Moderna Monday

May 18, 2020|4:16pm

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I had every intention this morning of having a discussion about the divergence between the messaging the market received last week from the likes of Jay Powell, Dr. Fauci, David Tepper, and Stan Druckenmiller – all of whom expressed sobering outlooks – and, of course, the horrific economic data, versus “the trade” (you know, everyone buying the same Coronavirus winners, which also happen to be the dominant positions in the major indices).

By now, everybody knows the key players that can be expected to “win” in the coronavirus world. Some of the poster children here include Amazon (AMZN), Netflix (NFLX), Microsoft (MSFT), Activision (ATVI), Dominos (DPZ), NVIDA (NVDA), Paypal (PYPL), ServiceNow (NOW), Wayfair (W), Chegg (CHGG), Shopify (SHOP), Ring Central (RNG), Regeneron (REGN), and, of course, Moderna (MRNA), to name a few.

The bottom line is that although the economic outlook isn’t great due to the time it will likely take to return to “normal” and the severity of the lasting damage incurred along the way, the S&P 500 and especially the NASDAQ 100 continue to march merrily higher because they are dominated by the same names that everyone on the planet (including yours truly) wants/needs to own. For example, don’t look now fans, but the NASDAQ 100 ETF (QQQ) closed Friday up +5.2% on the year – and is up another 1.9% as I type on this fine Monday morning.

The key point I had planned to elaborate on was that the major indices don’t always follow the macroeconomic narrative. No, sometimes you need only to “follow the money” to understand why stocks appear to have lost their minds.

Things Changed Monday Morning

But that was before my alarm went off this morning. Before I peeked at the futures. Before the surge at the open. And before a big dose of hope returned to the corner of Broad and Wall.

This morning, you can forget about the current P/E ratio and even the Forward P/E ratio. You can brush aside your fears about what negative interest rates might mean to savers, banks, and the Fed’s balance sheet. And you can simply ignore the miserable earnings reports as well as the guidance, where there is any, from Corporate America.

No, this morning the game is about hope. And this time there is some actual data to back up that warm and fuzzy feeling everyone owning stocks has right about now.

The Key: A Little Something Called mRNA-1273

In case you haven’t seen the headlines yet, drugmaker Moderna (MRNA), which sadly, I do not own, said Monday morning that the vaccine the company is testing to guard against the coronavirus – a vaccine code-named mRNA-1273 – showed positive preliminary results in its Phase I human trial.

Here’s the key phrase from the company’s announcement this morning: “The results reinforce the potential for the vaccine to prevent Covid-19.” Wow.

More specifically, Moderna’s chief medical officer Dr. Tal Zaks said in a statement, “These interim Phase 1 data, while early, demonstrate that vaccination with mRNA-1273 elicits an immune response of the magnitude caused by natural infection starting with a dose as low as 25 [micrograms].”

If a long sigh of relief isn’t your response to that sentence, you may want to call your therapist.

While a bit geeky, I find some of the additional notes from Moderna’s statement fascinating. “When combined with the success in preventing viral replication in the lungs of a pre-clinical challenge model at a dose that elicited similar levels of neutralizing antibodies, these data substantiate our belief that mRNA-1273 has the potential to prevent COVID-19 disease and advance our ability to select a dose for pivotal trials,” Zaks added.

Did you catch the part about “mRNA-1273 has the potential to prevent COVID-19 disease?”

Now we’re talkin. Yes, this was a preliminary trial with only 45 participants. And it is true that all the data from the trial aren’t in. But if you dig into what Moderna is doing here, the data will definitely raise your spirits.

Moderna’s mRNA-1273 contains genetic material called messenger RNA, or mRNA. This mRNA is a genetic code that basically tells a person’s cells what to build. Here, the mRNA tells your body to build an antigen that will hopefully create an immunity to the virus.

Moderna says that after the Phase I trial is complete, it will move on to Phase II trials with 600 participants. Oh, and if the vaccine is effective and safe, it could be ready for us in, wait for it… early 2021.

“Early 2021” Definitely Works

This is important because “early 2021” is within the window of time that stocks tend to look towards. And IF any of the more than 100 vaccines currently in development (according to the WHO) can be “safe and effective,” then the world can actually think about returning to normal in the not too distant future.

I don’t know about you, but as someone who struggled to load all the potting soil, flowers and veggie plants into the back of our vehicle while wearing a mask and avoiding the rest of the gardeners yesterday morning, I for one, think this is welcome, hopeful news.

Weekly Market Model Review

Each week we do a disciplined, deep dive into our key market indicators and models. The overall goal of this exercise is to (a) remove emotion from the investment process, (b) stay “in tune” with the primary market cycles, and (c) remain cognizant of the risk/reward environment.

The Major Market Models

We start with six of our favorite long-term market models. These models are designed to help determine the “state” of the overall market.

