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A tremendous opportunity at the cross section of two markets

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From Zach Scheidt, Editor, The Daily Edge:

Pop quiz – can you name this stock?

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I’ll give you a couple hints…

  • This stock is in the red-hot retail industry.
  • The company reported tremendous earnings this week.
  • Strength is being driven by the vibrant U.S. housing market.

Did you get it?

The company is Restoration Hardware (RH), a home furnishing store that has been knocking it out of the park thanks to a convergence of two major trends in the U.S. economy.

If you bought the stock at the beginning of last year, you’d be up 500% on your investment today.

And the best news is that for RH — and so many other retailers in this industry — the fun is just getting started!

Have Money, Will Spend…

This is a great time to be selling luxury products to American consumers.

Ironically, as I write this alert, I’m sitting in my local Starbucks next to a table full of nine different “entrepreneurs” discussing their business of selling luxury health products to consumers in our community.

With unemployment levels at extreme lows, wages ticking steadily higher, and inflation readings well within a “normal” range, Americans just have money to spend!

That’s exactly why the consumer discretionary sector of the stock market has been so strong, and why retail stocks like Restoration Hardware are on the move.

Across the board, I’m seeing strength in restaurant stocks, apparel stocks, athletic gear stocks, discount retail stocks, and even auto stocks!

Essentially any investment tied to consumer spending has a very good chance of producing significant gains this year.

Hopefully you’ve already been paying attention to this area and making money on your investments. After all, we’ve been pounding the table about retail stocks for months here at The Daily Edge.

Fortunately, even if you’ve missed out on this ramp in consumer spending so far, there’s still time for you to cash in.

Because today, there’s an additional trend that’s helping to push a specific group of retail stocks even higher.

Compound Your Gains with a Vibrant Real Estate Market

Are you in the market to purchase a new home?

Even if you’re not personally looking for a home to purchase, chances are good that you know someone who is. Perhaps even your children or grandchildren are getting ready to make their first real estate purchase.

The housing market in the U.S. has been on fire lately. And that’s not about to change any time soon.

Demographic trends are pointing to strong demand for new homes as young families start to move out of rental properties and invest in their own homes. With so many of these families delaying purchases following the financial crisis 10 years ago, there’s now a tremendous amount of pent up demand.

Think about your experience the first time you bought a home…

If your family is anything like mine, you probably spent the first year making multiple trips to Home Depot (HD) or Lowe’s (LOW), buying furniture and having it delivered, and stocking up on everything from dishes and kitchen appliances to decorative items.

My wife still insists that these are not discretionary purchases, but actual necessities to make our house a real “home.”

Just over the past month, we’ve started to see investors take a renewed interest in home builder stocks. For a while, these investors were more focused on higher interest rates (and the potential for mortgages to become too expensive) than they were on the supply and demand dynamics in the housing market.

That’s now looking like a big mistake as homebuilder stocks rally.

Which is why I’m still very bullish on these stocks, as well as the retail stocks that will increase sales as more homeowners start furnishing their new digs.

Here’s How to Play It…

We’ve got an abundance of opportunity tied to both the expanding retail market and the recovering housing market.

Today, you can tap into both of these trends by investing in stocks like Restoration Hardware that fit both the retail market and benefit from purchases that new homeowners are making.

Home remodel stores like Home Depot (HD) and Lowe’s (LOW) are in a great environment right now. Not only are people buying tools and fixtures, but more discretionary items like plants, grills, and even luxury appliances are flying off shelves.

When it comes to stocking cabinets and shelves, stocks like Williams Sonoma (WSM)have been booking profits and trading higher. I’d recommend buying any pullback in home decor stocks like this.

And finally, home furnishing stocks offer great value. You may not think of La-Z-Boy (LZB) as a cutting edge retailer, but the company has new product lines that are in line with consumers’ evolving tastes.

Don’t forget the widescreen TVs these new homeowners will be purchasing to watch sports this fall. Shares of Best Buy Inc. (BBY) have been trending higher, and there are plenty of other consumer electronic choices to consider for your investment portfolio.

