ACTION PLAN - June 14, 2023

Mid Week Updates

Xclusive Trading
June 14, 2023

Major Highlights from the Global Markets

Highlights of US Markets

The major US benchmarks, including the S&P 500 and Nasdaq Composite, ended with gains of 0.69% and 0.83% on Tuesday. S&P 500 Index entered the bull market territory, closing at 4,369.02, gaining 0.69% on Tuesday. Dow Jones finished on a positive note, gaining 0.43%, while Nasdaq 100 gained 0.79% on Tuesday.
The consumer price index (CPI) rose by 0.1% in May, in line with expectations. The year-over-year CPI figure decreased to 4.0% from 4.9% reported the previous month.
Bets on a Fed pause reached 95%, up from 81% the day before. The odds of the Fed resuming rate hikes in July increased to 60% from 50%. Investors await eagerly for the Fed meeting outcome, which is set to be announced on June 14.
Materials stocks, including Freeport-McMoran Copper & Gold Inc, Steel Dynamics Inc, and Albemarle Corp, gained over 4%. Energy stocks, such as Baker Hughes Co, APA Corporation, and Halliburton Company, saw significant gains.
Tech stocks performed well, except for Apple, which experienced a decline after a UBS downgrade. Oracle reported better-than-expected quarterly results, with strength in its cloud business and AI-driven demand. Deutsche Bank raised its target on Oracle to $135 from $121.
Cruise companies, including Norwegian Cruise Line, Carnival Corporation, and Royal Caribbean Cruises, rallied after Bank of America raised its price target and provided a bullish outlook.

European Markets Highlights

The STOXX Europe 600 Index closed higher, gaining 0.55% on Tuesday, while Germany’s DAX and France’s CAC 40 gained 0.83% and 0.56%, respectively.
Asian Markets Highlights
Japanese equities saw gains, with the Nikkei 225 Index rising 1.80% and the TOPIX Index up 1.16% for Tuesday’s session.
Chinese equities closed higher on Tuesday, with the Shanghai Stock Exchange Composite Index gaining 0.15% and the CSI 300 gaining 0.53% for the day. On the other hand, Hong Kong’s Hang Seng rose 0.60% on Tuesday.

Sector Rotation

China's recent decision to cut its short-term rates aimed at bolstering its post-pandemic recovery had a notable impact on the market. The move generated optimism regarding increased demand, particularly in the materials sector, leading to rising commodity prices. As a result, companies involved in the production and distribution of metals experienced significant gains. Freeport-McMoran Copper & Gold Inc, Steel Dynamics Inc, and Albemarle Corp were among the key beneficiaries, with their stocks rising by over 4%. The S&P 500 Materials index rose 2.33% on Tuesday, followed by the S&P 500 Industrials sector index with a gain of 1.16%. The materials and industrial sectors are breaking out with strong bullish momentum in focus.

The positive sentiment extended to the energy sector as well on Tuesday, as oil prices rallied following China's accommodative action. Energy companies like Baker Hughes Co, APA Corporation, and Halliburton Company saw substantial gains in response. However, presently, the energy sector seems to be under pressure.

Bond Market Changes

The U.S. 10-Year Treasury yield and the U.S. 2-Year Treasury yield closed higher at 3.827% and 4.677%, respectively, on Tuesday.
Commodity Market Changes
Gold closed lower on Tuesday at $1,943.33 per ounce, and silver too closed lower at $23.680 per ounce.
The Crude Oil WTI Futures - Jul 23 (CLN3) closed higher on Tuesday at $69.42.

Technical Analysis of Major Indices

Dow Jones Industrial Average (DJI)

The Dow Jones index has broken out of the symmetrical triangle and closed at 34,212.13 on Tuesday. The Daily RSI of around 65 suggests bullish momentum, and the index would be heading towards 34,500 and 34,700 in the coming days.

NASDAQ 100 (NDX)

The index is in a strong bullish trend with a daily RSI of around 75. The index touched a high of 14,931.83 on Tuesday, with the day candle resembling a hammer. The target of 15,000 seems quite possible, and dips should be used to go long. The next fib level of .782 is around 15,400.

