ACTION PLAN - June 28, 2023

Major Highlights from the Global Markets 

Highlights of US Markets

• The major US benchmarks, including the S&P 500 and Nasdaq Composite, gained 1.15% and 1.65%, respectively, on Tuesday, driven by a rebound in tech stocks after a recent sell-off. Dow Jones, too finished on a positive note, gaining 0.63%, while Nasdaq 100 closed for the day with a gain of 1.75%.

• The top gainers on Tuesday were Carnival Corporation and Generac Holdings Inc, with gains of 8.84% and 8.79%, respectively. On the other hand, Walgreen Boots Alliance Inc. and Regeneron Pharmaceuticals Inc were top decliners for the day, with shares losing 9.34% and 8.71%, respectively.

• Walgreens stock tumbled as the company issued a warning that profits would be lower than expected, citing declining demand for COVID-19 vaccines and a cautious consumer spending climate. The company administered 83% fewer COVID-19 vaccines compared to the same period last year, leading to a downward revision of its full-year earnings guidance.

• The FDA's rejection of Regeneron's higher-dose Eylea for wet age-related macular degeneration (AMD) led to an 8.7% drop in the company's shares. The FDA cited ongoing inspection findings at a third-party filler, causing a setback in Regeneron's defense against rival treatment Vabysmo.

• In after-hours trading, AeroVironment shares rose over 5% following the company's better-than-expected fiscal fourth-quarter revenue and optimistic full-year revenue outlook. Overnight, Nvidia stock too fell by 3% following reports that the US government is considering expanding chip export restrictions.

• Positive economic data, including robust May new-home sales and favorable reports on consumer confidence and manufacturing, contributed to the rally.

European Markets Highlights

• The STOXX Europe 600 Index closed almost neutral with +0.04% on Tuesday. On the other hand, Germany’s DAX and France’s CAC 40 closed the day with marginal gains of 0.21% and 0.43%, respectively.

• On Monday, US and European defense stocks experienced significant declines as investors speculated that political instability in Russia could impact the Kremlin's war effort and potentially shorten the conflict in Ukraine. Following the aborted insurrection by warlord Yevgeny Prigozhin, some investors engaged in profit-taking, given the sector's substantial gains since Russia's invasion of Ukraine in February 2022. Shares of major US defense contractors such as Lockheed Martin and Northrop Grumman fell more than 1%. In Europe, defense companies such as Leonardo, Saab, Rheinmetall, Dassault Aviation, and Thales also saw their shares decline, albeit recovering slightly by the end of the day. The conflict in Ukraine has led to new orders for defense companies, with investments in weaponry and equipment for Ukrainian forces. Despite the recent events in Russia, analysts and industry executives maintain that the long-term trajectory for defense spending and the importance of national defense industrial bases remain intact, anticipating continued demand and orders in the defense sector.

  Asian Markets Highlights

• Japanese equities declined, with the Nikkei 225 Index falling 0.49% and the TOPIX Index down 0.28% in Tuesday’s trading session.

• Chinese equities also closed higher, with the Shanghai Stock Exchange Composite Index gaining 1.23% while the CSI 300 gained 0.94% on Tuesday. On the other hand, Hong Kong’s Hang Seng gained 1.88% for the day.

  Bond Market Changes

• The U.S. 10-Year Treasury Yield closed higher at 3.772% on Tuesday, while the U.S. 2-Year Bond Yield ended higher at 4.764%.

  Commodity Market Changes

• Gold closed lower on Tuesday at $1,913.35 per ounce, whereas silver closed higher at $22.885 per ounce.

• The Crude Oil WTI Futures - Aug 23 (CLQ3) closed lower on Tuesday at $67.70.

Technical Analysis of Major Indices

Dow Jones Industrial Average (DJI)

The index has managed to defend 33,600 as it rose from its Monday low of 33,610.32 to close at 33,926.75 on Tuesday. The hourly RSI is around 54. The price crossing 34,000 would open the door towards 34,100 and 34,215, coinciding with .50 and .618 fib levels of the previous downtrend.

NASDAQ 100 (NDX)

The index has managed to break out of the descending trendline to close at 14,945.91, gaining 1.75% on Tuesday. The hourly RSI is around 55 with MACD crossover. The price moving past the 15,000 level would make it head towards 15,050, near its next .618 fib level at 15,056.36.