In short, there are tremendous opportunities in the cross section between the retail and home buying markets. Picking a handful of stocks in these areas can go far in helping you to build your wealth as the U.S. economy grows.

Here’s to growing and protecting your wealth!

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Zach

Crux note: It’s so easy, an eight-year-old can do it…

That’s the “social experiment” posed by one market trader… and the claim he’s set out to prove in this presentation. 

No buying stocks… No options trading… But this financial maneuver is good for thousands of dollars in gains. Click here to learn more.


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Stocks

Charts show steady investor optimism, more upside for stocks

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The stock market rally that began 2019 has not yet run its course, even with Tuesday’s Washington-induced surge, CNBC’s Jim Cramer said after consulting with technician Carley Garner.

“The signs suggest that this market can have more upside before the rally exhausts itself,” Cramer recapped on “Mad Money.” “Eventually the market will become too optimistic and stocks will peak, but we’re not there yet.”

Garner, the co-founder of DeCarley Trading and author of Higher Probability Commodity Trading, has an impressive track record. In mid-December, one week before the Christmas Eve collapse and subsequent rebound, she told Cramer that pessimism was peaking and stocks were due for a bounce.

But now that the S&P 500 has gained over 15 percent since those midwinter lows, it’s worth wondering the reverse: what if optimism is approaching its peak?

Lucky for Wall Street, Garner says it’s not. She called attention to CNN’s Fear and Greed index, which uses a variety of inputs to measure what CNN sees as investors’ chief emotional drivers.

Right now, the index sits at 67 out of 100, signaling more greed than fear, but still “a far cry from the extreme levels where you need to start worrying,” Cramer explained. When the major averages peaked going into the fourth quarter of 2018, the index hit 90, and according to Garner, “we usually don’t peak until we hit 90 or above,” he said.

Add to that the fact that only half of professional traders and investors polled for the most recent Consensus Bullish index said they felt bullish; the recent downtrend in the Cboe Volatility Index, which tracks how much investors think stocks will swing in the near future; and that, historically, this is a good time of year for stocks; and Garner sees more momentum ahead.

The S&P 500’s technical charts seem to uphold Garner’s theory. Its weekly chart shows fairly neutral readings for two key indicators: a momentum tracker called the Relative Strength Index and the slow stochastic oscillator, which measures buying and selling pressure.

“Even if the S&P 500 keeps climbing to, say, … 2,800 — up 2 percent from here — Garner doesn’t anticipate either the RSI or the slow stochastic [to] hit extreme overbought levels,” Cramer said, adding that the technician could even see the S&P climbing to 3,000 if it breaks above the 2,800 level.

If Garner is wrong and the S&P heads lower, she said it could trade down to its floor of support at 2,600, and if it breaks below that, fall to 2,400. But that scenario is highly unlikely and, if it happens, would be a buying opportunity, she noted.

The S&P’s monthly chart told a similar story, Cramer said. The index is currently trading at 2,746, between its “hard ceiling” at 3,000 and its “hard floor” of 2,428, he said, which means it’s “basically in equilibrium.”

“To Garner, that means going higher is the path of least resistance for the S&P,” the “Mad Money” host said. “Once the S&P climbs to 2,800, or perhaps … to the mid-2,900s, that’s where Garner expects things will turn south and the pendulum will start swinging in the opposite direction.”

“Remember, … Carley Garner has been dead-right, and the charts, as interpreted by Carley, suggest that this market still has some more upside here,” Cramer continued. “But if we get a few more days like this wild one, she thinks we’ll need to start worrying about irrational exuberance. For now, though, she thinks we are headed higher, and I agree.”



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What Jeff Bezos’ private life means for investors

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Daniel Ek, chief executive officer and co-founder of Spotify AB.

Akio Kon | Bloomberg | Getty Images

Daniel Ek, chief executive officer and co-founder of Spotify AB.

Cramer said Wall Street has misread Spotify‘s latest earnings report and guidance, and that misunderstood stocks like these give investors an opportunity to make some money.

he called out stock analysts like Everscore ISI’s Anthony DiClemente who have downgraded the equity over concerns about subscriber growth.

