Traders Market Weekly: Memorial Weekend a Time for Reflection

Viewing 15 posts - 1 through 15 (of 72 total)
  • Author
  • #37276

    Market Updates

    S&P Futures vs Fair Value: +26.0
    10 yr Note: 2.820%
    USD/JPY: 127.50 -0.37
    EUR/USD: 1.0670 +0.0105
    Europe: FTSE: +0.7% DAX: +0.5% CAC: -0.2%
    Asia: Hang Seng: -1.2% Shanghai: 0.0% Nikkei: +1.0%
    Gold (1861.70 +19.60) Silver (22.15 +0.48) Crude (111.39 +1.11)


    US futures off to positive starts

    The global equity markets are mostly higher. S&P Futures are up about 26 points to trade around the 3925 area. The market has been fairly quiet with a modest range expansion during the European hours. The S&P traded as high as 3955.50 while the low sits at 3910.25.

    In Asia, China closed flat while Japan gained 1%. The Shanghai Composite was unable to gain any traction after authorities-imposed lockdowns to certain districts in Beijing after reporting the highest daily tally in the latest outbreak. In Japan, the Nikkei posted solid gains led by strength in shipping stocks. As such, names like Kawasaki Kisen Kaisha and Mitsui OSK Lines rose 3-5%.

    In Europe, the major bourses are mixed. German IFO surveys topped expectations and helped support the DAX. Financials are among the best performing groups with lenders such as Deutsche Bank, Commerzbank and Societe Generale up 2-4%. With Crude oil futures back over $111, energy producers such as Shell and BP are up around 2%.


    S&P 500 futures are 1.1% above fair value.
    Nasdaq 100 futures are 0.9% above fair value;
    DJIA futures are 1.2% above fair value


    Carryover momentum from Friday’s late rally effort
    Speculation that market is overdue for meaningful rebound effort, aided by month-end rebalancing activity
    M&A buzz with reports indicating Broadcom (AVGO) is in talks to acquire VMWare (VMW) and that Electronic Arts (EA) is looking for a merger partner or sale of company
    President Biden says he is thinking about lifting some Chinese tariffs in effort to help ease inflation pressures
    Ukraine says it won’t agree to ceasefire with Russia that involves ceding any territory
    ECB President Lagarde notes it is possible that ECB could exit negative rates by the end of Q3
    Shanghai sees some COVID case improvement, although concerns persist about case pickup in Beijing


    Brokerage research calls of note:

    Downgrades: ADSK, AXON, GLW, CVET, DOW, HPQ, LYB, O


    WTI crude futures +1.0% to $111.38/bbl; wheat futures +1.6% to $11.86/bu; nat gas futures -2.1% to $8.00/mmbtu
    10-yr note yield +3 bps to 2.82%; 2-yr note yield +2 bps to 2.60%


    There have been some confirmed cases of monkeypox across the US. It is similar to smallpox but milder and not expected to become a pandemic.

    SIGA Tech (SIGA) +19% is a commercial stage pharma play on the disease. In January 2022, the European Medicines Agency (EMA) approved the marketing authorization application for oral Tecovirimat SIGA, the same formulation that was approved by the U.S. FDA in July 2018 under the brand name TPOXX. The approved EMA label has a broader indication for use to treat smallpox, monkeypox, cowpox, and vaccinia complications following vaccination against smallpox. SIGA closed on Friday with a $747M EV while 3.3% of the 39M share float was recently sold short.

    GeoVax (GOVX) +40% is another potential play on monkeypox with its MVA-based (modified vaccinia Ankara) vaccine platform. From Maxim: “An MVA-based vaccine for smallpox/monkeypox JYNNEOS, developed and commercialized by Bavarian Nordic (BAVA – NR) has been ordered by the US Government (13M doses, $119M)… Over the last week, BAVA shares are up ~44% and GeoVax ~100%, though from a market cap perspective, GeoVax remains undervalued ($13M market cap), in our view. We also note Emergent Biolosolutions (EBS – NR) shares are up ~22% after the company announced its acquisition of Chimerix’s (CMRX – Buy) smallpox therapy Temexa on 5/16/22. Even with the shares up over 100% last week, we note that with $16M of cash (as of 3/31/22) and no debt, GOVX shares are still trading below cash.” As Maxim notes, GOVX had a negative $3M EV as of Friday with $16M in cash; Some 4% of the 8M share float was recently sold short so this is one worth keeping on the radar near term. The $4 level does seem possible in GOVX but I am unlikely to chase the stock this morning.


