KATHERINE ROSS: Welcome to the June monthly members call. As always, I'm Katherine Ross, and I'm joined my Chris Versace and Bob Lang. First and foremost, y'all, it's been a challenging month for the markets, and obviously, even the portfolio has had its fair share of wins and losses. So Chris, what have you learned this month from the wins and losses?
CHRIS VERSACE: You're right on, Katherine, that the month of May was probably one of the more challenging ones. It really escalated with what happened in the month of April, and I think we started off being good stewards of the portfolio. If we look back in April, we smartly trimmed back a number of different positions building on our cash. And I think we probably, in hindsight, could have been a little more aggressive in doing that sooner. I think that would have insulated the portfolio even more so than we did.
We wound up taking some actions, bringing in some inverse ETFs, as the members know. And now we're starting to carefully and prudently deploy some of that cash, as we did earlier today in a new name for the portfolio. And as well as yesterday, really looking to take advantage of the changing landscape.
And what I mean by that is not only prices that have come down for certain new positions but also making sure that we're leaning into some of the things that we've been talking about over the last several weeks, i.e. Dividend payers or companies with more defensible business models, more inelastic business models. And then finally, just looking for companies that have pronounced opportunities for growth, irrespective of what's going on in the economy. So I think those are some learnings and some things that we'll put into practice in the coming weeks.
KATHERINE ROSS: Well, and Bob, hindsight is 2020. So with that in mind, how has this last month really changed your approach to next month?
BOB LANG: Investing is a real humbling experience. That's for sure, and the stuff that Chris talked about is very evident. We did quite a few transactions over the month of May. Some good, not some not so good. But I'm really happy and pleased with where we stand right now, at least leading into the summertime.
Summertime tends to be a little bit slower than normal times, but we do think that with elevated volatility right now the VIX is still highly elevated here. Above 25% I would say is a signal that we're going to have big, wide swings, up and down the markets, and certainly, last week is an indication of that. If you were leaning a little bit too far to the bearish side, you were, unfortunately, sitting on some losses. But we're going to have some big swings, and we have to be prepared for that. We do have good, strong, high quality names in the portfolio, and we're going to continue to add to those names and add new names. But for now, I think we just have to sit tight and wait for things to settle down over here.
I think that low that we hit, about 3810 on the S&P 500 a couple of weeks ago, has got to be retested again to see if that's firm. And if not, then we could see a little bit more downside from there. But for now, I think we're kind of in a bit of a no-man's land right here, and I think we're going to pay attention to what's going on. We do have a lot of cash, and we do have those inverse ETFs that are going to insulate us against some of the expected high volatility.
KATHERINE ROSS: But you guys aren't sitting down and waiting, which leads me to the stock by stocks, and I want to start with the newest position in the portfolio. That is American Water Works. Now, it has had a rough year to date, but that's not an anomaly in this market. So Chris, what's the thesis?
CHRIS VERSACE: The thesis here is, when we look at American Water Works, it's the largest publicly-traded water utility. And unlike a number of other services, where you can choose who your mobile carrier is, you can choose where you want to go eat, you simply cannot choose who your water utility is. That makes it an extremely sticky, sticky business. And when we traced it back to the Great Recession, its revenues fell very modestly, some 2%. I think that speaks to the power of the business.
At the same time, its bottom line actually improved, and that also speaks to another aspect that we like about it which is the company's ability to win rate increases from public utility corporations. And they've had a number of approved rate increases in the first half of the year. That's going to pay dividends in the coming quarters, but they also have several others that are forthcoming as well. So as we look to entering the seasonally strongest time of the year for water usage, those rate increases are really going to drop to the company's bottom line in the current quarter.
But more importantly, the company has just been on a tear in terms of increasing its dividend. They've done so for the last 14 years, and they target another 7% to 10% over the coming years-- each year, let me clarify that. So from our perspective, it checks a number of boxes, and the shares are down well off their highs of the year. So we saw it as a good entry point.
KATHERINE ROSS: Bob, how does that chart look?
BOB LANG: Well, we recently came down to test at a level that was good support back in February. Let's
call it about 142 to 145. And now it's starting to carve out the right side of a base which is what you like to see with, I'd say, a good short-term target here is about 170 to 172, which is a good 13% 14% higher than where the current price is at today. So it's about 151 right now.
So I do like the chart here. It's very constructive. Relative strength is starting to make higher highs and higher lows, the MACD is on a buy signal. So I think that we do have some good upside to go here with AWK. And once we get up to that level, let's call it around 170, which is slightly higher than the 200-day moving average. We'll reassess and see where we want to add some more.
KATHERINE ROSS: The next newest position is the Energy Select Sector, a SPDR fund or XLE. Now, Chris, I have to ask, why are you guys buying ETFs instead of individual stocks?
CHRIS VERSACE: So we like the broad-based exposure that it gives, in an environment where we've chosen to use ETFs. We've done it before with the cybersecurity ETF cyber, but also here with XLE. What we can talk about is essentially a rising tide lifting all boats, and it means that there's going to be a number of areas that are moving higher.
On cybersecurity, there's a number of different protections, but with XLE in particular it's energy. So that means oil prices, natural gas prices, as well as gasoline prices. So it really gives us a 360 exposure in one security.
As we talked about when we starting adding ETFs to the portfolio, we're doing this again as we look to augment the broad-based exposure with more specific exposure. Having said that, given the news that we received yesterday that the European Union is indeed going to clamp down on its Russian oil imports, as well as the resumption of economic activity in Shanghai, we wanted to act and act quickly and get that broad-based exposure. Hence the move.
KATHERINE ROSS: And Bob, obviously, energy is a huge sector. So would you consider looking at a specific stock, or is the ETF going to give you the ideal amount?
BOB LANG: I really like this ETF here, and having given the fact that it's up about 62% in 2022, it's going to have its pullbacks here. And I think the last few months, we've seen this ETF pull back anywhere from 8% to 10% and give you a really nice entry point. So as opposed to trying to pick out which components are going to be the winners here-- we do know that Chevron and Exxon are big components of the XLE ETF. But I think that given the fact that there are some good broad exposure to other names as well too, and it just doesn't correlate 100% with crude, this is an ideal instrument for us to use to capture some more upside in the price of oil with limited downside here. Listen, you know what, we could come down about 10%, which call it about $81, $82 on the XL ETF, and that would be another excellent entry point for us to add some more shares.