S&P 500 (SPX)

The index gained more than 1.5% in the first two trading sessions of the week and closed at 4,369.02 on Tuesday. The daily RSI above 70 indicates bullish momentum and the next fib.782 fib level at 4,392.12 looks very much possible. The price sustaining above the 4,400 level can make it head towards 4,500.

FTSE 100 Index (UKX)

The index closed just marginally below the 7,600 mark on Tuesday. The index has managed to form support near 7,550 and is poised to cross its recent high of 7,654.84 as the hourly RSI above 65 indicates bullish momentum.

Technical/Fundamental Analysis of Mega Cap Stocks

Visa Inc. (V)

The stock has been trading at $223.40, below its 50 DMA. The stock is under selling pressure, with a daily RSI of around 44. The downside targets of fib levels are $222.16, $221.18, and $219. The price needs to take support near the lower trend line of the channel; otherwise, it could see more selling pressure.

Walmart Inc. (WMT)

The stock is in a strong bullish trend after crossing its 50 DMA with a daily RSI above 70. The price has managed to close above its 52-week high of $154.64 on Tuesday and is possibly heading toward $160.

Technical/Fundamental Analysis of Large Cap Stocks

Morgan Stanley (MS)

The stock has managed to break out of its descending trend line and is hovering around the 200 DMA, which stands at $87.81. The daily RSI above 60 indicates bulls are taking over, and price sustaining above 200 DMA can make the price head towards the next fib levels at $90.87 and $93.25.

Intel Corporation (INTC)

The stock has managed to cross above the recent swing high of $33.84 to close at $33.91 on Tuesday. The golden crossover with a 50 DMA crossing over the 200 DMA last month and the daily RSI above 65 indicates bullish strength. Hence, the price would be heading towards the next fib level of .618 at $34.56 and.782 level at $37.28.

Last Week and Upcoming Geopolitical Events

6 June 2023- 2023 UN Security Council elections.
7-8 June 2023- 8th Annual Global Conference on Energy Efficiency.
13-15 June 2023-Gavi (the Vaccine Alliance) high-level summit.
Upcoming Economic Calendar for the Week
- Wednesday, June 14- Producer Price Index (May) and Fed Interest Rate Decision.
- Thursday, June 15- U.S. Retail Sales (May), Empire State Manufacturing Survey (May), and Philadelphia Fed Manufacturing Survey (May).
- Friday, June 16- University of Michigan Consumer Sentiment Index, Preliminary Reading (June).

Companies Reporting Earnings for the Remaining Week

Lennar Corporation (LEN)

Lennar Corporation, the second-largest US homebuilder, is set to report its second-quarter earnings in a housing market that has defied expectations on Wed, June 14, after the market close. The consensus EPS estimate for the 2nd quarter is $2.30. Despite the impact of rising mortgage rates, Lennar's stock has reached an all-time high, reflecting the strong performance of homebuilders. Over the past 12 months, homebuilders have returned an impressive 42%, outperforming the S&P 500 by nearly 30 points. Lennar shares, in particular, have surged by approximately 60% during this period.

Several factors contribute to the positive outlook for homebuilders like Lennar. Firstly, the scarcity of existing homes for sale has compelled homeowners to hold onto their properties rather than sell, leading to a tight housing supply. This has created favorable conditions for homebuilders to capitalize on the continued demand for new homes. Additionally, falling inflation and lower material costs have enhanced the profitability of home construction.

Analysts are also optimistic about the homebuilding sector, with expectations of continued growth. They anticipate price increases and larger builders gaining market share from existing homes and smaller private companies. Furthermore, as housing forecasts are revised upward, multiples for homebuilders are expected to expand, presenting additional upside potential.

However, caution is warranted as risks loom over the housing market. Potential shifts in unemployment rates and the impact of rising interest rates could pose challenges. Changes in employment levels can influence housing demand, affecting default rates, supply levels, property prices, and new home construction.

