Part 2

Last month, we saw the strongest market rally since 1987, which is now giving investors a great opportunity to collect some profits and wait for better market prices in the coming weeks in order to re-open their long-term buying positions.

As usual after we complete our ETF pair analysis we pick the two best stocks in each ETF that have the highest probability of beating the market in the current environment.

One of our top-stock picks from the XLY for the month of May is:

Nike Inc. (NKE)

Company background

Founded back in 1967 in the US, Nike is the global leader in the business of designing, developing and marketing of athletic footwear, apparel, equipment and accessories, as well as other services for men, women and children worldwide. Thanks to its strong brand portfolio, including Nike Pro, Nike Gold, Nike+, as well as Air Jordan the company offers well-designed and high-quality premium products, in line with the latest trends.

Nike plays a major role in the overall performance of the XLY with its 4.90% weight within the ETF. In fact, the company is among the top holdings of the XLY and we have always been very interested in analyzing Nike’s financial as well as stock market performance in order to identify great investment opportunities and be able to maximize our followers’ profitability.

Current position – Financial Performance & Technical Analysis

The company’s 1st quarter financial results have beaten analysts’ expectations and that has been extremely bullish for its share price. The revenue figure came out 2.36% better than expected, while the earnings per share have come out a lot higher than analysts’ expectations – $0.78 vs. $0.54 expected (44.44%). Thus, this has been extremely positive for its share price performance and has been driving the stock price higher lately.

By looking at the chart, one could see that Nike’s stock followed the huge sell-off and dropped from $104 to the lows at $60.60 (42%). Yet, as the market started recovering, investors realized that that huge correction is giving an amazing opportunity for buying Nike at such an incredible discount that hadn’t taken place for many years in the past and therefore be able to maximize their profit potential to the upside. Thus, the stock appreciated towards the $91, representing a 50% gain to the upside, followed by a short-term profit-taking correction towards the $85 support mark.

By considering the overall financial performance and market positioning of the company, together with the current market price still trading at a 16% discount from the highs early this year, we believe it is worth adding Nike to our portfolio and expect further purchasing activity among investors close to the current levels, which would boost the stock higher and maximize our followers’ profitability.

Chart: Nike Inc.

We will start buying Nike at $83-$84, just above the major support at $82 where lots of buying pressure is expected. In case the price breaks the support and drops further, we will be interested in adding more to our buy positions at the next strong support at $79. Our first take profit target is at $90.50, followed by the next target at $100-$102 where we will be fully closing our positions and collecting the profits.

One of our top-stock picks from the SPY for the month of May is:

Amazon (AMZN).

Company background

AMZN was one of the best performing stocks during the coronavirus pandemic. The company has seen a further growth in its customers’ online purchasing power and that has led to the stock breaking new records and reaching its new all-time high at $2475! In other words, the stock is up more than 50% in the past 6 weeks, followed by a short-term correction that could be giving us a very good buying opportunity close to the current levels.

Amazon Inc. is one of the largest e-commerce providers, headquartered in the US and already spreading its services across the globe. The company’s online retail business is presented through its Prime program, which is well supported by its massive distribution network. Moreover, its $13.7 billion acquisition deal of the well-knows supermarket chain Whole Foods back in 2017 helped Amazon establish its footprint in the physical grocery supermarket space.

Current positioning – Financial performance, company management, growth projections

Furthermore, Amazon enjoys its current dominant position in the cloud-computing market, particularly in the infrastructure segment, thanks to its Amazon Web Services (AWS) – one of the company’s high-margin generating businesses. Amazon has also approached the households with its Alexa powered echo devices. Alexa is backed by Artificial Intelligence and is helping the company sell its products and services.

Amazon has got a big weight and plays an important role in both the SPY (2.90%) and the XLY (22.38%).

By looking at the latest quarter’s financial results, we should say that the company reported mixed results wherein revenues beat expectations but the earnings figure came out worse than analysts had expected.

Amazon’s CEO Jeff Bezos has clearly said that the company has been forced to increase its expenses lately in order to make sure logistics operations run smoothly during the pandemic crisis. Yet, the company’s revenue increase came out as a very positive indication that shows the company still managed to increase its sales during the pandemic. In other words, its e-commerce business has seen quite a high purchasing activity over the past few months, driving the company’s revenues, proving that the company can do well even during crisis times.

Technical Analysis

By looking at the chart, we should say that after the massive sell-off that took place between the 20th of February and the 17th of March where the stock lost nearly 24% of its value, we have seen a massive buying activity around the $1630 lows and reversing the uptrend, sending the stock to a new all-time high record at $2475. It is incredible to see a stock break new record and reach new highs during pandemic times! This by itself speaks a lot about the company’s business model and market positioning, as well as investors’ overall perception about the company and the long-term expectations for the future.

Since Amazon stock reached its new record high at $2475 we have seen a profit-taking correction for more than 10 days now, sending the stock towards the current levels at just above $2300. Investors who managed to take advantage of the huge appreciation of the stock started cashing in some profits, which was only logical after the huge spike of 50% on the price in the past 6 weeks.

We believe in the longer term success of Amazon and even though the coronavirus pandemic would definitely lead to an economic slowdown, which looks inevitable, we are interested in holding great companies with a successful business model and market positioning that have proven to do well even during such tough times on the market.

The daily chart shows the strong support mark (a broken resistance) at $2184, which matches with the 38.20% Fibonacci retracement level at that point, while the technical indicators started crossing down in the overbought territory and are giving some indication for a very likely further depreciation in the short-term. In fact, that is exactly what we are waiting for. Considering all above-stated facts, we would like to add Amazon to our portfolio and will wait for a further correction towards the major support level, which would give us an amazing buying opportunity.

Chart: Amazon Inc.

We will start buying the stock aggressively at around $2220-$2230, just above the support at $2184 where lots of buying pressure is expected. Should the price break the support at that level, we will be interested in buying more Amazon stock at the $2050-$2070 area, just above the $2040 support. Our first take profit is set at $2390, followed by the next target at $2480 where we will be fully cashing in our profits.

You can subscribe to our Full Package in order to receive all of our top stock and ETF picks and analyses for the month!


Add a comment