Reporting season is always an interesting time to think about investment ideas. It is an opportunity for management teams to communicate their successes and challenges. All companies, and maybe especially those with a large capitalization, try to look their best. The mistake most investors make is that they expect a good reaction to good reports. If this were the case, then more than 90% of all income would be positive. This is clearly not the case. However, the rally has gone on for too long and there are mega-cap stocks here that could disappear.
The most recent sign of exhaustion was a reaction to Amazon (NASDAQ:AMZN) promotions on Friday. The company reported the night before. He had an incredibly strong quarter with no disappointments. However, the stock failed to hold its greens and closed in red throughout the day. This is not reflected in the future of Amazon. This is a short-term reaction to a coin toss profit.
Today’s call to pull stocks off these high levels is not a critique of their fundamentals. Do not confuse this as a reason why you can immediately cut companies – they are doing well. They say not to fight the tape, so we just try to take advantage of temporary weaknesses within our limits.
Over the decades of investing, I’ve learned not to linger on profitable trades. No matter how much I like stocks, I expect them to have temporary drawbacks. This is a good time to lock in profits and prepare for a restart for the next launch.
All shares must be traded on the collective market. IN Nasdaq for example, could not rally on great news. Major tech names including Apple (NASDAQ:AAPL) as well as Microsoft (NASDAQ:MSFT), reported outliers. yet the weekly scoreboard was red.
If you can’t climb on the good news, there may be some sales ahead. It will be very important to keep track of the completion this week. Meanwhile, here are three mega-cap stocks that will disappear in the next couple of weeks.
- Caterpillar (NYSE:CAT)
- Visa (NYSE:V)
- Bank of America (NYSE:BAC)
Fade Mega Caps Stock: Caterpillar (CAT)
Despite the global fight against the pandemic, 2020 has proven to be a great year for CAT stock. Entering 2020, it struggled to regain its highs after the 2018 correction. In January of that year, stocks began a terrible downward channel. In the end, it happened with the Covid-19 crash and then the magic began.
CAT was up 174% where it currently stands.
Caterpillar has consolidated sideways movement at its highs over the past two months. This is usually good news for bulls because they can use it to create new foundations. But this time, there is a good chance that things are different. There may be signs of exhaustion that the bears are ready to take the reins into their own hands for a short while.
If I’m right, CAT stock might be poised to drop and retest $ 200 a share. If this happens, it will not be a disaster. In fact, this is how normal price action unfolds. My thesis is confirmed by looking at the monthly chart. Caterpillar had a similar run since April 2016, which ended with a big correction two years later. The stock had 13 consecutive monthly green candles last month. April was the first red after the 2020 crash.
Today I want to try to avoid a big potential failure. If it doesn’t, then it doesn’t hurt to try.
Visa comes second on our list and is as strong as CAT. In fact, out of the three I like it the most in the long run today. Fintech is a fan favorite on Wall Street for good reason. This is an extremely exciting industry that is seeping into cryptocurrency. Today’s arguments also extend to MasterCard (NYSE:MA) as well as American Express (NYSE:AXP) to some extent. Most often they trade in unison. Beginners love Square (NYSE:SQ) as well as Paypal (NASDAQ:PYPL), but these three older dogs are adapting to cope with the problems.
Typically, Visa shares do not outperform MasterCard. Recently, however, this has happened – and by a large margin. Last week he set two records on Thursday and Friday. Moreover, it had six incredibly strong candles in a row. While V stocks are making new highs, it makes sense to lock in some profit and give it a little rest.
Financial technology stocks fell sharply in late March. In particular, Visa fell by almost 10% in three days. Since then, it has grown by almost 15%, so it’s time to take a break. I expect another drop could occur after retesting at $ 225 per share. Most likely, the whole market will be the same this week.
The reaction to earnings last week was positive, but not exceptional. It could go up a little more, but it’s at the top of the trading channel. Regression analysis leaves room for my mini-bear thesis. A drop to $ 220 a share would simply be a return to the average. In the long run, I would be catching all the big falling knives in it.
Mega-cap stocks that will disappear: Bank of America (BAC)
Bank of America’s business model is as boring as it gets in its sector. It’s not a bad thing, it’s just a description of how it works. It has always played by the rules and is a giant monetary center in the United States. JPMorgan (NYSE:JPM) as well as Goldman Sachs (NYSE:GS) are famous for their trading tables, Wells Fargo (NYSE:WFC) – black sheep. And then there is BAC who is famous … Well, nothing special. This is a corporation eccentric, and I don’t mind that.
I am a little worried about two controversial points. The first is his assessment. Currently, YOU shares are too expensive compared to themselves. The price-to-earnings / book value ratio is 80% and 40% higher than in 2018. Their profit margins are declining and their debt ratios are rising. Business is facing a headwind and new challenges may arise.
The second reason comes from the graphs. EAC stock has just hit a massive flop level in 2008. It cannot be said that the situation is similar now. But there are investors who are stuck there. After 13 years, this is their exit point, if they want to. It is in the pre-sale stage, so there are no imminent signs yet. This is a constant reminder that my call for mega-cap stocks to disappear is not entirely bearish. BAC shares receive additional help from bond yields. Bond prices can’t hold back, giving BAC the same boost it did this morning.
As of the date of publication, Nicolas Shahin did not have (directly or indirectly) any positions in the securities referred to in this article.
Nicolas Shahin – Managing Director SellSpreads.com…