KATHERINE ROSS: Our next stock is PSQ. Bob, can you explain how PSQ plays into the portfolio?
BOB LANG: So the PSQ is the inverse of the NASDAQ 100. So we do have quite a bit of exposure to tech in the Action Alerts PLUS portfolio. So we were looking for something that would give us a little bit of protection against highly volatile times for the NASDAQ.
So the PSQ basically works in inverse. So if the NASDAQ is say down 2% on the day, we'll see the PSQ up about 2%. It trades about almost $13, $14. We added some exposure to this a couple of weeks ago, and it insulated us against some of that big downside that we had about two weeks ago, when the NASDAQ-- and the NASDAQ dropped about 500 points one of those days.
So we had that PSQ on, and it insulated us from some of that downside. But again, it's just a very small position here. It's a way for us to use some of the cash to protect us against highly volatile times.
KATHERINE ROSS: Chris, one member question that I've gotten repeatedly is what's the benefit of having both PSQ and SH in member portfolios?
CHRIS VERSACE: So they really hedge against two different things. So when we look at the portfolio, its benchmark is the S&P 500. So we added SH as a way to protect the overall portfolio from the number of uncertainties and headwinds that have been hitting the market April, May, and continuing as we start off the month of June, and we think they'll be with us foreseeable at least for the near term. So compare that with PSQ which, as Bob pointed out, is really just the NASDAQ 100, essentially, growth in tech. So the combination of the two gives us some nice, overall hedging instruments for the portfolio.
KATHERINE ROSS: Let's go to SH, and Bob, how long do you expect to hold SH for?
BOB LANG: That's a good question. We had a nice-- we're supporting a really nice gain on that just a few weeks ago, and market maybe possibly bottomed at about 38 10 on the S&P 500. We were supporting about a 12% to 14% gain, because the markets were down about that much from the time that we bought the SH.
We did add a little bit more to it recently as well. So I think as long as the markets remain volatile, here and we're going to get some big ups and downs, there's really no reason why we shouldn't hold the SH. I do think, if we do get a big spike in volatility, let's say the VIX rises up to 40, 45, maybe possibly even 50-- I don't expect that to happen, but if it does happen, that would probably be a time where we should peel off some of our SH. Because the SH would probably be going up at that point, probably would be a time to let some of that go if not, all of it, on a big spike up in volatility.
KATHERINE ROSS: And Chris, how should our EU members approach the ETFs that AAP is buying?
CHRIS VERSACE: So it really hinges on the ability for them to trade with whoever they're investing through. For example, here in the US, we would say, oh, are you with Charles Schwab, TD Ameritrade, e-trade, Fidelity, what have you? So it's really subject to the availability on those platforms. If you don't have access to those, then we would just say add the incremental amount to your cash position. That will give you some nice insulation as well.
KATHERINE ROSS: And continuing on our trend, our next ETF is CIBR. It is pretty close to its 52-week low, Bob. What kind of upside do you see with this name?
BOB LANG: I do like the CIBR, because the components in there have been relatively strong, especially the higher-rated ones, like Palo Alto Networks, Crowdstrike have been pretty strong. I do see the stock trading back into the range. When we got into it, it was basically trading within a range of about 45 on the downside, about 53 to 54 to the upside. We're a little bit below that lower end of the range here, but I see the stock at least getting back into that 9 to 10-point range pretty soon.
Again, it's got some high beta names and there as well. So that's going to cause a lot of wild swings up and down for CIBR, but I do think that this stock's got some-- this ETF has got some gusto in it. It really has a chance to move much higher, especially given the performance of some of these names that are in the portfolio.
KATHERINE ROSS: Chris, is the fundamental thesis still intact for this one?
CHRIS VERSACE: For CIBR 100%. As we continue to move further into the digital lifestyle, whether it's on a personal basis, corporate basis, what have you, the number of attack points is only going to explode. And that's even before we factor in the explosion in IoT that's going to as result, as a result of 5G, the connected car, and the like. So what I would argue, candidly, is that every portfolio needs some exposure to cybersecurity. It's arguably the digital insurance that everyone needs.
KATHERINE ROSS: Let's go to CBOE. Bob, we actually talked about the similarities between CBOE and the S&P. Now, if the S&P is able to carve out some gains, we get to see a couple more positive days on the docket, do you expect to see an upside to the stock?
BOB LANG: Yes, I do, and frankly, that was a good question we had last week from a subscriber who mentioned, correctly, that the CBOE and the S&P 500 are pretty highly correlated. It was about - came in at about 86% correlation to the S&P 500. So it'll pretty much mirror what's happening with the S&P 500,
But this stock is strong, and of course, options volume has been exploding. And it's recently made a move to the 50-day moving average, and it's actually moving up again today. So today is one of those days where the stock is moving against the market, because it's up higher today, and then the markets are down.
We can get a move up towards that 200-day moving average. Let's call it about 120, where it had some resistance last time it traveled up there, in the early part of April, before the markets broke down. But I do like this name. It came down really hard on heavy volume, which kind of tells you that big institutions are selling it. And it's come back nicely over the past couple of weeks, and I think the stock's got much more upside ahead.
KATHERINE ROSS: OK, members. I know that this next name is one that you're dying to hear about, and that is ChargePoint which did report earnings last night. Now, it did beat on revenue, but disappointed on EPS. Chris, following that earnings call, what's your read?
CHRIS VERSACE: It's an interesting report, in the sense that, from a demand perspective, everything that we've been talking about was simply confirmed in that. From tremendous year-over-year growth, of course, across all three of its businesses, commercial fleet as well as residential, continued gains in Europe, rising backlog. All of that is positive, and remember too, that's really before we really see the kick in of the Biden infrastructure law that carves out some dollars-- or more than some dollars actually-- for EV charging stations.
So the one wrinkle is one that we've seen in the past several weeks, whether it's Applied Materials, Deere, or almost any other company out there, that they contended with higher supply chain issues and rising costs. And some of that is going to start to ameliorate in the second half of the year. They're also going to put in some price improvement. So that too will help with the margin pressure, and I think that, as we see the revenues continue to ramp in the second half of the year, rather significantly, and those margin improvements start to hit, we're going to see a lot more operating leverage.
So I continue to be extremely bullish long term with ChargePoint. Remember, the Biden infrastructure spending is not one year. It's four or five years long, which means that we have a nice runway with ChargePoint throughout 2022 '23 and '24.
