We've been in a solid secular bull market for years, but the past couple years have been difficult for sure. Still, we've seen plenty of stocks breaking out over and over again (ie, autos, renewable energy, etc.). But not all stocks have participated, even those in hot sectors or industry groups. It's always important to watch for new leaders and one way to do just that is to wait for stocks that have been consolidating for weeks, months, or maybe even years, to finally join the bullish party. Here are two such stocks:
Dropbox, Inc. (DBX)
DBX is an $11.2 billion software company that, quite frankly, missed the huge run higher in software stocks. As a result, this was a long-term relative loser that wasn't worth the investment. It's certainly been flying under the radar at EarningsBeats.com, because DBX is not on a single ChartList that we keep for our members. That may be about to change, however, as DBX suddenly has become a darling among software stocks, breaking out after a very lengthy period of consolidation:
The breakout is on both an absolute and relative basis and comes with much more bullish volume trends. It doesn't hurt that DBX has more than 8% of its float short as well. It's quite likely that we'll see short sellers forced to cover those shares or risk further losses as DBX gains ground.
Embraer Aircraft (ERJ)
Question: What do you get when you cross a red-hot asset group (small caps) with a surging industry group (aerospace)?
Answer: A rare opportunity.
ERJ is a small cap aerospace stock ($1.9 billion market cap), so it's not for those who are risk-averse. But this one sure seems to me to have tremendous opportunity ahead. Out of 104 industry groups, this is how aerospace ($DJUSAS) ranks by period:
- 1-day performance (Friday): 2nd
- 1-week performance: 3rd
- 1-month performance: 11th
- Y-T-D performance: 33rd
I'm seeing a trend here. As we move further and further into 2021, aerospace is becoming stronger and stronger. And small caps have been routinely crushing its large cap counterparts. So a small cap aerospace stock just seems to make sense, especially one that's recently printed a double bottom (black arrows below). Enter ERJ:
We're definitely seeing rotation in the stock market and ERJ has been a MAJOR beneficiary of that.
I am so encouraged by all the bullishness taking place right now across so many asset classes, sectors, industry groups, and individual stocks. The Dow Jones stormed through 32000 and 33000 is right around the corner. The S&P 500 is now sitting on the doorstep of 4000. The NASDAQ is pausing after a historic 100%+ gain in one year. Who'd have thought all this was possible one year ago (besides me)?
The most interesting part to me is how few people will embrace it for what it is - one of the best secular bull markets of our lifetime. So many pundits try to shoot this market down at every opportunity. I remember several months ago many technicians saying that the rally would fail because of the concentration in the FAANG stocks (FB, AAPL, AMZN, NFLX, GOOGL). Of these 5, only GOOGL has had any meaningful breakout since last summer. Yet all of our major indices have roared ahead. I actually saw two articles yesterday that suggested the current bull market would fail because our leaders are lagging. I swear, you can't make this stuff up.
Rotation is SOOOO important during secular bull market advances. Think about the 400-meter relay where one runner simply passes the baton to the next runner. That's what carries bull markets higher, the passing of the baton. Don't worry, the first runner will run again, just not in this race. Tomorrow, there'll be another race.
At EarningsBeats.com, we survived the pandemic with flying colors. It was obviously a very difficult time across the globe, but financially our research platform and portfolios were absolutely amazing and, I know, helped thousands of EarningsBeats.com community members, which I'm proud of. We're certainly not resting on our laurels, though. As the stock market rotates and evolves, we'll be scanning thousands of charts and identifying key intermarket relationships/changes to help us navigate the stock market in 2021 and beyond.
Over the next two weeks, we're planning to host a couple of webinars designed to communicate what we're seeing to our community members. I'll be announcing more on those webinars later this week. In the meantime, if you'd like to see a 3rd very important stock breakout (in addition to DBX and ERJ), I'll be highlighting it in our FREE EB Digest newsletter on Monday morning. If you're not currently an EB Digest subscriber, you can CLICK HERE to become part of our community of knowledgeable traders and investors. There is no credit card required and you may unsubscribe at any time.
Happy trading!
Tom
