Buying and Selling Level up as Earnings Season Is in Full Swing
It still feels like stocks are in the pressure cooker, but despite the swirling headlines and some outsized price swings, we're coming off a rather good week for the market and our stocks.
The S&P 500 gained 2.7% while our stocks beat that with a nice 3.7% average bump. Seventeen of our 19 stocks moved higher, led by a 20% surge in Super Micro Computer (SMCI), a 14.6% jump in e.l.f. Beauty (ELF), and a nearly 12% gain in Photronics (PLAB).
Those more than offset the 17.1% hit we took in Saia, Inc. (SAIA), which we'll talk more about in a moment.
Let's first assess the state of the market, look at where the money is flowing, and then dig into some historical context for earnings, seasonality, and climates similar to today.
As you would expect based on last week's moves, the selling that rocked the market earlier in April subsided a bit. I also saw signs of small buying.
Here's the data, starting with the 10 days from April 9 to April 19, where we saw significant selling – 697 signals to be exact, compared with just 154 buy signals. Health Care and Technology accounted for half of that selling.
Source: MAPsignals.com
Now compare that to last week. We saw far less selling (210 signals), and a nice balance between buying and selling. Most buying was in Energy, Financials, Industrials, and Staples sectors. Selling continued, albeit at a slower pace, in Discretionary and Health Care.
Source: MAPsignals.com
When I analyze money flows from when the market was strongest to now, I clearly see sector rotation from the end of 2023 to the present. Technology and Discretionary stocks were strongest at that point; they have since been dethroned by Energy, Industrials, and Financials. Staples also climbed in the ranks.
Source: MAPsignals.com
The Big Money Index (BMI) dipped last week to 49.3 from 53.5, even with less selling. Remember, the BMI is a moving average, so the dip is not surprising, with the selling earlier in April still factoring into the calculation.
That 49.3 reading means Big Money signals are now equally divided between buys and sells.
Looking at historical seasonal patterns, volatility may have arrived a little bit earlier than usual but is mostly on schedule. May and June are typically not as strong as other months, with July typically offering a reprieve before the most volatile months of the year in August and September.
According to our studies, it's a mistake to "sell in May and go away," as the old market axiom goes. It may be poetic, but it's not a good strategy. Our data shows from about May 20 through the end of July is typically a decent time for stocks, so it would be a mistake to bail.
Remember, too, that we are in the middle of earnings season. Sales and earnings beats are quite common, and this season is tracking historical norms. With nearly half (46%) of S&P 500 companies reporting so far, 77% beat earnings estimates and 60% beat on revenue.
Volatility is here as we head into May, but it's normal volatility. History shows we will not just be fine but come out great in the end. I like that narrative, and nothing in my data suggests this time will be any different. We will build on our success by continuing to own great stocks with best-in-market fundamentals, strong technicals, and Big Money inflows. And we're in a great time to identify more great stocks on sale to set us up for more profits, just as we did with Pentair (PNR) last week.
Instead of worrying about the future, we'll embrace it.
Earnings Roll Out for CDNS, CHKP, TW, GNTX, and SAIA
Cadence Design Systems (CDNS) reported solid results after last Monday's close. The company earned $1.17 per share, ahead of estimates for $1.13 and also exceeding management's previous guidance. Revenue was in line with expectations and guidance at just over $1 billion.
Cadence also finished the quarter with a record order backlog of around $6 billion, which is always a good sign.
The "problem" – and I purposely put that in quotes – was guidance. Cadence forecast sales between $1.03 and $1.05 billion with earnings of $1.20 to $1.24 per share, both below analysts' estimates for $1.1 billion and $1.43 a share.
But if you dig into the reasons, you get a better sense of what's going on. Cadence just introduced its next generation design and verification tools, and the expected timing of shipments – and when sales will be recognized in quarterly results – are the reasons for lighter guidance.
In fact, management affirmed its full-year guidance, so we can look for a strong second half of the year.
We're up nearly 50% in CDNS, including the one-third we sold in February for 56% profits. Its 62.1 Quantum Score is still solid, but the fundamental rating of 75 points to higher prices in the future. Continue to hold your remaining shares in anticipation of additional profits.
Check Point Software Technologies (CHKP) earned $2.04 last quarter, 13% higher than last year and beating the consensus estimate for $2.01. Sales increased 6% to $598.8 million, also topping estimates for $595.12 million.
Security software subscription revenues led the way, increasing 15% over last year. That helped offset a 7.1% decline in revenue from products and licenses, which is what investors focused on.
Check Point introduced new products in the quarter, including its Quantum Force security gateways, Harmony SaaS (software as a service), and Infinity Copilot, which is an A.I. security assistant.
Source: TradeSmith Finance and MAPsignals.com
CHKP's Quantum Score is still a strong 65.5. Recent price weakness has dragged down the Technical Score, which in turn weights on the overall score. But that 79.2 fundamental rating is outstanding, and this software security provider remains well-positioned for future upside.