KATHERINE ROSS: Bob, the stock is under pressure this morning. How would you approach the stock here?
BOB LANG: Well, as long as stock stays above the 20-day moving average, the chart is still very constructive. The 20-day moving average comes in at around just under $12. We did pull back a little bit yesterday, had a nice run up during the middle of the day, and pulled back with the rest of the market later in the day. And again, it's following through down a little bit today, but as long as it holds here, it's got a nice pattern of higher lows on the chart. And we were looking for the stock to get back up into the 14, 14 and 1/2 range, which is right around near where our cost basis is located.
So I think just, again, just be a little bit patient over here. The earnings report was pretty decent, and as Chris just mentioned, the long-term outlook for ChargePoint is extremely favorable. And make a run back up to the 14 and 1/2, 15 area, and we got something to work with to get back to the 200-day moving average. Which is about nearly at the April high, where it was about 16 and 1/2, $17.
KATHERINE ROSS: Next up on the docket is Disney. Last month, Bob, you said that 115 was the line in the sand for you with this name. We're now below that. We're at 108, as of this afternoon. So has your thinking changed? Is there upside?
BOB LANG: Yeah. Since the last time we spoke, the stock had reported the earnings for the first quarter, and it was not very impressive at all. And the stock fell, darn near broke $100 on a couple of occasions, recently. It's bouncing back a little bit right now, but we think it's going to probably move sideways here between 100 and 112.
Once it gets back above that 115, 116 area, we might have to reassess. But I think at this point in time, we just got to be patient and just wait. Really doesn't make much sense to let go of a strong brand right here.
Were we early? Absolutely. This is one of those sore points that we have in the portfolio. But at this point in time, I think it's just better for us just to wait and see what happens here. But no question, the stock has been disappointing for us in the AAP portfolio.
KATHERINE ROSS: And Chris, obviously, we've got high interest rates and a potential economic slowdown. Those are both concerns for consumers. Are you concerned that that could impact the position?
CHRIS VERSACE: Well, let me come at it slightly differently, which is when you look at Disney, they're-- outside of the streaming business, the two big businesses to watch are going to be the parks business, which with rising gas prices, rising airfares, it becomes incrementally more expensive for people to go there. So yeah, we are at the margin a little more concerned about the prospects for the parks business, but then there's also the consumer-facing merchandise business. And when consumers have not as much disposable income, because they're paying more for food, more for gas, more for home, energy, and the like, again, some concerns on that aspect of the business as well. And I think what members should take from what I'm saying is that the enthusiasm that we had a couple of months ago, before the inflationary pressures really came about as being elevated and sustained, is not there to the degree that it was. And I wouldn't be surprised if, as Bob indicated, that at the right time we start to work our way out of Disney, but certainly at higher levels than we are today.
KATHERINE ROSS: OK, and let's take a look at Airbnb. Bob, what level should members watch with this name? It's been a house of pain lately.
BOB LANG: Sure has, and if you really wanted to just isolate on one particular name that has a distinct advantage over its competition, it would be Airbnb. But still, I think the question is still out there, whether there's going to be a strong reopening or not, and that has been reflected by sellers hitting the stock, whenever they possibly can. This is a high-growth name. It's got some beta to it, and every single time the stock has made a bit of a rally, it's encountered some sellers. And that's a distribution from big institutional players. They just don't want that exposure to a high-beta name.
The MACD is starting to turn around a little bit over here, had a nice week last week. Relative strength is starting to get buttingly better, but still this is a stock that has been punished with the rest of the high-beta stocks in the NASDAQ. And I'm looking for a turnaround over here, possibly back into the 120, 125 area, so they can take a look at it again and reassess. But clearly, this is much like Disney. It's a very disappointing name here for us, but we think that the travel business is going to be strong for years to come.
KATHERINE ROSS: And Chris, exactly to your previous point on Disney, the higher gas prices, inflationary pressures, potential economic slowdown. These are all concerns that could impact Airbnb as well. Right?
CHRIS VERSACE: They are 100%, and I talked with Bob about those the last couple of days. That look, at the margin, if it becomes that much more expensive for people just to live in general, odds are they're going to cut back on their extra travel and/or vacation spending. Now, having said that, going to Airbnb is potentially cheaper than taking a family of five, six, whatever it might be to a hotel.
Trust me. I had a big 2022 college graduation that was fairly evident. But again, we have to think about what is going to happen with the average consumer and their ability to weather these inflationary pressures that they're seeing.
My bigger concern, just generally speaking here, is after what we heard from companies like Uber, Lyft, Microsoft even, and even Salesforce last night, that they're starting to slow their hiring. And then when we look at the ISM manufacturing data for May that we got today, the employment component actually contracted. That to me says that we could start to see some even greater belt tightening emerge, and if that's the case, discretionary travel is likely to be targeted. So I do think we're going to keep an eye on this. If that data continues to show up, raising those concerns, it would be prudent, prudent to start taking some chips off the table with Airbnb.
KATHERINE ROSS: Speaking of chips, let's get to some chip stocks, starting with Applied Materials. Following earnings, what is your approach to semi stocks, Chris, and specifically how is AMAT looking?
CHRIS VERSACE: Sure. So let's remember that AMAT is somewhat different, although related to, quote, chip stocks. Right? It manufactures the machines that manufacture the chips. Right? So we know that chip capacity remains constrained.
We know that there's a number of applications out there that are going to continue to drive demand for chips. And it's a combination of the expanding number of connected devices but also rising chip content per device. And what we've talked about with 5G smartphones, but we can also make the same argument with EVs compared to combustible gas engines. Sorry, members, a little tongue twisted today.
So when we look at that, and we look at the book to bill and the backlog numbers over Applied Materials and the order book that extends not just through 2022 but through 2023, there's a lot of positives there. Hearken back to my comment on ChargePoint, near term, Applied is one of those companies that is contending with greater incremental costs. But again, as those headwinds start to fade with the benefit of pricing that Applied is putting into place and rising production volume, we're going to see a lot more operating leverage in the back half of the year.
So I would say, I know it's been frustrating, but the data continues to confirm what we're looking for. All the commentary about rising chip demand and rising spending for chip equipment remains. And remember too, there is also that additional tailwind for Applied Materials, which is the reshoring of supply chains, particularly for semiconductor production and, therefore, demands for equipment. So a number of positives for Applied. I continue to remain optimistic and bullish on the company.