    Zoom (ZM) will report this afternoon. The company guided down Q1 and FY23 by a decent margin last quarter. Zoom remains a solid business but competition from the likes of MSFT, GOOG, CSCO etc. remains stiff, so the stock is cheap at 14x EV/EBITDA or 16x FCF. Some 5% of the 220M share float was recently sold short. I am leaning toward closing my position for a loss as this stock seems unlikely to work significantly higher going forward.


    Bloomberg reported that Broadcom (AVGO) -4% is in talks to acquire VMWare (VMW) +19%. Broadcom has been quiet as of late, but it is a semiconductor roll up that has increasingly focused on acquiring higher margin software businesses. Michael Dell still owns 40% of VMW, which was actually a little cheaper than AVGO relative to profit estimates coming into today. VMW closed Friday with a $50.5B EV, trading at 10x E/EBITDA and 13.6x EPS. Broadcom closed on Friday at 12x EV/EBITDA and 15x EPS.


    JPMorgan (JPM) raised its FY22 net interest income outlook and reaffirmed expenses.


    Equity indices in the Asia-Pacific region began the week on a mixed note.

    South China Morning Post reported that large tech companies in China are cutting staff.
    India lowered duties on coal imports.
    South Korea and the U.S. may expand joint military exercises. South Korea’s exports through the first 20 days of May were up 24.1% yr/yr with chip exports increasing 13.5% yr/yr.
    Australia’s Labour coalition won parliamentary majority and Anthony Albanese was sworn in as prime minister today.

    Japan’s Nikkei: +1.0%
    Hong Kong’s Hang Seng: -1.2%
    China’s Shanghai Composite: UNCH
    India’s Sensex: -0.1%
    South Korea’s Kospi: +0.3%
    Australia’s ASX All Ordinaries: +0.1%


    Hong Kong’s April CPI 1.3% yr/yr (expected 1.8%; last 1.7%)
    Singapore’s April CPI 5.4% yr/yr (expected 5.5%; last 5.4%)


    Major European indices trade in the green while Italy’s MIB (-0.7%) underperforms.
    European Central Bank President Lagarde indicated that the central bank expects to be in a position to exit negative rates by the end of Q3.
    Bundesbank expects Germany’s economy to grow modestly in Q2. The European Commission confirmed that EU’s debt rules will remain suspended through 2023.
    Germany’s Finance Minister Lindner said that the EU’s expansive fiscal policy must end.

    STOXX Europe 600: +0.7%
    Germany’s DAX: +0.5%
    U.K.’s FTSE 100: +1.2%
    France’s CAC 40: +0.4%
    Italy’s FTSE MIB: -0.7%
    Spain’s IBEX 35: +1.2%


    Germany’s May ifo Business Climate Index 93.0 (expected 91.4; last 91.9). May Current Assessment 99.5 (expected 95.8; last 97.3) and Business Expectations 86.9 (expected 83.5; last 86.8)


    Dow +389.59 at 31651.51, Nasdaq +17.09 at 11371.70, S&P +32.73 at 3934.10

    Ten sectors trade in positive territory but the influential consumer discretionary sector (-1.1%) is struggling to keep pace due to losses in most of its components, including top listings Amazon (AMZN 2096.18, -55.64, -2.6%) and Tesla (TSLA 651.91, -1.99, -1.9%). Ross Stores (ROST 77.06, +5.19, +7.2%) has bucked the sector’s early weakness as it rebounds from Friday’s plunge.

    On the upside, financials (+2.3%) and energy (+2.2%) lead with energy holding a solid gain despite no change in the price of oil, which hovers near $110.17/bbl.


    Energy Sector $XLE strong 83.75 +1.98 (+2.5%) with financials $XLF leading (+3.3%).

    3 largest components lead:

    Exxon Mobil $XOM 94.27, +2.41, +2.6% & ConocoPhillips $COP 108.22, +3.20, +3.0% new 52-week highs.
    Chevron $CVX 172.23, +4.41, +2.6%) rising toward its record high from last week (175.65). Stock was mentioned positively in Barron’s.

Viewing 15 posts - 1 through 15 (of 72 total)
  • You must be logged in to reply to this topic.