S&P 500 (SPX)

The index has managed to break out of the descending trendline to close at 4,378.40, gaining 1.15% on Tuesday. The hourly RSI is around 57 with MACD crossover. The price moving past 4,388.27, the .50 fib level, would make it head towards its next .618 fib level at 4,402.48 and more.

FTSE 100 Index (UK100)

The index has managed to move above its descending trendline. The hourly RSI at 62 indicates an upper hand of the bulls, and if the price moves past the .382 fib level at 7,510.60, then it would open the door towards its next .50 fib level at 7,544.40 and more.

Technical/Fundamental Analysis of Mega Cap Stocks

UnitedHealth Group Incorporated (UNH)

The stock has managed to rise from its recent low of $445.68 and has closed at $482.56 on Tuesday. Its 50-DMA stands at $485.61, and the daily RSI is around 50. The price sustaining above its 50-DMA could make it head towards the next .50 fib level at $488.07 and .618 fib level at $498.07.

Chevron Corporation (CVX)

The stock has formed a strong support zone near $150. The daily RSI of around 44 indicates indecisiveness. If the price moves past its .236 fib level at $155.20, then it could head towards its next .382 fib level at $158.58, which also coincides with the descending trendline and its 50-DMA, which stands at $158.86.

Technical/Fundamental Analysis of Large Cap Stocks

Comcast Corporation (CMCSA)

The stock has managed to sustain above its 50-DMA after taking support near it on June 2nd trading session. It gained 2.27% on Tuesday, with a daily RSI above 60, indicating bullishness. If the price breaks out of the ascending triangle and moves past its recent high of $42, it could head towards its next .50 fib level at $45.10.

Texas Instruments Incorporated (TXN)

The stock gained 4.48% on Tuesday to close at $176.31, crossing both 50 and 200 DMA. The daily RSI is around $56, and the price seems poised to be heading towards its .618 fib level at $180.18. Next, the target price would be $186 if it manages to break out of the symmetrical triangle and sustain above its .618 fib level.

Last Week and Upcoming Geopolitical Events

• 21-22 June 2023- Ukraine Recovery Conference.

• 21-24 June 2023- Indian Prime Minister Narendra Modi visits the US.

• 22-23 June 2023-Summit for a New Global Financial Pact.

• 30 June 2023- End of IMF’s financial assistance programme to Pakistan.

• 1 July 2023- Spain takes over the Council of the EU presidency.

  Upcoming Economic Calendar for the Week

  • Wednesday, June 28- Advanced retail and wholesale inventories (May) and Advanced U.S. trade balance in goods.

  • Thursday, June 29- Fed Chair Powell speaks, Initial Jobless Claims (June/24) and Pending home sales (May).

  • Friday, June 30- PCE and Core PCE Index (May) and YoY. Consumer sentiment (final) (June).

Companies Reporting Earnings for the Remaining Week

Micron Technology, Inc. (MU)

Micron Technology, Inc. is the largest U.S. manufacturer of memory semiconductors, with 72% of its revenues coming from DRAM and 25% from NAND. The company is set to report its earnings for the fiscal quarter ending May 2023 on Wednesday, June 28, after the market close. Consensus estimates for Micron's fiscal Q3 FY2023 earnings predict a 57% revenue drop to $3.68 billion, with a consensus EPS of -$1.56. The estimated annual revenue decline for FY2023 is 49%, bringing it to $15.6 billion. However, Micron is projected to recover strongly with revenue growth of 46% and 33% in FY2024 and FY2025, respectively, aiming to reach revenues of $30 billion in FY2025.

The global NAND Flash Memory and DRAM market size was estimated to be worth $153 billion in 2022, with a forecasted growth of $215 billion by 2028 (CAGR of 5.9%). To help American manufacturers like Micron fill the non-Asian supply gap in semiconductor production, the Chips and Science Act provides about $52 billion in funding. Nevertheless, geopolitical factors, such as trade tensions between the USA and China, pose a significant threat to Micron's operations.

Micron's CEO mentioned that generative AI, with its increasing demand for memory and storage, presents future opportunities for the company. Micron has a solid balance sheet with price/cash flow (ttm) standing at 8.05 against the sector median of 19.39. Moreover, its EV/EBITDA (ttm) stands at 7.52 against the sector median of 14.64. The cash flow from operations (ttm) stands at a solid $8.90 billion.

