Tech Is Waking Up: Is This the Real Santa Rally?

Market Update & Stock Analysis - December 18, 2023

Key Concepts:

• Santa Claus Rally: A historical tendency for stock prices to rise during the last five trading days of the year and the first two of the new year.
• MAG 7: Refers to the seven largest US technology companies (typically Apple, Microsoft, Alphabet, Amazon, Nvidia, Tesla, and Meta).
• Passive Investing: Investing in index funds or ETFs rather than actively selecting individual stocks.
• Institutional Investors: Entities that pool money from multiple investors (e.g., pension funds, mutual funds, hedge funds).
• Short Squeeze: A rapid increase in a stock's price that occurs when a large number of short sellers are forced to cover their positions.
• Moving Average: A technical indicator that smooths out price data to identify trends. (50-day moving average specifically mentioned)
• MACD (Moving Average Convergence Divergence): A momentum indicator used in technical analysis.
• RSI (Relative Strength Index): A momentum oscillator used to measure the magnitude of recent price changes to evaluate overbought or oversold conditions.
• PE Ratio (Price-to-Earnings Ratio): A valuation metric comparing a company's stock price to its earnings per share.
• Backlog: The total value of orders a company has received but not yet fulfilled.

I. Market Overview & Santa Claus Rally Potential

The market experienced a 10% pullback recently but quickly recovered, potentially offering investors a “Christmas gift.” A Santa Claus rally is anticipated to begin on Friday, December 22nd, and continue through the following week. This potential rally is driven by two primary factors: consistent investment from passive investors contributing to 401(k)s and other accounts (primarily flowing into technology stocks, including the MAG 7), and institutional investors aiming to “chase leaders” and improve their year-end performance. The strongest rally is expected after December 26th.

II. Individual Stock Analysis

A. ESTS (Electro-Spect Corp)

• Recent Performance: Up 29% in the last week and 13.5% today. Year-to-date gain of 277%.
• Catalyst: Anticipation of the launch of their Bluebird 6 product, potentially happening this week.
• Concerns: Previous dip to $50 raised questions about buying opportunities. Insider selling was a concern, potentially related to pre-announced distribution plans as part of executive compensation.
• Analyst Sentiment: Currently trading above analyst consensus targets. Weiss Ratings recently reiterated a "sell" rating on December 15th.
• Technical Analysis: Above its 50-day moving average (bullish). MACD showing potential bullish reversal. Parabolic move warrants caution.
• Recommendation: Monitor the stock; consider taking profits if already invested. Wait for a potential pullback before buying.

B. ServiceNow (NOW)

• Recent Performance: Down 3% in the last month, but up 6% this week.
• Catalyst: Company pivoting into building a “comprehensive control tower for AI,” acquiring technologies for data security and governance. Recent 5-for-1 stock split.
• Analyst Sentiment: New buy rating with a 29% price target upside.
• Technical Analysis: Analysts’ price targets are lower than the current stock price. Short interest is decreasing, potentially indicating a short squeeze.
• Recommendation: Positive outlook, but caution advised due to recent price action. Monitor for a potential pullback.

C. Palantir (PLTR)

• Recent Performance: Similar chart pattern to CrowdStrike. Up significantly year-to-date.
• Concerns: Richly valued with a PE ratio over 119. Pressure to deliver results.
• Technical Analysis: Trading about 10% below its 50-day moving average. MACD showing potential bullish reversal.
• Recommendation: Cautious approach. Consider waiting for a move above the 50-day moving average before buying.

D. Quantum Computing Stocks (Rigetti (RGTI), D-Wave (QBT), IonQ (IONQ))

• Recent Performance: Significant rebound in the last five days (RGTI +18%, QBT +34%, IONQ +17%).
• Catalyst: Increased investor interest, potentially driven by the broader AI trend. Announcements of future product roadmaps (higher qubit systems, lower error rates).
• Concerns: Limited revenue and profitability. Price movements often driven by sentiment rather than fundamental developments.
• Recommendation: Monitor closely. Be cautious due to speculative nature. Focus on companies demonstrating revenue growth and a path to profitability.

E. Lum (LII T)

• Recent Performance: Up 365% year-to-date, 22% in the last five days.
• Catalyst: Strong demand for lasers and optical subsystems in data centers.
• Concerns: Trading significantly above analyst consensus targets.
• Recommendation: Caution advised. Potential for a pullback.

F. Merck (MRK)

• Recent Performance: Up 5% year-to-date, 30% surge in the last three months.
• Catalyst: Analyst upgrade, agreement to lower drug prices for federal programs, FDA priority voucher for cholesterol pill and cancer therapy.
• Recommendation: Attractive investment due to reliability, dividend yield (3.2%), and potential for further growth.

G. Ampx (AMPX)

• Recent Performance: Down 32% in the last three months.
• Concerns: Limited revenue, not yet profitable.
• Recommendation: Potential for long-term growth, but high risk. Consider adding to positions on weakness.

H. Rocket Lab (RKLB)

• Recent Performance: Up 43% in the last five days.
• Catalyst: 21 successful launches in 2023, approval for more launches in 2026, analyst upgrade.
• Recommendation: Positive outlook, but monitor analyst revisions to price targets.

I. Planet Labs (PL)

• Recent Performance: Up 400% in the last year, 25% in the last five days.
• Catalyst: Strong earnings report (33% revenue growth year-over-year), tripled backlog.
• Recommendation: Monitor for a potential pullback.

J. Nvidia (NVDA)

• Recent Performance: Up 7% in the last five days.
• Catalyst: Announcement of H200 chip sales to China, adding previously unforecasted revenue.
• Recommendation: Positive outlook, driven by strong demand and expanding market opportunities.

III. General Investment Advice

• Small-Cap Stocks: Be cautious, especially with highly speculative names.
• Analyst Ratings: Consider analyst ratings, but prioritize understanding the underlying fundamentals.
• Profit Taking: Consider taking profits on stocks that have experienced significant gains.
• Volatility: Be prepared for volatility, especially in speculative sectors.

Conclusion:

The market is showing signs of strength heading into the end of the year, with a potential Santa Claus rally on the horizon. While several stocks are experiencing positive momentum, investors should exercise caution and focus on companies with strong fundamentals and a clear path to profitability. Monitoring analyst ratings and technical indicators can provide valuable insights, but ultimately, informed decision-making is crucial for navigating the current market environment.