CHKP is trading right around our limit, and remains a buy up to $150.54.
Tradeweb Markets (TW) met expectations, earning $0.71 per share last quarter, 31.5% more than a year ago. Sales grew 24% to $408.74 million, slightly ahead of estimates. Average daily volume at this electronic exchange jumped 39% to a record $1.9 trillion.
The stock didn't move a lot on the report, but we're up more than 40% overall, and this stock continues firing on all cylinders with a 74.1 Quantum Score and both the fundamentals and technicals also rating in the 70s.
Hold your remaining shares in TW.
Gentex (GNTX), one of our newer stocks, also reported mostly in-line results. Earnings of $0.47 per share hit the consensus estimate right on the nose, while sales of $590.2 million were 1.7% shy of expectations. Earnings grew 12%, while sales increased 7.2%.
Source: TradeSmith Finance and MAPsignals.com
Shares initially dipped in Friday's trading, but the stock rallied to finish slightly above Thursday's close. They are flat today as well, but this developer and maker of custom electronics remains a good stock to own, especially with that superb 83.4 Fundamental Score. (It may adjust slightly as the data feeds update with Friday's numbers.)
GNTX remains a good buy while it's under $36.96.
Saia, Inc. (SAIA) rounded out our earnings reports on Friday morning and took a 21% hit on the day. I mentioned last week that Wall Street would be watching closely because of other shipping companies citing continued weakness.
The numbers weren't bad at all, with revenue increasing 14.3% to $754.8 million and earnings per share jumping 19% to $3.38. Unfortunately, they were both below expectations for $770.8 million and $3.44 per share.
Expectations in general seemed to be too high for carriers – especially less-than-truckload (LTL) shippers – as we saw similar results and price drops from Old Dominion Freight Line (ODFL) and trucker J.B. Hunt (JBHT). Analysts were trying to time an uptick in the overall shipping cycle, and it didn't pan out as much as they expected.
Management didn't provide specific guidance, but CEO Fritz Holzgrefe said, "As is typical in the first quarter of the year, winter weather impacted operations in the first months of the quarter. March trends improved a bit from February, but we did not experience the expected seasonal step-up."
Even with Friday's big drop, the 12-month uptrend remains mostly intact. We had our short-term profits taken away, but I do expect the stock to rebound. Interestingly, my system did not detect a Big Money sell signal in Friday's big drop, which is encouraging considering that the stock is owned almost entirely by institutions.
We're not selling either, with the fundamentals strong (79.2) and the shipping cycle expected to rebound. SAIA is back under our $456.70 limit, and it remains a buy at current prices.
5 More Companies Report This Week
The earnings parade continues this week as five more of our companies release results.
Super Micro Computer (SMCI) kicks off this week's flurry after the market closes tomorrow. Remember, SMCI got hit when it scheduled its report but didn't preannounce a positive surprise, something it had done seven of the last eight quarters.
Analysts estimate earnings will grow 258% over last year, which is obviously fantastic. The stock has recouped what it gave up in that no-preannouncement selloff, and it's up more than 200% through the first four months of the year.
We've already taken profits on two-thirds of our position and guaranteed ourselves a double – and that's if shares go to $0, which we know isn't going to happen. For me, it's more about looking for a chance to buy back into this great company, so I'll be watching closely.
In the meantime, hang on to your remaining SMCI shares.
Garmin (GRMN) is among three companies reporting before trading begins on Wednesday, May 1. Wall Street expects a very slight decline in earnings (1%) on 9% sales growth. The data looks good as GRMN's Quantum Score is right where we like it to be at 75.9.
Neurocrine Biosciences (NBIX) is also up Wednesday morning, with analysts forecasting huge earnings growth from a loss of $0.79 a year ago to a profit of $1.01 this year. Sales are expected to increase 25%. More growth is expected in the coming quarters and year, giving NBIX its strong fundamental rating of 79.2 and its Quantum Score of 69.
Parsons Corp. (PSN) is our third company to report on a busy Wednesday morning. We added it earlier this month, and the data is largely unchanged. Its Quantum Score of 77.6 is excellent and supported by equally strong fundamental and technical rankings. The Street expects 44% earnings growth on a 17% bump in sales.
Civitas Resources (CIVI) closes out our week with its results Thursday morning before the open. It's in the strong Energy sector, and estimates are for sales to nearly double over last year while earnings pop nearly 18%. Even bigger growth is expected next quarter and for the full year.
Shares have rallied almost 25% since early February, even including the April pullback. Its Technical Score has dipped to 64.7, but the fundamentals are strong at 75 and the overall Quantum Score is also attractive at 69.
I'll be watching it all and be in touch if there's anything we need to do – or if we get another new opportunity.
Talk soon,
Jason Bodner Editor, Quantum Edge Pro
P.S. Below you'll find the weekly ranking of the Top 10 and Bottom 5 stocks according to my system.
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