The investment case for Micron includes potential benefits from the rising tide of artificial intelligence, expected demand improvements in FY24, and management's guidance for sequential volume improvement in all segments in calendar 2023. However, Micron's bear case highlights the cyclicality and weak pricing power of the memory market, as well as the advantage of low-cost producers based in Asia.

Micron and other memory chipmakers are expected to see a demand tailwind from sectors like autonomous vehicles, medical technologies, and the speed of drug discoveries.

The stock has seen an upside rise from $48.43 to $74.77 in the last six months and has been taking support near the trendline. The stock rose 2.05% on Tuesday after finding support near the 50-DMA, coinciding with the trendline. The daily RSI is at 51, and the price moving past its immediate resistance at $67.54 can push it toward $70.50 and more.

General Mills, Inc. (GIS)

General Mills (GIS) is set to report its earnings for the fiscal quarter ending May 2023 on Wednesday, June 28, before the market opens. One factor that could potentially impact the company is inflation. Rising prices on certain items, coupled with reduced crop production due to factors like drought and geopolitical issues, could lead to increased costs for General Mills. This may necessitate price adjustments, which could affect the company's profitability.

When comparing General Mills to other major food manufacturers, it emerges as one of the best performers in terms of total return, outperforming companies like Nestle, Hershey, and Kraft Heinz. However, it's important to note that the overall food industry has been influenced by market trends, and General Mills' performance needs to be seen in that context.

One of General Mills' strengths is its solid dividend track record, having paid dividends for 21 consecutive years. While the dividend growth rate over the past five years has been modest, the company is expected to continue increasing its dividends at a similar rate in the future. Additionally, General Mills has engaged in share buybacks, repurchasing around 9% of its shares over the last decade. The revenue growth for the company YoY is at 7.14%. Its payout ratio stands at 49.53%, with a 5-year growth rate of 1.96%. However, its P/E (ttm) GAAP at 17.67 is higher than its 5-year average of 16.38. The price/cash flow (ttm) ratio at 15.44 is also higher than its 5-year average of 11.92.

Considering the risks and uncertainties, including competitive pressures, inflation, and different financial ratios such as P/E and cash flow ratios, the stock seems to be currently overpriced.

The stock has been trading at $80.90, just below its 200-DMA, which stands at $81.91. The daily RSI at 35 indicates bearishness. The price needs to find support near $80; otherwise, it could slip further to its .782 fib level at $77.80. On the upside, the price need to convincingly break its immediate resistance at $82.62-82.83 to show signs of a reversal toward $84.20 and more.

Nike, Inc. (NKE)

The company is set to report its earnings for the fiscal quarter ending May 2023 on Thursday, June 29, after the market close. Nike, a multinational corporation and one of the world's largest manufacturers of sportswear and athletic equipment, has encountered several challenges in recent times. These challenges primarily stem from the weakening apparel market and the slow recovery of the Chinese economy.

The sportswear industry as a whole has experienced a slowdown. According to a report by Statista, global sportswear sales grew by only 1.5% in 2020, compared to an average annual growth rate of 6.1% between 2015 and 2019. This decrease in consumer demand for sportswear has led to excess inventory for Nike. In its third-quarter fiscal year 2023 earnings report, Nike reported $12.3 billion in revenue, a 3% decline compared to the same period the previous year. The company attributed this decline to excess inventory and the resulting increase in promotional activities and discounting.

Nike's growth in the Chinese market has also been affected by the slow recovery of the country's economy. China is a significant market for Nike, accounting for a substantial portion of its revenue. However, according to data from the National Bureau of Statistics of China, China's retail sales of consumer goods grew by only 4.3% in May 2023, indicating a slower recovery compared to previous months. This slow recovery in consumer spending has had an impact on Nike's financial performance in the region.

Despite these challenges, Nike remains optimistic about its long-term prospects in China. With a population of over 1.4 billion and a growing middle class, the country presents significant opportunities for increased consumer spending on sportswear and athletic products. According to a report by Euromonitor International, China's sportswear market is expected to reach $53.6 billion by 2025, fueled by rising health consciousness and a growing interest in fitness activities.

