ACTION PLAN For The Week Of June 26, 2023

 Previous Week’s Newsletter Performance

• Dow Jones- The index retraced to 34,116 and even 34,000 and below, as projected in the last week’s newsletter.

• NDX- The index retraced to its .236 fib level at 14,868, as projected in the last week’s newsletter.

• SPX- The index touched the projected target of 4,367.17 in Tuesday’s trading session.

• FTSE 100- The index touched the projected target of 7,600 in Monday’s trading session.

• USDCHF- The currency pair touched the projected target of 0.89789 in Tuesday’s trading session.

• USDJPY- The currency pair touched the projected target of 142.498 in Thursday’s trading session.

Major Highlights from the Global Markets 

Highlights of US Markets

• The major US benchmarks, including the S&P 500 and Nasdaq Composite, ended the holiday-shortened week declining 1.39% and 1.44%, respectively. Dow Jones, too finished the week on a negative note, falling 1.67%, while Nasdaq 100 closed for the week with a fall of 1.28%.

• Fed Chair Jerome Powell's testimony before Congress indicated expectations of further rate hikes. Moreover, the Fed's latest Summary of Economic Predictions revealed a majority expectation of at least two more quarter-point rate hikes in the coming year.

• Manufacturing activity in the U.S. fell to its lowest level since December, with suppliers cutting prices in response to weak demand.

• Weekly jobless claims hit 264,000, matching the previous week's number and reaching the highest level since October 2021.

• Housing starts reached their highest level in over a year, exceeding forecasts, and sales of existing homes showed a modest upside surprise.

• The Federal Deposit Insurance Corporation (FDIC) continued to sell munis acquired from distressed banks, which attracted strong bids.

• The bank loan market was calm, but demand from collateralized loan obligation portfolio managers was noted in the secondary market.

European Markets Highlights

• The STOXX Europe 600 Index closed lower, declining 2.92% for the week due to concerns of potential interest rate increases causing a recession in the UK and eurozone. On the other hand, Germany’s DAX and France’s CAC 40 declined 3.23% and 3.05%, respectively, for the week. Factors such as a sluggish economic recovery in China and hawkish comments from Fed Chair Jerome Powell added to the negative sentiment.

• Recession fears led to lower European government bond yields, with 10-year German, French, and Swiss yields declining.

• The Bank of England (BoE) raised its key interest rate by 0.5 percentage points to 5.0%, the highest level since 2008, due to unexpectedly strong inflation data. The BoE's Monetary Policy Committee cited persistent inflationary pressures as the reason for the rate hike.

• In May, headline annual consumer price growth in the UK remained at 8.7%, and core inflation reached a 31-year high of 7.1%.

• Norway's central bank raised its key interest rate by 0.5 percentage points to 3.75%, aiming to curb inflation that is above target. The Swiss National Bank also increased its benchmark interest rate by a quarter percentage point to 1.75% and did not rule out further rate hikes.

• Eurozone business output grew for a sixth month in June but showed signs of weakening, as indicated by the HCOB Flash Eurozone Composite Purchasing Managers' Output Index falling to a five-month low of 50.3.

• German producer prices in May rose at their slowest pace since July 2021, with annual growth of 1.0%, down from 4.1% in April. The Ifo Institute predicted a deeper contraction for the German economy, expecting a 0.4% decline in 2023 compared to the previously forecasted 0.1% contraction in March.

  Asian Markets Highlights

• Japanese equities declined, with the Nikkei 225 Index falling 2.74% and the TOPIX Index down 1.55% during the week.

• Chinese equities also closed lower, with the Shanghai Stock Exchange Composite Index declining 2.3% while the CSI 300 declined 2.51% for the week. On the other hand, Hong Kong’s Hang Seng declined 5.74%.

• The yield on the 10-year Japanese government bond fell to 0.36%, reflecting the Bank of Japan's commitment to ultra-loose monetary policy.

• The yen weakened against the U.S. dollar, closing around JPY 143.7 last week, prompting close monitoring by Japanese policymakers.

• Japan's core consumer price index (CPI) rose by 3.2% in May, surpassing the Bank of Japan's 2.0% inflation target. The central bank projects a deceleration in the CPI's year-on-year rate of increase by the middle of fiscal 2023.

