May 8, 2020

Small Caps Lead Stock Market Gains; 3 Growth Stocks Top Buy Points

[INVESTORS, (©Chris Gash)]

The stock market held gains at midday Friday, demonstrating faith in an economic recovery after a stunning unemployment report that showed a historic drop in jobs.

The Nasdaq composite climbed 1.5% and was on track for a fifth consecutive gain. The S&P 500 added 1.4%. Small caps led the market, with the Russell 2000 up nearly 3%.

The Dow Jones Industrial Average climbed 1.6%. Dow component Disney (DIS) climbed more than 1% after the company set plans to reopen its Shanghai theme park on Monday. But the stock remains in poor shape, well off prior highs.

Volume was running higher on the Nasdaq and lower on the NYSE compared with the same time on Thursday. Breadth was impressive, with advancing stocks over decliners by a 5-to-1 ratio on the NYSE and by 11-to-3 on the Nasdaq.

The market looks ahead several months, and judging from today’s rally it believes the economy will rebound from severe job losses.

The U.S. Labor Department reported the U.S. economy lost a staggering 20.5 million jobs in April as thousands of businesses shuttered for the coronavirus pandemic. The unemployment rate — just 4.4% a month earlier — soared to 14.7%. It was a dramatic decline in jobs, although not surprising after nonessential businesses were ordered to close or limit operations.

The unemployment report reflected the stay-at-home mandates, with retail losing 2.1 million jobs and leisure and lodging down 7.7 million jobs. Construction and manufacturing also saw steep declines.

Retail was the best-performing sector today, as SPDR S&P Retail ETF (XRT) climbed 2.6%. The ETF has traded above its 50-day moving average for a couple of weeks now. Energy, transportation and telecom were other S&P sectors up more than 2%.

Three Breakouts To Check Out

Datadog (DDOG) broke out of a large cup-without-handle base, rising past the 50.22 buy point in heavy volume. Its relative strength line is already at new highs, which is another bullish sign. The enterprise software company, featured in the latest Earnings Preview column, reports earnings Monday after the close.

Axon Enterprise (AAXN) broke out of a cup with handle in big volume. The Leaderboard stock is in buy range from an 80.26 buy point. The maker of Taser stun guns and body cameras posted a 90% surge in EPS to 40 cents a share. Revenue grew 27% to $147 million, as the company’s body cameras and cloud-based software led growth. International revenue grew 38% to a record $30 million.

Monster Beverage (MNST) cleared the 64.54 buy point of a cup with handle after the company reported earnings. But volume was mediocre and the relative strength line has not made new highs. The energy drinks company beat profit expectations late Thursday. This morning, Deutsche Bank raised its price target on Monster Beverage to 75 from 73 and maintained a buy rating.

Innovator IBD 50 ETF (FFTY) rose 1.1%, lagging the main indexes despite a number of stocks on the IBD 50 that were up sharply. Pennymac Financial Services (PFSI) was the best IBD 50 stock, up more than 8% after the specialized mortgage platform reported earnings late Thursday.


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