blue circles represent strong support levels that will mark the battlegrounds between the bulls and bears. The red circle around 2,800 is the point in which I will start broadly purchasing equities if we can get back there.
The Virus Outlook
The virus has become progressively less deadly since its original US outbreak in February and March. This is primarily due to medical professionals' better understanding of the pathogen and how to treat it.
Below is a chart from Wordometers illustrating the recent uptick in daily cases, which is most likely associated with the nationwide protests we have seen this month.
This next chart is showing the daily deaths from this novel pandemic (also provided by Worldometer).
The progressive drop in COVID related deaths is a great sign, but it remains to be seen if this recent uptick in cases will become serious. I am confident that a full quarantine will never be reinstated, but there is concern about an extended timeline to full reopenings. Many businesses will continue to suffer in this indefinite partial lockdown (aka controlled social distancing) that we are experiencing in the US today.
There has been speculation that as the virus mutates, it will become progressively less lethal, but this is still just a theory. It was said that the already marginally mutated version of the virus was at least not more fatal than its parent pathogen.
If it were to be found that the virus becomes decreasingly harmful over time, this would undoubtedly surge optimism into the equity markets.
Stocks I Am Looking To Purchase On Pull Back
My focus remains on heavy tech growth stocks, as this is where the returns have been and will continue to be in our rapidly digitalizing economy. The Federal Reserve extended a low-interest-rate environment making these innovation drives worth more today than before the pandemic started.
Sea Limited (SE)
This enterprise is driving outrageous growth with triple-digit year-over-year growth over the last 7 quarters straight. Sea Limited is the leading internet enterprise in Southeast Asia and Taiwan driving its growth and customer base through digital entertainment, e-commerce, and digital payment products.
The stock has tripled in value since its March lows, and I am waiting for a sizable pullback on the frothy equity before I start adding to my position again. I'm looking to buy more SE if it can come down below $80 per share, represented by the 2.618 Fibonacci level you can see circled in red below, and price average down on a further slide.
TWLO has exploded since its Q1 earnings report in early, which blew expectations out of the water and demonstrated to investors the value of its unique product offering.
Twilio controls a niche cloud market with an enormous addressable market. This pandemic has provided the platform with an opportunity to prove its value, and Twilio has not disappointed. Twilio's unmatched AI capabilities in its remarkable customer engagement platform could mark the end for foreign call centers.
Twilio's AI-powered PaaS is trusted by many enterprises that rely heavily on customer satisfaction for continued growth. Companies like Uber (UBER), Lyft (LYFT), Airbnb, DoorDash, Twitter (TWTR), and countless others depend on Twilio's smart platform to keep their customers happy.
I'm not going to buy TWLO at the all-time highs it is currently sitting at, especially since the shares have more than doubled in just two months. I believe the market has priced too much optimism into these shares and would love to see these shares fall back down below $200 per share. I would be a buyer if this stock could hit $170, the 50-moving average (indicated by the red circle).
The fact that the Amazon (AMZN) of the East (aka BABA) has not taken off like its western counterpart is baffling. Alibaba controls the e-commerce space (80% market share), as well as its cloud-computing category (roughly 50% market share) in the most populous and soon-to-be largest economy on earth.
Alibaba is valued at less than half of Amazon despite producing substantially wider margins, greater profitability, and having a larger topline growth outlook for the next couple of years.
BABA is a buy today, and 14 out of 14 analysts agree, giving it price targets between $230 and $300 per share (roughly $260 average), a 5 to 37% upside from where it is trading today ($220 per share). As a long-term investor, I would not hesitate to start a position in this revolutionary tech enterprise before it takes off.
If you are a more conservative buyer, I may wait for these shares to come down towards their 50-day moving average (blue circle). I already hold a sizable amount of BABA and will wait to see if these shares can come down to the 50% retracement and 200-day moving average (red circle) before purchasing more.
The market is stalling out, and just like all recession rallies will likely break again. I wouldn't be overzealous about buying this marginal correction as the markets are still hanging by a thread, and any more negative news could send the indexes tumbling again.
Be patient and average down on your favorite stocks if we do continue to see down days. The stock market still has a rocky recovery ahead.
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Uber Technologies, Inc. (UBER): Free Stock Analysis Report
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