KATHERINE ROSS: All right. Bob, what about the technical landscape? How does that look?
BOB LANG: Well, it looks like Applied Materials is trying to carve out a bottom over here. I'm always a little bit leery about bottoms, but when we see a stock or an index start testing levels multiple times, like it did-- like Applied Materials has come in around 105 to 108 area. And it's testing over there, and it's picking up buyers at that level. So even though the stock is down off of recent highs, I would say that that's a pretty safe level to enter the name or to make sure it holds.
It's been making a small series of higher lows, so that's a little bit encouraging. We see some green shoots and the chart with good, strong relative strength. MACD is on a buy signal.
So the secondary indicators are starting to support the stock, even though the price action has been a bit choppy here. I do like Applied Materials down the road. We should get a move back up to the 120 to 130 area, where it was catching some buyers in the last time around. But I do like Applied Materials here for a nice move higher.
KATHERINE ROSS: Let's go to AMD. Chris, is AMD a buy after being pummeled?
CHRIS VERSACE: Absolutely, and I'll give you a three big reasons for it. The first is really what we heard
out of HP last night and Dell last week about stronger than expected PC demand and likely to continue. Two, no slowdown in demand for data center chips, and AMD is obviously in that market. That's augmented with its exposure to Xilinx, and that brings me to my third point, which is the synergies associated with that acquisition, and when you put that together, that really makes for a very differentiated story compared to some of the other chip companies that are out there. So we continue to like AMD.
KATHERINE ROSS: And Bob, are you worried at all about AMD being on the verge of breaking through $100?
BOB LANG: No, not really. It did flirt with that breakdown below $85 recently, but it really fought back hard to get back up towards 100. It's really at that par level right now, $100 to $101.
It fought really hard and has a nice pattern of higher lows and higher highs on the chart here. It just needs to keep going here and make a run back towards that 200-day moving average. Call it about $117. So it'd be a good 15%, 16% move from where we're currently at right now,
But the chart is rather encouraging here. I didn't really like it in April. I was just basically waiting. It hit a bottom, and again, it tested that bottom several times and started making a run up to the right-hand side of the-- trying to carve out the right-hand side of the base. So the volume levels have been impressive as well too on the up days, so I do like AMD down here.
KATHERINE ROSS: Let's go to Nvidia. Now, Bank of America analysts love this stock. They, in fact,
believe that Nvidia is undergoing-- and I quote-- an underappreciated transformation, despite the earnings that did not impress. So Chris, do you agree with these analysts?
CHRIS VERSACE: We can argue that there is a transformation underway at AMD, and it's really most evident in its business mix. Historically, it was known as a gaming-related company and growing in data center. Well, data center is now the largest business, and again, we've seen no slowdown in the demand for data center chips. And I think that's going to be very positive for that core business now at NVIDIA.
However, the gaming business is one that we're going to have to watch, and I say that for two reasons. Again, incremental consumer spending concerns, but also too, we're getting towards the time of year when gaming is far more stronger on a seasonal basis. And again that's the end of the year, new game releases, new platforms. So it's going to be one to watch for us, but as long as the data center business is thriving, and all signs point to that, I believe that Nvidia is going to continue to perform as a stock.
KATHERINE ROSS: And Bob, the year-to-date chart of Nvidia shows a steady decline. Where does the stock go from here?
BOB LANG: Well, it really blasted off that 160 level last week, and that was a really firm area where three or four different days over the past few weeks the stock planted a low right there. So as long as we stay above that level, we should be fine. We did have a nice gap up on Friday, two days after the earnings came out, and it's holding that gap here.
It's trying to roll over here, because the markets are weak today. But I think that if we make another higher low in the chart, and then head ride back up past 181, 185, we make a run towards that 200-day moving average. Got a nice target up there, about 242 on the 200-day moving average. Could take a little while to get there, but I think that that overall eventually is going to be a good target to get to.
KATHERINE ROSS: Let's go to AMN next. Bob, Chris broke down the catalyst behind AMN, and that he thinks it's a buy on weakness. That was from yesterday's Daily Rundown. So I wanted to get your thoughts on whether or not the technicals match that?
BOB LANG: Yeah. So when we first got into this name, we identified a good range in this stock, was probably call it about 93 all the way up to about 120. Could even get a little bit lower than that, maybe about 110. So let's call it 93 to 110.
Then, it broke down in April and May below that level. So we're right back into that range again. So I think anywhere in this $93, $94 area is a good spot for subscribers to add more shares of AMN. I think it's got some-- been picking up some buyers, especially around the $90, $91 area, whenever it popped down there at the end of May.
But I do like this stock. I do like the chart. It's pretty constructive. Relative strength is starting to improve here.
Good money flow, actually, the last couple of weeks into AMN. So I think it's supportive of big institutional buyers coming in and picking up the stock. So I do like AMN right here.
KATHERINE ROSS: Our next talk is Apple. With WWDC coming up, what do you want to see, Chris?
CHRIS VERSACE: Well, I think we're going to see a number of software-related items. This is typically the event where Apple debuts what's next for iOS, Mac OS, tvOS, and watch OS. With betas released throughout the summer and then full finished product coming later in the year, as the new iterations of hardware show up.
However, there is a lot of chatter that we could see a few special surprises here. One of them could be a brand new MacBook Air, complete with the new M2 chip, which is Apple's proprietary chip design. So to me, what we're seeing with this and the M2 is Apple just continuing to do what it does, which is overhaul its products, make them far more powerful.
So I think that's good, but I think increasingly, given some concerns about iPhone production, I think it's going to be-- Apple is going to need to debut something new. I think there's going to be a lot more pressure on it to do that. There's a lot of chatter about its goggles that it'll have for augmented reality applications.
Rumor has it that they showcased them at the board. So I wouldn't be surprised if one of the things that people are looking for in iOS 16 and other software updates is lines in the code that point to these devices being imminently available. And by that I mean most likely in the next two or three quarters.
KATHERINE ROSS: Bob, what's next for the stock from a technical perspective?
BOB LANG: Well, what's coming up here is what's generally a bearish pattern is the death cross, and a death cross comes in when the 50-day moving average crosses underneath the 200-day moving average, and they're pretty close right now. The 50-day moving average is coming in at-- coming down at a pretty steep angle, and it's going to cross that 200-day moving average probably within about four or five days.
