It could be “GO” time for the markets as the NASDAQ is real close to setting a new 52-week and all-time high. As the saying goes, new highs are usually followed by newer, higher highs. As you can see on the weekly chart below, the index is close to busting resistance. From our experience, technical breakouts tend to be followed by aggressive upward advances.
The switch hasn’t turned to “on” just yet. The NASDAQ needs to get past 14,175.12 for the “GO” light to shine. Earnings could be the electricity needed to get the index past its 52-week high. So far, 123 of the 500 companies in the S&P 500 have released their first quarter report cards. One hundred and one reported earnings per share that exceeded Wall Street’s forecasts and 93 topped revenue expectations.
That means 82% of the numbers in the books are bullish earnings surprises, which would be the second highest rate since 2013. Those are fantastic numbers and viewed as good news, which should be a plus for stock prices in the near-term.
However, there is a yellow flag hiding in the overwhelmingly positive reports, only a dozen of the 123 lifted their forward guidance and five lowered expectations. We would like to see the number of upward revisions be considerably higher. It could be a case of managing expectations as insiders know the importance of bullish earnings beats. Still, the low number of bullish revisions is something to monitor.
Index investors might consider adding an exchange-traded fund (ETF) like Invesco QQQ Trust (QQQ) if/when the NASDAQ closes above 14,175.12. The ETF’s objective is to return the daily performance of the NASDAQ 100. For example, if the NASDAQ 100 gains 1% in a day, then QQQ should gain 1% as well.
Last week we mentioned that SPDR S&P Biotech ETF (XBI) and ALPS Medical Breakthroughs ETF (SBIO) were on our watchlist as potential breakouts. Well, last week they made their way towards the top of our sector leaderboard as the number two and four performers, respectively. Both charts look bullish but SBIO appears to have more upside, in our opinion. Investors looking for exposure to biotechs might consider either.
We analyzed the charts for SBIO holding’s top positions. ChemoCentryx, Inc. (CCXI) is the one we find the most attractive. ChemoCentryx is a clinical-stage biopharmaceutical company focused on the development and commercialization of new medications for inflammatory disorders, autoimmune diseases, and cancer in the United States.
Clinical stage means high risk.
CCXI recently set its 52-week low of $44.28. From a risk management standpoint, we’d consider taking losses and selling ChemoCentryx if it closes below $43.28 ($1 below the current 52-week low). The stock currently trades at $47.36. So, downside of about 10% before we’d cut bait.
On the upside, Wall Street has a one-year price target of $88.88. (1) That’s a little more than $40 higher than CCXI is as we type. Shares have been as high as $70.29 in the last year.
ChemoCentryx rose 3.18% on Monday, breaking a downward trendline. It could prove to be a pivot point or reversal of trend, provided the stock doesn’t set a new low; hence, our stop $1 below the 52-week low. If bulls are back, CCXI could make its way to resistance at around $54 in the intermediate term.
ChemoCentryx, Inc. (CCXI) is only appropriate for investors with maximum risk tolerance.