It remains to be seen whether Monday’s trading was the sign of a near-term bottom, or simply a relief rally. But investors certainly enjoyed it. The Dow Jones Industrial Average gained 5%, and the S&P 500 and NASDAQ Composite were not far behind.
Certainly, there’s a ways to go. Yesterday’s monster rally recaptured less than half of last week’s losses.
The coronavirus — which clearly is a catalyst for the recent selling, if not necessarily the only catalyst — continues to spread. Investors may be banking on a Federal Reserve rate cut, but the Fed may not be able to offset broader fears.
But for now, optimism has returned. In that spirit, Tuesday’s big stock charts focus on three of Monday’s biggest winners. As with the market as a whole, the question is whether the momentum will continue.
Amarin (NASDAQ:AMRN) was one of the more confusing victims of the market sell-off. But as the first of Tuesday’s big stock charts shows, investors figured that out on Monday:
- Simply put, support held at the same levels it did back in August and October. Technically, there’s a case for more upside. Despite the volatility in AMRN stock, the 200-day moving average has held remarkably stable around $18 for about eight months at this point. That seems a reasonable target in the near term.
- Fundamentally there’s reason to see the gains continuing. As I detailed last week, the sell-off made little sense. The news so far this year has been reasonably good, including a solid earnings report on Feb. 25. Acasti Pharma (NASDAQ:ACST) and AstraZeneca (NYSE:AZN) both were developing competitors that failed their trials in mid-January. Macro worries should have little, if any, impact on demand for Vascepa, Amarin’s sole approved product.
- And so Monday’s bounce could be the start of a broader recovery. It’s good news for the market as well. The declines in AMRN stock suggest that at least some of last week’s selling was driven not by legitimate worries or by valuations that may have run too far. Some stocks simply got dumped, and it looks like Amarin stock was one of them.
Campbell Soup (CPB)
Campbell Soup (NYSE:CPB) isn’t out of the woods yet. But Monday’s rally establishes some optimism ahead of earnings on Wednesday:
- The good news for CPB stock is that trading Friday and Monday established a bullish test of the 200-day moving average. After a concerning multiple top, buyers needed to step in — and they have. That doesn’t necessarily suggest upside from here, however. Resistance seems firm below $50, and shares again are bumping up against the 50DMA.
- The chart adds to the importance of fiscal second quarter earnings tomorrow morning. Campbell has managed to regain investor optimism over the past year, but shares still trade well below 2015 highs. The company is trying to diversify away from its legacy business through acquisitions, most notably through the purchase of snack food maker Snyder’s-Lance. The debt incurred in those deals leaves CPB with little room for error.
- And so this is a big report for Campbell, and for its sector, as detailed in this week’s Earnings Reports to Watch. CPB was only one of the sector’s winners on Monday, with Conagra Brands (NYSE:CAG), Treehouse Foods (NYSE:THS), and McCormick (NYSE:MKC) all gaining at least 5%. It will take a big report for Campbell to break through resistance and that kind of report could allow peers to recover their own losses.
Church & Dwight (CHD)
Church & Dwight (NYSE:CHD) was another of Monday’s winners in the consumer space. Like that of CPB, the third of Tuesday’s big stock charts highlights stiff resistance even after the rally:
- CHD has struggled to hold above $76 for any real length of time for over ten months now. But support has managed to hold around December levels, and Monday’s gains pushed CHD back to levels reached after a strong earnings report at the end of January. The gains also should help the 50-day moving average, setting up a potential “golden cross” in coming weeks.
- From a broader perspective, however, the resistance makes some sense. There are valuation concerns here. Shares trade at 26x forward earnings. That multiple sits on relatively modest growth, with analysts expected earnings per share to rise 8% in 2020 and 7% next year. As with other sector plays like Colgate-Palmolive (NYSE:CL) and even Procter & Gamble (NYSE:PG), there’s a worry that valuation has outstripped earnings potential.
- And so CHD probably needs some help from the market to bust out. In fact, it may need the 2019 market to return. Even after Monday’s rally, that could be too much to ask.
Vince Martin has covered the financial industry for close to a decade for InvestorPlace.com and other outlets. He has no positions in any securities mentioned.