So a lot of technicians are going to see that. It's going to get their attention. We've seen some mixed results actually from a death cross, especially on the indices. More recently, we had indices cross like on the Russell 2000, and that actually turned out to be a nice buying opportunity for that index.
But as we get back to Apple here, poor relative strength right now. The market has been punishing these strong tech names. Again, we're in a bear market here. So nothing goes untouched in a bear market, when it comes to selling.
The cloud is red. MACD is trying to turn up for a buy signal over here. But we need a little bit of sideways movement with Apple to get right back up and through that 50-day moving average. But nothing in the beginning comes good from a death cross. So we'll be watching that in the next couple of days.
KATHERINE ROSS: Let's stick with some strong tech names and go to Amazon next. Bloomberg is reporting that the FTC probe into Amazon is gaining momentum. Chris, is this a concern?
CHRIS VERSACE: Any time we have a regulatory concern, it's going to be something that we have to pay attention to. The real question is, does it have merit? Is it really going to disrupt the business? And I think that'll be played out over time.
We have to remember too, to some extent, tech is a big, big poster child for folks in DC, but we do have the midterm elections coming up. So we'll have to really revisit that and stay on top of it.
KATHERINE ROSS: And Bob, I've got some members wondering if Amazon's still a long-term hold.
BOB LANG: Yeah. I think long term, the prospects of Amazon are real good. There's not a lot of competition there in terms of online. Of course, Walmart, Target, some of these other big box retailers are strong competition for Amazon.
But I think overall, Amazon is a good, solid, strong company, good high quality. It's got the Amazon Prime working for it. As far as the charts concerned, it's put in a nice bottom right around 2000, slightly above there. Twice already, it's tested that level, and we think that's pretty good. We could come down another-- we've had a good run here over the last four or five days, almost 5%.
And of course, we do have a stock split coming out later on this week. Stocks can be splitting 24 for 1 on June 3rd for shareholders as of record, and that always creates a lot of energy, a lot of excitement for more shares coming out. But I do think that the stock's got-- go a little bit sideways here for the next couple of months, right up into earnings season, which they will be reporting at the latter part of July, would be more constructive for Amazon right now.
KATHERINE ROSS: Another name that's also going through a stock split is Google, or Alphabet, the parent company. Chris, as Bob has said, we've seen tech face such a severe sell off here. We are in a bear market. Is that stock split the only positive catalyst that you see on the horizon?
CHRIS VERSACE: No. I don't think so at all. I think when we think about the slowdown in economic activity, we have to step back and say, is it going to change other things that people do? Some would argue stream, programming, that sort of thing.
I don't think we're going to see a pronounced slowdown in people consuming YouTube videos and in searching the internet. Particularly in an economically-challenged environment, they might be searching the internet more, trying to price shop and price comparison. And remember, as they do that, that continues to feed the machine that is the core business at Google, which is advertising. So I do think you'll see the company continue to benefit from people who spend money on advertising, the Proctor and Gambles and the like, looking to really showcase their products where people are, and that's going to lead right into the strength, that is Google's business.
KATHERINE ROSS: And this name is trading below its 200-day moving average, Bob. Are you concerned?
BOB LANG: No, not really, but it's a little bit different than Amazon right here. Amazon at least came down and tested a low. Google has yet to do that. So more recently that low than it came in, let's call it around 2050, 2050, it hasn't come back to retest that.
So I would say that, if we can come back down and pull in and test that number that we had a couple of weeks ago, when the markets hit those low levels, we bounce off of that and come right back up again. It would be a good spot for subscribers to add some of these shares. But below the 200-day moving average, doesn't really bother me right here with Amazon.
Again, remember something, a lot of these tech names are well below their 200-day moving average. But at least the stock is starting to gain a little bit of momentum. It's above the 20-day moving average and tested that a little bit this morning, and we'll see how it responds. If that 20-day moving average starts to turn back up, we'll get a little bit more momentum in the name.
KATHERINE ROSS: Let's go to Microsoft. Goldman Sachs says that Microsoft is a buy here. Bob, does the chart agree with that?
BOB LANG: I think more recently, the stock held us 245, 250 level. It's making higher lows as well. The chart is a little bit more constructive than some of the other names that we've looked at. Relative strength is pretty good. MACD is on a buy signal.
It's right below some extreme resistance here. It's called the 50-day moving average comes in at about 281, 282. So we do have a little bit of upside to get to that level, and then we might pull back a little. But I do like the Microsoft chart. It is constructive here. Especially during this time right before earnings come out in the latter part of July, I suspect that we'll get a little bit of back and forth action here with Microsoft and then going to move right back up towards 300.
KATHERINE ROSS: Let's go to Ford next. Chris, what's on Ford's horizon?
CHRIS VERSACE: Oh the continued transformation to EVs, and also we're hearing commentary that at the margin auto chip supplies are actually improving. That was right out of today's ISM manufacturing report. So that says to us that the second half of the year should be incrementally better for Ford.
The bigger headwind that we've got to discuss and contemplate going forward is, as the economy continues to slow, will people be upgrading their cars as fast as some might have thought previously? And while it might slow, we have to remember too that there is an extra incentive here for the accelerated shift towards EVs. And that is of course those record high gas prices, which are poised to only get worse throughout the summer. So I wouldn't be surprised if we hear Ford talking a lot more about the EV business, perhaps seeing that mixed transformation accelerate, as EV volumes pick up. And we see a little bit of a slowdown in the combustion side of the business.
KATHERINE ROSS: And Bob, this stock is actually towards the bottom of its 52-week range. How would you approach the chart?
BOB LANG: Yeah. Stock's fallen about 50% from their recent highs, which came in in the early part of January. And what I'd like to see happen with Ford here is have the stock just go sideways for a little bit, for about a good two or three months, and not make a lower lows. Came in around 12.60 to 12.70 towards the end of May. I'd like to see that level hold and maybe just go sideways for a little bit.
Again, this is a bear market, and if we're not making new lows, then let's call it a small, hollow victory. But if we can just go sideways for the next couple of months, maybe between $12.50 to $14 bucks, we can make another run, another run higher. But I don't think that it's necessary to unload Ford right now. I do think a little bit of sideways action would be good.