In light of these factors, Lennar's upcoming earnings report will be closely scrutinized. Investors will be particularly interested in new orders, cancellation rates, margins, and average sales prices. Strong new orders are expected due to the limited existing housing supply, but cancellation rates may remain elevated as some buyers find it difficult to afford homes at current rates. Margins could be impacted by lower selling prices, as the median sales price for new homes in the US experienced a significant decline in April. According to the Federal Reserve Bank of St. Louis, the median sales price for new houses sold in the US fell by 8% in April.

The company’s forward P/E (GAAP) stands at 11.68 against the sector median of 14.89. While the performance of homebuilders has been impressive, and the positive factors outlined above have supported their growth, it is important to approach the market with caution.

As far as technicals are concerned, the stock touched a 52-week high of $117.20 in Tuesday’s trading session. However, the rejection day candle for Tuesday’s session indicates the selling pressure at higher levels. The stock can see the price retracement to fib levels at $114.53, $112.88, and $111.54 if it falls below the hourly trend line.

Adobe Inc. (ADBE)

Adobe Inc. is set to report its quarterly earnings on Thursday, June 15, after the market close. The consensus EPS estimate for the quarter is $3.00, against $2.70 in the year-ago same quarter.

Adobe is a prominent player in the software industry, particularly in the Business & Productivity segment of the Software as a Service (SaaS) market. The company offers a comprehensive suite of applications through its Adobe Experience Cloud and Adobe Creative Cloud platforms, targeting enterprise customers directly. With a focus on digital media and digital experience, Adobe is well-positioned to capitalize on the growing demand for cloud-based services.

The SaaS market is highly competitive, but Adobe has managed to establish itself as the second-largest SaaS company, holding a market share of 12.50%. This is a significant advantage for Adobe, as the SaaS market does not have any dominant player with a market share larger than 25%. This allows Adobe and other SaaS companies to continue growing without concerns about anti-monopoly laws.

The SaaS market as a whole is expected to experience substantial growth in the coming years. By 2030, the SaaS market is projected to reach a valuation of $149 billion, with estimated revenues of $321.6 billion by 2026. Within the SaaS market, the Business & Productivity segment, which is Adobe's primary focus, is expected to grow at an annual rate of 13%. Currently valued at approximately $47.3 billion, this segment is projected to reach $149 billion by 2030, presenting significant growth opportunities for Adobe.

Financially, Adobe has been performing strongly. The company has achieved remarkable revenue growth of 98% since 2018, with an annual growth rate of 16%. This growth has been driven primarily by its subscription revenue, which accounts for 96% of its total revenue. Adobe's operating income has also seen substantial growth, increasing by 112% with an annual growth rate of 18%. Adobe has also maintained a healthy balance sheet, with a relatively stable debt level and increased cash reserves. As of now, the company's cash reserves stand at $4.072 billion.

While Adobe faces risks associated with economic downturns, such as decreased demand during recessions, the company has the potential to overcome these challenges. Its strong market position, commitment to innovation, and ability to capture market share from competitors contribute to its resilience. Thus, Adobe is a well-managed company operating in a growing market. With a focus on the Business & Productivity segment of the SaaS market, Adobe has the potential to capitalize on the increasing demand for cloud-based services.

The technicals, too, reveal a good picture of the stock, which closed at $478.99 on Tuesday’s trading session. The daily RSI is just below 80, suggesting strong bullish momentum. The price above the .50 fib level at $487.14 can push the price toward $500 and more.

Kroger Company (KR)

Kroger is set to report its quarterly earnings on Thursday, June 15, before the market opens. The consensus EPS estimate is $1.43, against the $1.45 EPS of the year-ago same quarter.

Kroger is an attractively valued consumer staples company with steady sales and earnings growth. The company operates as a food and drug retailer in the United States, offering a range of products across various store formats.