• Manufacturing output in China fell, indicating a slowdown in the post-pandemic recovery, leading to concerns about the economic outlook.

• Chinese banks lowered their loan prime rates in line with the People's Bank of China's rate cut. Analysts had expected a larger reduction in the five-year rate.

• Beijing announced a four-year tax break package for consumers purchasing new electric vehicles (EVs) to boost sales and production in the country's large EV market. The move is aimed at stimulating demand in the struggling sector.

  Major News/ Catalyst Events that were Market Movers

  • The annual rebalance of the Russell indexes on Friday appeared to keep volumes muted earlier in the week as investors prepared to shift portfolio allocations. Technology now represents 50% of the Russell 1000 Growth Index. Notable changes include Nike and Union Pacific, which have shifted from being fully in the growth index last year to being categorized as 47% and 57% value, respectively. Alphabet and Meta Platforms are now 100% in the growth index, compared to their previous classification as 13% and 78% value, respectively. Dell Technologies has been removed from Russell indexes due to new rules regarding stockholder voting rights. These changes were based on market data as of April 28.

  • Growth stocks outperformed value shares, while large-caps fared better than small-caps. The information technology sector was among the biggest laggards, declining by over 2% for the week. Apple touched a new all-time high of $187.56 last week.

  • CarMax exceeded revenue expectations, leading to a 10.07% stock price increase on Friday.

  • Regional bank stocks experienced a failed recovery rally, significantly underperforming the broader market this week as the regional banking KRX index declined 7.41% for the week.

  • Chaos in Russia may add to market volatility. Heavily armed Russian mercenaries who were advancing towards Moscow have begun turning back, de-escalating a major challenge to President Vladimir Putin's power. However, concerns about subsequent instability and ongoing developments may keep investors cautious. The situation in Russia has implications for global markets, including commodity prices, defense-related stocks, and geopolitical alliances. Overall, the market reaction will depend on unfolding events and the level of uncertainty surrounding Russia's internal power struggle.

  Bond Market Changes

• The U.S. 10-Year Treasury Yield closed lower at 3.737% for the week, while the U.S. 2-Year Bond Yield ended higher at 4.750%.

• Municipal bonds outperformed, driven by strong demand for higher-yielding new issues. The investment-grade and high-yield corporate bond markets were subdued.

   

  Commodity Market Changes

• Gold closed lower for the week at $1,921.47 per ounce, and silver too closed lower at $22.436 per ounce.

• The Crude Oil WTI Futures - Aug 23 (CLQ3) closed lower for the week at $69.50.

Technical Analysis of Major Indices

Dow Jones Industrial Average (DJI)

The index closed at 33,727.44 on Friday, above its 50-DMA, which stands at 33,619.11. The hourly RSI just below 35 indicates bearishness in a shorter timeframe. If the price fails to find support near the 33,600 level with its .50 fib level at 33,587.62, then it could be heading towards its next golden .618 fib ratio at 33,351.37.

NASDAQ 100 (NDX)

The index closed at 14,891.48 after breaking its upward trendline last week. The hourly RSI of around 45 indicates indecisiveness. If the price breaks last week’s low of 14,794.95, then it could head towards the next .382 fib level at 14,610.91.

S&P 500 (SPX)

The index declined 1.39% last week to close at 4,348.32 after breaking the upward trendline. The hourly RSI is around 40, indicating a bearish bias. If the price breaks last week’s low of 4,341.34, it could head towards its next .382 fib level at 4,316.87 and more.

FTSE 100 Index (UK100)

The index declined 2.37% to close at 7,461.87, below its 200-DMA of 7,538.43. The daily RSI at 33.91 indicates bearishness. If the price breaks its last week’s low of 7,439.72, then it could be heading toward the next .786 fib level at 7,362.89 and more near the trend line at 7,315-7300.

Technical/Fundamental Analysis of Mega Cap Stocks

Home Depot, Inc. (HD)

The stock is currently trading at $300.81, above its 50-DMA and just above its 200-DMA, which stands at $300.02. It has failed to sustain above its 200-DMA ever since the price broke below it last February. The price is presently hovering near the 200-DMA, just near the downward trendline, with a daily RSI around 55. If the price manages to cross its recent high of $305.98, then it could head toward the next .50 and .618 fib levels at $309.28 and $316.88, respectively.