KATHERINE ROSS: Chipotle Mexican Grill is up next. On the year-to-date, chart it does look like the stock is trying to come back, Bob. What kind of upside do you see?
BOB LANG: Yeah, had a good week last week with good volume and good price action on the stock. Down a little bit today, but I do think that 50-day moving average is pretty close here. Let's call it 13, or sorry, 16, 1468, excuse me. And if we get back up to that level, it's going to turn the short-term moving averages upwards again.
So the move above the 20-day moving average more recently was a good move for Chipotle and, again, good volume. The other indicators are starting to turn positive as well too. We do have some resistance at the 200-day moving average, quite a ways up there, let's call it around 1635.
But there's plenty of room up here for this stock to go. It's a good grower, and again, it's just getting beat up with the rest of the market, but we'll get the market turning around in the summertime. This is a stock that investors are going to be going after.
KATHERINE ROSS: Chris, it's my favorite question this month. What kind of catalyst do you see on the horizon for CMG?
CHRIS VERSACE: So the data that we watch is from a combination of the monthly retail sales data, the Mastercard SpendingPulse data. That's the catalyst that we'll be watching from a hard data perspective. But just anecdotally, ever since I got over my COVID, I've been out and about.
And I have to tell you, there's three, four Chipotles within a certain distance of me, and every time, I passed and they are simply packed with lines almost out the door. And I think what we're seeing is people are continuing to eat out, but they are trading down where they're going. No longer embracing a casual dining, like they had in the past, when we first saw the reopening. I think they're embracing the quick service restaurant-style even more so, and I think that speaks right to Chipotle's strength.
KATHERINE ROSS: Let's talk about Costco. Chris, is Costco still an inflation play, and if so, are you looking to add?
CHRIS VERSACE: Well, so two questions there. Let's take the second one first. Would we add? As members can see on the board, the weights around 3.3%. So it's one of the larger positions.
Typically, we don't add much over 3%. Having said that, though, Costco's business model is absolutely an inflation fighter, and we simply love that differentiated membership business model. So it is something that, with the stock way off our price target, even though it has rebounded, it's one of those things that we are behind the scenes, behind the curtain, if you will, talking about perhaps breaking our own rule of a little over 3% and taking Costco higher.
KATHERINE ROSS: And Bob, what kind of technical landscape would you need?
BOB LANG: Well, it's in the stock's sitting in a no man's land right here, between the 200-day moving average and the 10-day moving average. So it's short term. So it's a wide disparity of moving averages over here. But still, the stock is a pretty volatile name.
It's got a high beta attached to it, and the stock had a big move last week post earnings. If it can go sideways here for a little bit, let's call it within about a 40 to 50 point range, goes sideways for the better part of June and into early July, that would be constructive. To get some of the rest of the technicals in line, not all of them are in line with the bullish characteristic right now.
But I do like this stock. Going forward, the old all-time highs coming in at around 610 to 612, and that came in at and around the middle part of April, so not too long ago. So at least a 50% retracement would get the stock back up to 510. That'd be 50% retracement from the highs in April to the lows in May. So let's call it 510 to 512 would be a good area of for a target.
KATHERINE ROSS: Walmart is up next. Following the downgrade, last time we spoke about it, Chris, you didn't see much upside here. If you're focused on such a long-term horizon, why isn't this name worth keeping?
CHRIS VERSACE: The big issue with it is going to be inventories and a lot more pain in the shares, as they look to unload that, particularly given-- I think we shared with members exiting the quarterly report that their inventory levels were at 20-year highs. And we just look forward with consumers, again, more likely than not, not buying as much as they had been in the past because of higher prices. It's going to take a lot of time for Walmart to work through that inventory, but it's not just Walmart. Almost every other retailer that we've seen, from Target, to TJX, to Ross stores, to Dick's, to Home Depot. You name it, they've all gotten rather high inventory levels, and I think that's going to add another layer of pressure on margins for these companies to eventually unwind all of that.
So the issue isn't so much that we don't like Walmart over 12 to 18 months. The bigger issue is that there's a greater risk of the shares falling even further. So we were looking to use some strength in the market to begin whittling our way out of Walmart, and we're still going to do that.
We might actually accelerate that, because as we're seeing the market dynamics unfold, there are some other names that we've either recently added to the portfolio or other names that we're eyeing that, again, have more of those qualities that we've been talking about. Again, defensive business models, dividend payers, that they don't have that inventory issue. And we'd rather pivot into names like those, rather than be caught holding the bag and watch Walmart go from 125, 126, lower.
KATHERINE ROSS: So Bob, do you mind breaking down from a technical perspective what your exit plan would be with this name?
BOB LANG: So we were looking at this chart, and the stock had good support around it, 130 to 135 area. And then it broke down post earnings, and then followed through to the downside, after Target reported their poor earnings the following day. So that was a couple of weeks ago.
Stocks made a little bit of a run back from the, well, I want to say 112, 111 area up to close to 130 yesterday. And so we're looking for a spot to unload some, if not all, of Walmart in the next few weeks. We get a run back up and fill that gap that it left, the day after earnings came out-- we'll just call it about 132-- we get a move to fill that gap, that would be an area we'd be looking at unloading the shares. So we think the stock can make a good run back. It's down a little bit today, but we think the stock can make a good run back up to that area, and we'll reassess.
KATHERINE ROSS: Let's talk about UPS. Chris, I'm trying to remember if it was in last month's call or the month before that. You said that you were going to watch UPS closely. Are you still watching it closely? Is your original thesis about this name intact?
CHRIS VERSACE: So the original thesis behind it is a second derivative in digital commerce because of its footprint and delivering to the home. So we are continuing to watch that. In order to see that and continue to remain bullish, we're going to want to see some upturns in digital shopping. Again, out of the monthly retail sales report, and the analogous reports that we get from MasterCard and Visa, I do think we will see that.
Again, it's a lot easier for folks to price comparison shop, and for folks that are battling record level of gas prices, it's far easier to shop online and have stuff come to them than it is to incrementally drive and have to fill up the tank. So I do think UPS is well-positioned. And remember, they do not face the same fuel challenges that the individual does because of fuel surcharges that pass through those costs for them. So that is a key point of differentiation.
KATHERINE ROSS: Bob, what do you think of the chart?