There are no changes to report on the Primary Cycle board this week. And as I alluded to last week, the fact that there are no buy signals on this board gives me pause from a big picture standpoint. Thus, I think it is a good idea to try and separate one’s view of the short-term market action and the macro view. I’m not saying that the view should be negative – especially after this morning’s news from Moderna. But I will feel a whole lot better when I start to see some green here.


* Source: Ned Davis Research (NDR) as of the date of publication. Historical returns are hypothetical average annual performances calculated by NDR. Past performances do not guarantee future results or profitability – NOT INDIVIDUAL INVESTMENT ADVICE.
View My Favorite Market Models Online

The State of the Fundamental Backdrop

Next, we review the market’s fundamental factors in the areas of interest rates, the economy, inflation, and valuations.

There are also no changes to the Fundamental Factors board this week. However, from an optimistic point of view, it is important to keep in mind that the efforts of the Fed and Congress amount to another green box here. In short, the stimulative measures being taken are unprecedented and assuming there is a medical solution on the horizon, these efforts will wind up aiding the economic recovery.


* Source: Ned Davis Research (NDR) as of the date of publication. Historical returns are hypothetical average annual performances calculated by NDR. Past performances do not guarantee future results or profitability – NOT INDIVIDUAL INVESTMENT ADVICE.
View Fundamental Indicator Board Online

The State of the Trend

After looking at the big-picture models and the fundamental backdrop, I like to look at the state of the trend. This board of indicators is designed to tell us about the overall technical health of the current trend.

While stocks are surging this morning, the bottom line is stocks appear to be range-bound here. However, given the hopeful vaccine news out of MRNA, it does appear that a test of the S&P’s 200-day could certainly be in the cards. As such, we need to watch the action around the current resistance levels closely. My take is the result of the upcoming tests of important technical levels will be a key tell.


NOT INDIVIDUAL INVESTMENT ADVICE.
View Trend Indicator Board Online

The State of Internal Momentum

Next, we analyze the “oomph” behind the current trend via our group of market momentum indicators/models.

The Momentum Board sagged last week. However, this is due to the fact that many of the indicators are sitting very close to their respective lines of demarcation. Thus, a little upward oomph could easily put this board back in its happy place.


* Source: Ned Davis Research (NDR) as of the date of publication. Historical returns are hypothetical average annual performances calculated by NDR. Past performances do not guarantee future results or profitability – NOT INDIVIDUAL INVESTMENT ADVICE.
View Momentum Indicator Board Online

Early Warning Signals

Once we have identified the current environment, the state of the trend, and the degree of momentum behind the move, we then review the potential for a counter-trend move to begin. This batch of indicators is designed to suggest when the table is set for the trend to “go the other way.”

For the last couple weeks, I’ve been saying the Early Warning board suggested the table was set for a counter-trend move, which in this case, would be down. However, so far at least, said “retest” hasn’t happened. Blame it on the ongoing stimulus, the impressive moves by the Fed, or the hopeful news on the potential for a vaccine in record time. As such, stocks are now looking ahead and those looking for a leg lower may want to have stops in place.


* Source: Ned Davis Research (NDR) as of the date of publication. Historical returns are hypothetical average annual performances calculated by NDR. Past performances do not guarantee future results or profitability – NOT INDIVIDUAL INVESTMENT ADVICE.
View Early Warning Indicator Board Online

Thought For The Day:

Remember to say a quiet “thank you” for the good things that happen each day.

All the best,
David D. Moenning
Investment Strategist

David D. Moenning

Disclosures

At the time of publication, Mr. Moenning and/or Redwood Wealth Management, LLC held long positions in the following securities mentioned: QQQ, Amazon (AMZN), Netflix (NFLX), Microsoft (MSFT), Activision (ATVI), Dominos (DPZ), NVIDA (NVDA), ServiceNow (NOW)

Note that positions may change at any time.

NOT INVESTMENT ADVICE. The opinions and forecasts expressed herein are those of Mr. David Moenning and Redwood Wealth and may not actually come to pass. The opinions and viewpoints regarding the future of the markets should not be construed as investment recommendations. The analysis and information in this report is for informational purposes only. No part of the material presented in this report is intended as an investment recommendation or investment advice. Neither the information nor any opinion expressed constitutes a solicitation to purchase or sell securities or any investment program.

Any investment decisions must in all cases be made by the reader or by his or her investment adviser. Do NOT ever purchase any security without doing sufficient research. There is no guarantee that the investment objectives outlined will actually come to pass. All opinions expressed herein are subject to change without notice. Neither the editor, employees, nor any of their affiliates shall have any liability for any loss sustained by anyone who has relied on the information provided.

Mr. Moenning and Redwood Wealth may at times have positions in the securities referred to and may make purchases or sales of these securities while publications are in circulation. Positions may change at any time.

The analysis provided is based on both technical and fundamental research and is provided “as is” without warranty of any kind, either expressed or implied. Although the information contained is derived from sources which are believed to be reliable, they cannot be guaranteed.

Investments in equities carry an inherent element of risk including the potential for significant loss of principal. Past performance is not an indication of future results.

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