Merck & Company, Inc. (MRK)

The stock rose 4.83% last week to close at $114.60, just above its 50-DMA of $113.82. The daily RSI of around 60 indicates bulls are taking charge, and the price could be heading towards its next .782 fib level at $116.92 and more if it moves past its Friday high of $114.91.

Technical/Fundamental Analysis of Large Cap Stocks

Qualcomm Incorporated (QCOM)

The stock declined 7.54% last week to close at $113.43, marginally below its 50-DMA. The price broke its 200-DMA last Wednesday and has retraced to its .50 fib level at $113.44. The daily RSI is around 45. If the price fails to find support near the 50-DMA, also coinciding with the .50 fib level, then it could head towards its next .618 fib level at $110.61.

International Business Machines Corporation (IBM)

The stock declined 5.86% last week to close at $129.43, just above its 50-DMA, which stands at $128.44. The price broke its 200-DMA last Thursday, and its daily RSI is around 42, suggesting bearishness. Thus, the price could head towards its next .618 fib level at $127.78 and more if it breaks and trades below the 50-DMA.

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

  • Tuesday, June 27- Durable goods orders and durable goods minus transportation (May), S&P Case-Shiller home price index (April), New home sales (May), and Consumer Confidence (June).

  • 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 Week

Carnival Corporation (CCL)

Carnival Corporation is about to release its second-quarter earnings report on Monday, June 26, before the market opens. It is expected to report an estimated loss of $0.34 per share and revenues of $4.8 billion. The company's financial struggles are exacerbated by the substantial increase in net interest expenses, reaching nearly $500 million per quarter. Despite forecasting adjusted EBITDA of $3.9 to $4.1 billion for FY2023, Carnival's capital expenditures of $3.2 billion and net debt of $30 billion hinder its ability to generate significant free cash flows.

The significant rally in Carnival's stock price has resulted in a higher forward price-to-earnings (P/E) multiple compared to its industry peers, such as Norwegian Cruise Line Holdings (NCLH) and Royal Caribbean Group (RCL). While Carnival may still have the potential for growth beyond FY2025, it faces hurdles such as its high debt and ongoing high-interest expenses. To regain an investment-grade rating, Carnival needs to generate over $8.5 billion in annual adjusted EBITDA or significantly reduce its debt levels through free cash flows.

Despite positive prospects for future cash flows, Carnival's financial challenges and the market's preference for other cruise line stocks make it less attractive as an investment choice at present. Investors are cautious due to the company's limited ability to generate substantial free cash flows, given its capital expenditure plans and debt obligations.

The stock is currently in an upside trend with strong bullish momentum, as reflected in its daily RSI, which is presently at 78.59. There was a golden crossover in the price last month, with the 50-DMA crossing over the 200-DMA. Thus, better quarterly results can push the price towards the .50 fib level at $18.82 if it manages to cross its recent high of $16.40.

Walgreens Boots Alliance, Inc. (WBA)

Walgreens Boots Alliance (NASDAQ: WBA) is a pharmaceutical healthcare and beauty product retailer which is expected to report its quarterly earnings on Tuesday, June 27, before the market opens. Despite a disappointing performance in the stock price over the past eight years, analysts consider it undervalued. Walgreens offers a 6.1% yield, with a steadily rising dividend and a BBB S&P credit rating, making it an attractive option for income-focused investors. The company's future potential looks promising, with synergies from acquisitions expected to drive growth in 2024.

According to Morningstar, Walgreens is undervalued with a fair value of $48, while Yahoo Finance lists a 1-year price target of $40. The forward P/E ratio (Non-GAAP) stands at 7.06 against the sector median of 18.38. The company's strong financials and potential synergies from acquisitions indicate a brighter future.

Walgreens has maintained a regular rising dividend for 47 years, currently yielding 6.1%. The dividend growth rate has declined to 2.47% over the last few years, but the company is expected to announce an annual September raise. If the raise is around 2% on top of the existing yield, it will provide an attractive income opportunity compared to short-term bonds and CDs.

In conclusion, Walgreens Boots Alliance presents an opportunity for income-focused investors with its undervalued stock, safe and rising dividend, and solid BBB S&P credit rating. While the stock may not offer significant price growth, its 6.1% yield and potential dividend raises make it a suitable choice for investors seeking a steady income stream.