BOB LANG: Chart's a bit of a challenge over here. But again, much like a couple of other names that we talked about earlier, like Microsoft, the stock is put in a nice low, and we'd like to see the stock go a little sideways here. A little sideways action for three, four, five weeks would be constructive for UPS here, not to make a lower low. We did hit a level about 165, 167, which was levels we hadn't seen in several months.
I do like this name. Again, if we make a move past the 50-day moving average though-- it's not too far away from us right here-- would be even more bullish and more positive for us on UPS. Because that would mean that it created a higher low in the chart, and we like to see higher lows, when we're bullish on names. So this is a stock that I'll be keeping my eye on very, very carefully here. If you can get it up above that 50-day moving average, we could have some more upside to go.
KATHERINE ROSS: McCormack is up next. Now, Chris, consumers who are worried about rising food prices might opt for a generic spice brand instead of McCormick's. Does McCormack have exposure in that space, and how do they compare?
CHRIS VERSACE: Oh, so the question is do they use their excess capacity to fill private label brand? And they do, and they do it across Costco and the world-- not the world's-- the US's largest grocer. That is Walmart. So to the extent that people are going to Walmart and picking up, quote, Walmart branded spices, rest assured, you are still buying McCormick product.
But also too, the company continues to increase its portfolio of products, as it acquires companies, wringing costs out, doing a great job on that. The most recent is this expansion of the French's line with a variety of, I have to say, rather tasty mustards, just in time for the summer grilling season. And the company is, obviously, a quality company, a fantastic dividend grower. But they can continue to pivot their business to meet the evolving taste patterns that are emerging. So all in all, we like it, but to answer your question, yes, Katherine, they have some great expose to that.
KATHERINE ROSS: And Bob, what about the chart? Does it tell you buy, sell, hold here?
BOB LANG: Well, right now, we're seeing this stock plunging through the 200-day moving average, unfortunately. Plunging is probably a strong word, but it's down about $3 or $4 today. But it's made a move down below that 200-day moving average for the second time in the past 2 and 1/2 weeks. So that's something, a little bit of a caution sign here.
However, I think if that $89, $90 level holds here, this would be a good spot for subscribers to add. Because that means that buyers are stepping in and picking up the stock at this level. So the stock made a big move down with the rest of the market a couple of weeks ago, from about the $100 area. It fell about a good 8% 9% in one day.
It's trying to recover here. If it goes sideways for a bit, I'd like to see a little bit of that. That would be constructive for McCormick, but certainly, holding this $89, $90 level is critical for us right now. And then to get back up above that 200-day moving average, of course, would be important too, but holding this level right here right now is important.
KATHERINE ROSS: Our next stock is Deere. Will higher interest rates have an impact on tractor purchases, Chris?
CHRIS VERSACE: At the margin they might, but if we-- just circling back, taking another look, sorry, at the note that we put out to members yesterday. And you could see the substantial increases that we're seeing in corn prices and in particular soybean prices. Those are than going to offset the modest incremental charges that we'll see from higher interest rates.
And remember too that the decision to buy a tractor is a big one. It's a very large, what we would call, durable item, where it's life is not 1, 2, 3 years. It's more 7 to 12 years. So when we look at that as well as the higher costs of fertilizer, the real impetus here is going to be the upgrade cycle to precision ag. And I don't think a farmer is going to sit there and go, my interest payment is modestly higher, when I can get a device that is far more productive and far more cost efficient.
KATHERINE ROSS: Our next stock is United Rentals. Bob, how does the technicals of this name look?
BOB LANG: Well, this stock had a strong move up in the last few days. It's pulling back a little bit today on quite a bit of lighter volume, actually. Had a big day yesterday on some strong volume, and more recently, volume trends have been bullish.
The stock has made higher lows in the chart, and some resistance overhead, of course, the moving averages, the 50 and the 200-day moving average, are right above. But I think a move above $300, it hit there today and was rejected. A move above $300 in a couple of closes above there would be real constructive to get the stock back up to more recent highs, which come in a lot higher, about 350 to 360. So I'm a little excited about Untied Rentals over here, especially at this level, this level holds.
KATHERINE ROSS: Let's go to Mastercard. From where I stand, there are two interesting stories around Mastercard, the exit of Russia and then the release of technology which allows people to pay with their faces or hands. Chris, what should members be watching?
CHRIS VERSACE: I would say neither one of those. The Russian news is arguably old news by now, and I think the pay with your face could pose some privacy issues. So I'm not quite as excited about those two.
I think what we need to pay attention to is overall spending dollars, and it doesn't really matter if it's credit or debit or mobile payments or even pay with your face, candidly. The reality is that those are all payments that will go across Mastercard's networks. So what we want to pay attention to is how much are consumers spending? Let's remember that consumer credit has jumped higher over the last two months, and with higher interest rates, we could see consumers not spending as much, because they have more of their disposable income going to debt servicing. So that's really what we want to be paying attention to, the level of spending going forward.
KATHERINE ROSS: And Bob, this stock is pretty firmly in the middle of its 52-week range. What is the next move?
BOB LANG: Well, Chris, we know you're not just another pretty face. So Mastercard is going to be good for you. But as far as the charts concerned, holding above that 200-day moving average and even the 50-day moving average is constructive here. It does show a reversal candle here on the day. Again, markets are a little bit weak here on June 1st.
But we hold above here and make a higher low in the chart, even if we pull down a little bit another or 2% or 3% or something like that, good higher low in the chart is going to be constructive. The technicals are starting to turn up. Volume trends have gone positive again for Mastercard.
We did identify it quite a while ago. The stock has been stuck in a range between about 300 and 400 for like forever. I do like the chart here. It is getting some improvement, and especially the consumer has been real strong for the past several months. And Mastercard is going to be a big beneficiary of that. So I do like Mastercard. Get above 370, 375, we can make a run up towards those old highs, around 400.
KATHERINE ROSS: Let's go to Morgan Stanley. Now, Morgan Stanley analysts think that we've seen a short bear market bounce. Chris, what would that mean for a stock such as MS?
CHRIS VERSACE: I'm not really sure what they're getting at, other than saying that the stock has moved higher. It's arguably trading higher with the rebound and the market. The one thing that we're looking for to see a sustained move, we've talked about this in the past, is going to be the rebound in the investment banking and advisory business. We are seeing some pickup on the M&A front, but we haven't really seen the IPO market really reopen. We have seen filings continue to pile in, and again, there's a lot of private equity money on the sidelines that needs to be monetized with a number of investments over the last several years.