“I think this is lunacy,” said Cramer, who has been bullish on the music streaming platform since it went public last April. “It’s like the market just doesn’t know how to read this company or its quarterly guidance. In my view, Spotify is very much on the right track.”

The stock was rocked after a seemingly mixed quarterly earnings released Wednesday, Cramer said. After Spotify reported lower-than-expected sales, tight cash flow and conservative guidance across the board including subscriber growth, shares sold below $129 at one point in Thursday’s session.

But Cramer noted that the company beat expectations on operating profit and gross margin, which was 120 basis points higher than was asked for.

“I think the sellers were missing a lot of context here and the context is something I like to talk about a lot and it’s called UPOD. They under promise … and then they over deliver,” he argued. “At this point, CEO Daniel Ek and his team have established a track record of giving cautious guidance—under promise—and then beating it—over delivering.”

Spotify’s guidance includes planned investment costs and the company could “become the premier platform for podcasts,” a hot market for hard-to-reach millennials, Cramer said.

Click here to read Cramer’s full take.



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Charts show investors ‘can afford to be cautiously optimistic’

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Investors can afford to be “cautiously optimistic” at this point in the stock market’s cycle, CNBC’s Jim Cramer said Tuesday after consulting with chartist Rob Moreno.

Moreno, the technician behind RightViewTrading.com and Cramer’s colleague at RealMoney.com, sees a convoluted path ahead for stocks. After calling the December bottom, Moreno noticed that the Nasdaq Composite’s late-2018 decline was about a 24 percent drop from peak to trough.

That’s important because, in a bull market, stocks tend to see “periods of consolidation — pauses in a long-term bull run,” Cramer explained. “To [Moreno], the decline here looks very similar to what we saw from the Nasdaq in 2011, 2015 [and] 2016,” three consolidation periods of recent past.

If he’s right, that could be bad news for the bulls, who may have to wait at least seven months for stocks to break out of their consolidation pattern, during which they tend to trade in a tight range, Cramer warned. But Moreno still sees some opportunity for investors.

“If you believe his thesis about the market — that we’re in a consolidation period, one that will last until September — then you can afford to be … cautiously optimistic right now,” Cramer said on “Mad Money.”

Part of Moreno’s confidence came from his analysis of the S&P 500’s daily chart, which also included the support and resistance levels from its weekly and monthly charts.

Even after a 16 percent rally from its December lows, Moreno saw more room to run for the S&P based on its Relative Strength Index, or RSI, a technical tool that measures price momentum. The RSI, he explained, hasn’t yet signaled that the S&P is overbought, and the Chaikin Money Flow, which tracks buying and selling pressure, shows big money pouring in.

“Moreno thinks that these new buyers are the kind of investors who won’t be panicked out of their positions by short-term volatility,” Cramer said, adding that the technician sees about 3.5 percent more upside for the S&P before it hits its ceiling of resistance at 2,818.

But if the S&P manages to trade above its ceiling of resistance and return to its October highs, Moreno expects a “synchronized reversal” in the stock market that could crush the major averages, the “Mad Money” host warned.

“At least until September, Moreno says you should be a seller if the averages approach their October highs — that’s around 2,930 for the S&P 500,” Cramer said. “Eventually he expects a breakout from these levels, but it won’t happen any time soon.”

So, what’s the right move for investors? According to Moreno, not all is lost. He still expects to see strong gains — a roughly 7.5 percent move — before the current rally peters out. But he doesn’t want buyers to get too trigger-happy, especially considering the months of sideways trading he’s predicting for 2019.

“Until [September], he expects the market to trade in a fairly wide range, with the S&P bouncing between 2,350 and 2,930. For now, we’re headed higher, but he says you should use these key levels as entry and exit points until the consolidation pattern finally comes to an end later this year and the averages resume their long march higher,” Cramer said. “Even if he’s right and this rally will lose its steam after another 7.5 percent gain, that’s still pretty good, but I am very wary and it makes me want to do some selling after this run.”



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