Here are some interesting observations on the following stocks: 1. Disney; 2. Tesla and 3. Bank of America. There is one additional case study on Value stock breakout.
Walt Disney: Buy or Sell?
When it comes to Disney stock, it has become all about Disney+ subscription growth. And sometimes, it’s hard for companies to beat insane expectations. Disney+ had 94.9 million subscribers at the end of December 2020, and by the end of this quarter that number has grown to 103.6 million which is an incredible accomplishment but the market expected more and the stock sold off. It’s amazing how much the market is obsessed with single metrics. Nobody even paid attention to the fact that Disney theme parks are now open.
Reading price action, Disney stock made an impressive move from $120 to $200 between Nov 200 and Feb 2021. The stock is now pulling back and considering fundamentals are only going to improve, the stock continues to be an excellent buy on declines especially near 160 levels/200 dma. It also coincides with the support Disney stock took around the end of Feb 2021. So, if you like Disney as a company and contemplating buying, a price around 160-164 would be a good place to consider with a stop loss below 154.
Should one consider Tesla as an investment buy at the current market price?
I have a simple rule which says that once a stock makes a vertical move and sells off, then it takes a long time for such stock to make a sustained comeback. If I follow this rule, then Tesla is a stock one should avoid in 2021.
Tesla stock made a move from $100 to $900 in 2020. Yeah and so $589 looks a lot less than 900 but it is still a lot up from $100. Tesla was never a stock for fundamentally inclined investors, it was always a play on Elon Musk’s crazy ambitions. So, it’s hard to justify any price on the stock rationally.
The big question: Is Tesla bounce from 200 dma a buy? I don’t know, maybe, some trading bounce can happen but does this look like a durable bottom – the answer is no.
Bank of America – the large-cap stock of 2021
The sector counts. Bank has been a strong sector since Nov and Bank of America stock has not disappointed since then. Every pullback has turned into a great buying opportunity. For example – the stock pullback to $30 by the end of Feb turned out to be a great buying opportunity. The stock has rallied 40% since then which in the current market environment is extraordinary.
Lots of you might remember, even Wells Fargo WFC offered a similar opportunity around 36.5 post large candle move, and that stock also has rallied 27% since the end of Feb 2021.
What happens when Value stocks break out?
We saw an unprecedented rise in stock prices last year when growth stocks broke out. But do we get a similar outcome when value stocks break out? See for yourself, what Abbvie ABBV stock has done post-breakout above $100 in Nov 2020. Abbvie is a Pharma company that offers an attractive dividend yield of 4.5%.
Abbvie stock formed a bullish base at 105 and finally has taken off and now trades at 116. It means a breakout > 100 which gave an opportunity at 105 is now up just 11%.
2021 has been totally different year from 2020 and even though stocks like Abbvie have done well, this is not the kind of move price action readers look forward to.
Look at Johnson & Johnson J&J breakout above the resistance of 154
J&J stock broke past 154 after a long time but the stock has hardly made a progress to 170 i.e. 10% upside in six months
Disclaimer – The state of the market notes is Deepak’s perspective on the market. The column is purely for educational purposes. Nothing contained herein is a solicitation to trade or a recommendation of a specific trade. By reading this publication you agree to make no trade relying in whole or in part on the comments of the writers
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