So we do think that eventually we will see that IPO market reopen. We just haven't seen it yet. So I would be wary of any pronounced jumps inside of Morgan Stanley shares in the near term.
KATHERINE ROSS: And Bob, technically, do you agree with that?
BOB LANG: Yeah. The stock is struggling right here to get above $90. The last couple of last couple of months, that was really the high for Morgan Stanley. Again, we're just chopping around sideways over here. The more recent low comes in around $77, $78. It seems to be pretty firm.
We'd had about four or five tests at that level, and that's what you see. I see a stock come back and test that level multiple times, and then make sure that buyers are stepping in. And it seems like we have had that happen over the past couple of weeks.
So a little bit more sideways action here, let's call it between the range of about $78 to $85 would be constructive for Morgan Stanley. The other indicators, supporting indicators, like relative strength and MACD, are starting to support the stock here. Volume trends are not quite bullish just as yet, but I think a little bit of sideways action and a little bit of turning up in front of earnings, which come out in the early part of July, would be real real nice to see for Morgan Stanley.
KATHERINE ROSS: Our final stock today is Nucor. With the pressure that Nucor has faced in the last month, what can we expect going forward, Chris?
CHRIS VERSACE: So we actually exited Nucor, as you remember, or really trimmed back the portfolio's exposure to Nucor several weeks ago, when, in our opinion, the prices were overextended, and we recently bought them back. The reason we did that was several fold, but it really speaks to the rebound in non-residential construction. This morning, we got the April data for that, and it was up 6.6% year over year. We also received several positive data points from the architectural billings index that points to continued pick up in non-residential construction throughout the balance of 2022 and into 2023.
I think a lot of that has to do with the anticipation of infrastructure spending which, of course, goes hand in hand with non-residential construction, and a lot of that is going to use a tremendous amount of steel. That's all very good for volume. Having said that, we're going to have to continue to watch the push pull vis a vis volume improvements and steel prices. But net, we think the overall dynamic is going to remain favorable for Nucor, as we go through the balance of this year and into 2023.
KATHERINE ROSS: Bob, are you concerned at all about the technicals of the same?
BOB LANG: No, actually. As Chris mentioned, we took a bite out of the profits on a couple of different occasions, and I was waiting for a move down to the 200-day moving average, which we got a couple of weeks ago. And I said, Chris, let's go and add some more shares, and we did, and I think it was a good move.
At that level, it bounced off of it real nicely, and it's flirting with that 100-day moving average right now. Still above the 200-day moving average, and we think that the stock's got some more lift to it, all-time highs come in around 185. So we're only at 128, 129 right now. So we got plenty of upside to go.
Technicals are real good. Supporting indicators are strong, as well. Volume trends is starting to pick up again to the bullish side, after a bit of a pullback in the early part of May. So I'm very constructive on Nucor here. I like it for more upside.
KATHERINE ROSS: And that is that for the stock-by-stock section. I do want to get some forward thinking thoughts, before we go, guys, and I'm starting with you here, Chris. We've talked a lot about inflationary pressures. We're obviously through earnings season. We kind of know what path the Fed is on, but going forward into the next month, what is the most important either set of data points that you're going to be watching or the path that you're going to put AAP on?
CHRIS VERSACE: So we've already started putting AAP on a slightly different path. When we take a look at some of the names that we've added, they fit those boxes that we talked about earlier, either with defensive business models, inelastic business models, dividend payers, and I think members should see us doing more of the same. There are some other names that we've added to the bullpen that fit that mold, and as they come down in price in the near term, we would look to be opportunistic to really continue to reposition the portfolio in that more defensive manner.
But in terms of data to be watching, I said this the last couple of daily rundowns. It remains the same. We really need to zero in on the true speed of the economy and to what degree these inflationary pressures are going to be elevated. As members can tell, I looked over the ISM manufacturing report for May. We're going to continue to look at that data upcoming for services, but also the CPI, the PPI, and pretty much anything we can get our hands on, as we try and really determine where the market is going vis a vis the economy, and candidly, that is going to be it.
I think Bob is right with his comment that it's going to be a somewhat challenging summer. The risk that we see is, if some of these pressures remain, we're likely to see another round of EPS cuts, really starting with the second half of the year. Do I think we're out of the woods with supply chain woes yet? Not out of the woods.
It's getting better, but my concern is similar to what we saw when the US economy started to reopen. It's renewed bottlenecks, and as Shanghai fires back up, we could see another round of port congestion. So again, not out of the supply chain woods just yet, but again, getting better.
KATHERINE ROSS: And Bob, from the technical perspective here, are there specific levels that you're going to be watching for throughout the next month, or are you going to be just checking the oscillators every day? What's your approach?
BOB LANG: Well, the oscillators are important, also volatility, paying attention to what's going on here. Look, the one thing that the markets don't like is uncertainty, and when uncertainty is out there, volatility starts to rise. Because there's a lot of fear, and there's a lot of the unknown.
And Fed policy, as most understand, is still a little bit quirky right now. Meaning that we're really not sure what direction they're going to go into. In fact, last week we heard from Raphael Bostic from the Atlanta Fed, and Atlanta Fed said, you know what, we they may be inclined to pause in September. Now, of course, he's only speaking for himself, but still, that created a little bit more uncertainty, a little bit more doubt about whether the Fed has a handle on this inflation problem.
It's the Fed right now that needs to be in charge of creating and following through with policy that is going to snuff out inflation. And if there's any sense of doubt or uncertainty there, market volatility is going to remain, and we're going to see these big wide ranges. Which is why we have this protection on in the first place, and we created a lot of room for us to add some more positions with a heavy load of cash in the portfolio.
But right now, I think volatility, as I mentioned, is the one thing I'm going to be watching the most. Oscillators are going to be moving back and forth. When we get to extreme high levels of the oscillator, it's going to be a great time to sell, like we've seen in the last couple of days.
On the other hand, when markets get washed out, like they were a couple of weeks ago, we'd be looking for opportunities to buy and to pick. But those days of up during this bear market are few and far between. So I'll be paying attention to that, and again, as Chris said, it's going to be a tough slog during the summertime. But always opportunities there, if we have our eyes open.
KATHERINE ROSS: And that's a wrap for the June monthly call. As always, please continue to send your member questions into firstname.lastname@example.org, and we'll see you next month.