Despite the headwinds, Nike maintains a strong competitive position within the industry. According to Forbes' 2021 list of the world's most valuable brands, Nike ranked 16th with a brand value of $34.8 billion. The company's brand equity and reputation give it an advantage over its competitors, enabling it to withstand market fluctuations and maintain a strong market presence.

Moreover, Nike has been actively investing in its digital sales capabilities. In its third-quarter fiscal year 2023 earnings report, Nike reported a 59% increase in digital sales, with digital representing approximately 30% of its total revenue. The company has been focusing on enhancing its online platform, expanding its direct-to-consumer channels, and improving its digital marketing strategies. These initiatives have helped Nike adapt to changing consumer preferences and behavior as more customers opt for online shopping experiences. From an investor's perspective, Nike's recent decline in stock price has made it an appealing option. The company's attractive valuation, coupled with its long-term growth potential, presents an opportunity for investors seeking exposure to the sportswear industry.

The stock is currently trading at $113.61 with a daily RSI of around 55. The price has managed to close just above its 200-DMA of $112.50 on Tuesday. Its 50-DMA stands at $116.13, and the price closing above this level can push it towards the golden .618 fib level at $118.83 and more.

Paychex, Inc. (PAYX)

Paychex, Inc. (PAYX) is set to report its earnings for the fiscal quarter ending May 2023 on Thursday, June 29, before the market opens. The company provides human capital management solutions to small and medium-sized businesses. Despite a slight decline in its share price, Paychex has maintained a strong financial performance, driven by its technology platform called Paychex Flex. This technology has contributed to the strong demand for Paychex's solutions and services. The company has reported increased revenues in recent quarters and maintains a solid financial position with low leverage risk and strong cash flows. However, Paychex is currently overvalued compared to its industry peers, suggesting that potential investors should wait for a more affordable entry point.

Paychex's revenues have been growing, with total revenue increasing by 9% for the nine months of the fiscal year 2023. In the most recent quarter, total revenue reached $1.38 billion, surpassing estimates by $332.28 million. The management solutions business saw a 7% increase to $1 billion, while the PEO and insurance solutions segment grew by 6% to $321.2 million. These results were driven by factors such as strong demand, pricing, and growth in the average number of worksite employees. Paychex expects its revenue growth rate to remain at 8% by the end of fiscal year 2023. Additionally, the company's earnings per share (EPS) grew by 8% in the most recent quarter, and it anticipates an EPS growth rate of 13% to 14% by the end of fiscal year 2023.

Paychex maintains a strong balance sheet and healthy cash flows. With a cash balance of $1.56 billion and total debt of $871.2 million, the company exhibits low leverage risk. Its operating activities generated $1.63 billion in cash, an 8.1% increase from the previous year. Paychex's free cash flow amounted to $1.497 billion, a 9% increase from the previous year. These figures indicate a solid financial position and the ability to meet its financial obligations.

Paychex is currently trading at a higher price compared to its industry peers. Its price-to-earnings (P/E) ratio stands at 26.77, while the sector's average is 19.09. Similarly, the price-to-sales (P/S) ratio for Paychex is 8.13, compared to the sector's average of 1.38. These ratios suggest that the company is overvalued. Furthermore, Paychex's growth rates for EBIT, EPS, and revenue are lower than the sector's average growth rates, which further raises concerns about the current valuation. As a result, potential investors can wait for a more affordable entry point.

The stock retraced to $111.82 after falling from $114.63 to $108.05. The daily RSI is at 51.71, and the price just faced resistance from its 50-DMA, which stands at $111.68. It is important for the price to sustain above its 50-DMA and move past the golden .618 fib ratio at $112.12 for an upside move toward $113.22,114.63 and more. On the downside, if the price breaks $110, then it would open the doors toward $109.50, $108.86, and more.

Forex Analysis

GBPUSD

The currency pair broke out of its swing high of 1.26800 on June 15. The daily RSI stands at 56, and the price is currently trading at 1.26942. If the price takes support near its key level of 1.26800, then it could head towards 1.30000 and more towards its next .782 fib level at 1.30236.

USDCHF

The currency pair is currently trading at 0.89650 with an hourly RSI of around 65. If the price manages to cross above its recent swing high of 0.89706, then it could head towards its next .618 fib level at 0.89747.

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