$DE -on the Run – September 7th, 2021

Bullish – DE – $389.34

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Market Outlook:

Last week marked yet again, new all-time highs for both SPY and QQQ as equities continue to rally. This comes despite a poor jobs report that missed estimates by over 500k. Further insight into the jobs report shows that the Delta variant has a continued impact on the hospitality sector as no jobs were added despite the ongoing global recovery and the retail sector losing jobs. The Technology sector continues to provide leadership and provides a good defense against a slowdown in the recovery should the Delta variant put additional pressure on equities. Sector rotation shows a pickup in Communications and Real Estate while Energy and Discretionary experienced an uptick in momentum last week.

Watch Tony’s DE Trade Video on CNBC

DE Bullish Trade Idea:
Our bullish trade is Deere & Company (DE). DE provides a good bullish play on the Industrials sector as we see rotation into the sector. DE has seen very strong revenue and EPS growth over the last 2 quarters. From a technical perspective, DE is breaking above the $389 resistance level which opens the door for an extended rally. Both 1M and 6M trends are bullish and with a technical score of 8 (out of 10), DE is a strong stock that will likely continue higher. 

As this is a debit spread, look to take profits at 75%-100% gain and cut losses at 50%:

Take Profit: $23.22 – $26.50 Credit

Stop Loss: $6.62 Credit

Look to close the trade at 21 days to expiration if neither the take profit nor stop loss level has been reached. View DE Trade

Sector Outlook

The Relative Rotation Graph (RRG) for sector rotation indicates that there is healthy sector rotation with 6 sectors in the Improving and Leading categories and 5 sectors in the Lagging and Weakening categories.

Leading (positive relative trend and positive relative momentum): Communications joined Technology in the leading category last week after increasing relative strength. Technology showing signs of slowing momentum.

Weakening (positive relative strength and negative relative momentum): 2 sectors have moved to this category – Utilities and Financials. The defensive sectors are showing weak momentum while Financials is experiencing neutral momentum and weak relative strength which may see it cross to the Lagging category this week. 

Lagging (negative relative trend and negative relative momentum): 4 sectors are in the lagging category – Industrials, Staples, Materials, and Healthcare. Like Utilities, momentum in Staples and Healthcare remains weak while Industrials and Materials showing a recent increase in momentum.

Improving (negative relative trend and positive relative momentum): Real Estate, Discretionary, and Energy are in the improving category. Real Estate’s growing relative strength should see it move into the leading category this week.

XLC

Communications conitnue to rally after breaking to new all time highs last week and pulling back slightly on Thursday. A further pullback should provide better risk/reward bullish entry as Communcations is one of the 2 Leading sectors currently. 

XLV

Despite weak momentum and relative strength, the Healthcare sector looks well-positioned for a breakout above the $137 resistance level. A breakout in price will be confirmed should momentum start to pickup this week and will likely form a new base of support at $137 for further bullish exposure. 

Market Observations

  • CVS – New support is developing at $87 after some consolidation. Lookout for buying opportunities at this level
  • FB – With a break into new highs, look for support at $375 levels for a buying opportunity.
  • PYPL – A increase in momentum signals buying opportunities. With a break above and support found in the $293 level will offer an opportunity to go long.
Tony Zhang