The stock has been in a downtrend, with its daily RSI just below 40. However, the price seems to be taking support near $30, with its recent low at $29.48. If the price breaks above its last week’s high of $32.89, then it could head towards its next .382 fib level at $34.37.

TD SYNNEX Corporation (SNX)

TD SYNNEX is set to release its second-quarter fiscal 2023 results on Tuesday, June 27, before the market opens. It expects a decline in revenues compared to the prior-year period due to factors such as unfavorable foreign currency exchange rates and a slowdown in IT spending. The company anticipates revenues between $14 billion and $15 billion, with the consensus estimate at $14.4 billion, reflecting a 5.9% decrease. In terms of earnings, TD SYNNEX projects a year-over-year decline of approximately 8.1%, with non-GAAP earnings per share between $2.25 and $2.75.

While macroeconomic and geopolitical issues have impacted overall financial performance, the demand for hardware and tools supporting hybrid working and cloud storage solutions has provided some relief. This trend has driven sales of peripherals, software, communication, networking, and consumer electronic products. Additionally, the increased usage of online and e-commerce services has led to a spike in demand for cloud services, benefiting TD SYNNEX's data center servers and storage solution businesses.

The company’s financial metrics, such as PE, price/sales, and price/cash flow, are quite good in comparison to the industry. Its forward GAAP P/E stands at 13.18 against the sector median of 24.83. Further, the forward price/sales and forward price/cash flow stand at 0.15 and 7.12, against the sector median of 2.78 and 19.69, respectively.

The stock is currently in a bullish trend, with the stock price rising from the May low of $86.30 to $96.21 as of June 23 close. The daily RSI is at 61.86, and the price is just trading above its .382 fib level. The stock had failed to cross the 200 DMA in its previous two attempts in the month of April. However, now the price has managed to sustain above its 200-DMA for eight trading sessions. Hence, combining all the technical factors, it seems the price is poised to head toward its next .50 fib level at $98.94 and more in the coming days.

Jefferies Financial Group Inc (JEF)

The company is set to announce its quarterly earnings for the fiscal quarter ending May 2023 on Tuesday, June 27, after the market close. According to Jefferies Financial Group's Q1 2023 report, the company's capital markets business performed well in equities due to market volatility. However, its investment and merchant banking revenues declined significantly due to the divestments of major holdings Vitesse and Idaho Timber. Despite these divestments, Jefferies benefited shareholders and expects the impact to be minimal. The Q2 report is expected to show a slowdown in the capital markets business and weak advisory performance, similar to other competitors in the industry.

Jefferies' Q1 results did not reflect the banking troubles experienced in March, which may have a negative impact on the company's revenue streams in Q2. While the fixed-income business is likely to suffer due to investors’ caution, the equities business is expected to perform well. Overall, Jefferies' valuation is not exceptionally compelling compared to other advisors in the sector, and there may be both positive and negative factors at play in the long term, such as increased compensation costs with a shift away from merchant banking.

The company faced a shortfall in income due to the sale of Idaho Timber and Vitesse Energy, which were significant contributors to the merchant banking business. The merchant banking portfolio is now smaller, and there were no repeat principal investment performances to compensate for the decline. Jefferies may be a better investment when private markets open up again, as the company is more reflexive to market conditions compared to advisors without principal investment businesses.

The stock has risen from its March month low of $28.34 to a recent high of $33.48 in the month of June. The price faced resistance near its 200-DMA, which presently stands at $33.26, and the stock has just managed to close above its 50-DMA on Friday’s session. The daily RSI of around 48 suggests indecisiveness. If the price manages to find support at its 50-DMA, then it can move towards its recent high at $33.48 and more. However, if it fails to hold the 50-DMA, then it could be heading toward $30 and below.

Forex Analysis

EURUSD

The price closed at 1.08960 after falling from a high of 1.10120 to 1.08444 last week. The hourly RSI is around 42, and if the price manages to cross its .382 fib level at 1.09084, then it could be heading towards the next .50 fib level at 1.09282 and more.

USDJPY

The currency pair is currently in a bullish trend, with a daily RSI of 73.67. There is a golden crossover in the price as the 50-DMA has crossed above the 200-DMA. The price has also broken its .618 fib level of 142.498 and is trading at 143.703. Thus, the bullish momentum in the price can push it towards the next .782 fib level at 146.652 in the coming days.

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