The number of stocks that have doubled or tripled from their May bottoms is mind-boggling. I look at something like RH (Restoration Hardware) ( RH) and marvel how it has gone from $80 to $170 before really even opening a showroom floor. Admittedly, social distancing in the massive RH galleries and restaurants isn't difficult. That's not a knock on their business at all. It's a high-end retailer with enormous stores and large furniture pieces on display. Social distancing has been virtually enforced there since they started. So, maybe I get that one.
SmileDirectClub ( SDC) doubled, then added an additional 50% from that March low, before succumbing to earnings.
No sports, limited betting? No problem for DraftKings ( DKNG) . That one nearly tripled from its lows. This one might be $50 when the reality of sports actually returning hits the masses.
The name 2U ( TWOU) has tripled as the idea of online universities gains acceptance and speed. This, along with Pluralsight ( PS) , are two names I've followed for some time that were put out to pasture, and suddenly brought back to life. Covid-19 has created an immediate education and training void -- and need for them to fill. Suddenly everyone became beta testers.
Zillow ( Z) has doubled, running well ahead of real estate markets resuming strength. Low rates are likely a help, but remember Zillow got into the inventory and transaction game. It's buying and flipping. If unemployment remains high, we see no mortgage help for borrowers, and AirBnB continues to struggle. Also, remember Zillow is raising $1 billion via stock and debt. That's a healthy number for a company with a market cap that really only qualifies it a a large mid-cap name.
The list could go on and on. You can throw just about everything cloud name in here and many online retailers. The point is we've had a huge run off the bottom. The hindsight easy money is gone, even with the Fed talking about backstopping the markets until the end of time. That doesn't mean get bearish, but it does mean one should consider trying to pinpoint entries.
For instance, check out the daily chart on iShares Russell 2000 exchange-traded fund ( IWM) over the past month. The ideal entry has been around the 50-day simple moving average with a simple trail behind the price action. The index has bounced sharply higher from that SMA almost immediately. It extends into the $132 to $135 area where it finds sellers.
The tough part about this SMA is it remains in a decline. That should begin to turn in the next two weeks assuming we stay in the $125 or higher area, but right now, the 50-day goes back to that major gap in March. In other words, over the next three days, the SMA is really just swapping out those three lonely candles in March that traded in the $125 to $135 range for the three recent candles in the $119 to $132 range. But over the next two weeks, we'll rid ourselves of those March lows in the SMA calculation. That should create a support/buying level that begins to rise rather than falls away. For traders, it will offer perhaps a better risk-reward entry than what we have today with resistance $3 higher and support $7 to $12 lower.