Fundamentally, Kroger has shown a 50% increase in revenues over the last decade, with consistent sales growth even during the pandemic. Earnings per share (EPS) has more than doubled in the past decade and is expected to continue growing at an annual rate of around 4.5% in the medium term. Kroger offers a reliable and growing dividend, with a payout ratio of 30% using GAAP EPS and 23% using non-GAAP EPS. The dividend has seen 14% annual growth in the last decade, outpacing inflation.

The company has also implemented share buybacks, reducing the number of shares outstanding by 30% in the last decade. This supports EPS growth and takes advantage of attractive valuations. In terms of valuation, Kroger has a P/E ratio of 10.71, which is considered fair for a growing company that provides dividends. The current valuation appears attractive compared to historical levels.

Kroger has identified growth opportunities by differentiating itself through fresh products of higher quality, creating a seamless digital ecosystem for online grocery shopping, and pursuing a proposed merger with Albertsons for nationwide expansion. Risks for Kroger include intense competition from giants like Walmart and Target, potential impact from inflation on labor costs and product prices, and the risk of the Albertsons merger failing to materialize.

In conclusion, Kroger presents a potential investment opportunity for long-term dividend growth investors. With strong fundamentals, limited risks, and a decent valuation, the company offers stability and the potential for high single-digit total returns. The acquisition of Albertsons could provide a short-term upside, and Kroger's focus on digital experiences and quality products positions it for future growth.

The stock closed Tuesday’s trading session at $46.87. The hourly RSI of around 67 indicates bullish momentum, and the stock can head towards the .50 fib level at $47.40 and, above that, towards the .618 fib level at $48.09.

Jabil Inc. (JBL)

Jabil Inc. (NYSE: JBL) is set to report its quarterly earnings on Thursday, June 15, before the market opens. The consensus EPS estimate for the quarter is projected at $1.76, against $1.52 EPS in the year-ago same quarter. The company has seen positive news and strong financial performance. Stifel Nicolaus raised the price objective for Jabil from $90.00 to $105.00. In their recent earnings report, Jabil exceeded earnings estimates, with $1.76 earnings per share compared to an estimated $1.73. Revenue for Q1 2023 was $8.13 billion, surpassing the estimated $8.09 billion. Analysts predict full-year earnings per share of 7.77.

Jabil serves various sectors, including automotive, capital equipment, consumer lifestyles, healthcare, and more. It boasts a significant return on equity of 39.80% and a net margin of 2.74%, making it an attractive investment.

As of June 14, 2023, Jabil's stock was trading at $98.67 per share, with a market cap exceeding $13 billion and a forward P/E (GAAP) ratio of around 15.31. While the company shows strong growth opportunities, insider selling by CEOs raises some considerations. However, institutional investors have increased their holdings, indicating positive sentiment.

The stock touched a high of $100.36 in Tuesday’s trading session and closed at $98.67. The daily RSI is above 80, and the weekly RSI is above 70, which indicates strong bullish momentum. The dips can be used for going long in the stock for a target of $103.50 and $105 in the short term.

Forex Analysis

GBPUSD

The currency pair has been on a rising trend, with a daily RSI of around 63. Moreover, the price has managed to cross above its 50 DMA, and the next target would be the high of May 10 at 1. 26800.

USDCHF

The currency pair is in a downtrend in the hourly timeframe, with an RSI of around 33. The near-term targets on the downside are the .782 fib level at 0.90114 and, below that, 0.89847.

DELIVERING INDUSTRY EXCELLENCE

Our belief is that all investors of different experience levels should have an edge in the current market. As personal traders with extensive experience in past and modern stock market trends, we use our expertise in technical analysis and diligence to help our members succeed. It is easy for us to provide new and current subscribers/members with highly actionable trade setups with high-profit potential at a consistent, honest, and accurate rate using the tools we have acquired.

At Xclusive Trading, it is our mission to consistently provide diverse, structured, and ethical content where all types of individual investors can thrive. In addition to providing highly successful trading techniques to our subscribers/members, we encourage passion, diligence, self-education, discipline, and thoughtfulness, with a particular emphasis on risk management as a gateway to generating sustainable wealth and gain financial freedom.

-Xclusive Trading Staff

LEARN MORE