US Markets Round-Up

This week, the Russell 3000 index, an important benchmark of the US stock market across market capitalizations, started on a positive note and continued the momentum for the entire week. The index has broken a psychological resistance level of 2700 during the week and settled at 2705.77 with a week till date (WTD) gain of ~1.79 percent on October 21, 2021. Other major indices such as S&P 500 and NASDAQ Composite also showed bullish movement for the week. On October 21, 2021, the S&P 500 index settled at 4549.78 with a WTD gain of ~1.75 percent, while NASDAQ Composite Index settled at 15215.70 with a WTD gain of ~2.14 percent.

The market sentiments were boosted by the improvement in the NAHB housing market index and the existing home sales number. A further decrease in the US weekly initial jobless claims figure to 290,000, from 296,000 (revised level) in the prior week, acted as the catalyst for the upside direction. 

Having understood the US market performance over the week, taking cues from major global news, and based on our technical analysis of the Russell 3000 index for the upcoming week, now let us have a look at the two NYSE/ NASDAQ listed stock picks from the technical standpoint. Noted below are our recommendations based on generic insights, entry price, target prices, and stop-loss for Victorias Secret & Co. (NYSE: VSCO) and Gatos Silver Inc (NYSE: GATO) for the next 2-4 weeks duration:

Victorias Secret & Co. 

Victorias Secret & Co. (NYSE: VSCO) is a retailer of women's personal care products, beauty products, intimate and other apparel through two brands, Victoria's Secret and PINK. Noted below are the key price indicators for the stock:

Price Action Analysis (on the Daily Chart) 

VSCO has recently broken a descending channel formation on the upside, indicating the possibility of an upside direction hereon. Now the next major resistance level for the stock appears at USD 64.50 and prices may test this level in the short-term (2-4 weeks). A further breakout above USD 64.5, backed by volumes, may extend buying in the stock.

Technical Indicators Analysis (On the Daily Chart)

On the daily chart, RSI (14-period) is trading at ~53.57 levels, indicating a positive trend for the stock. The daily volumes also seem supportive of the upside movement. The CMP is above the 21-period SMA, further supporting the up-move; however, the 50-period SMA is above the CMP, and may act as a resistance level for the stock.

Financial Summary

Summary of the Key Financial Metrics for the past two years for Victorias Secret & Co. is as follows:

General Recommendation

As per the above-mentioned price action and technical indicators analysis, we can conclude that Victorias Secret & Co. is looking technically well-placed on the chart, and we have a ‘Buy’ rating on the stock. Investment decision should be made depending on an investors’ appetite on upside potential, risks, and any previous holdings. This recommendation is purely based on technical analysis, and fundamental analysis has not been considered in this report. The summary of our recommendation is as follows:

Gatos Silver Inc

Gatos Silver Inc (NYSE: GATO) is a metals and mining company that deals in precious metals exploration, production, and development. Noted below are the key price Indicators for the stock:

Price Action Analysis (on the Weekly Chart)

GATO has started to recover from the lower levels after the formation of a Bullish Engulfing (bullish reversal) candlestick pattern on the weekly chart, indicating the possibility of an upside trend reversal. Price is also sustaining above a downward sloping trend line, further supporting a positive bias. Now the next resistance level for the stock appears at USD 15.25 and it may test this level in the coming sessions. A further breakout above USD 15.25, backed by volumes, may extend buying in the stock.

Technical Indicators Analysis (On the Weekly Chart)

On the weekly chart, RSI (14-period) is recovering from lower levels and trading at ~48.86 levels, indicating a positive trend for the stock. The weekly volumes also seem supportive of the upside movement. However, the CMP is below the trend following indicators 50-period SMA and 21-period SMA and may act as resistance levels for the stock.

Financial Summary 

Summary of the Key Financial Metrics for the past four years for Gatos Silver Inc is as follows:

General Recommendation

As per the above-mentioned price action and technical indicators analysis, we can conclude that Gatos Silver Inc is looking technically well-placed on the chart, and we have a ‘Speculative Buy’ rating on the stock. Investment decision should be made depending on an investors’ appetite for upside potential, risks, and any previous holdings. This recommendation is purely based on technical analysis, and fundamental analysis has not been considered in this report. The summary of our recommendation is as follows:

Upcoming Major Global Economic Events

Market events occur on a day-to-day basis depending on the frequency of the data and generally include an update on employment, inflation, GDP, consumer sentiments, etc. Noted below are the upcoming week's major global economic events that could impact the Russell 3000 Index and stocks’ prices:

Investment Related Risks: Based on the technical analysis, the risks are defined as per risk-reward ratio (~0.60:1.00), however, returns are generated within 2-4 weeks’ time frame. This may be looked at by Investors with sufficient risk appetite looking for returns within short investment duration. Investment recommendations provided in this report are solely based on technical parameters, and fundamental performance of the stocks has not been considered in the decision-making process. Other factors which could impact the stock prices include market risks, regulatory risks, interest rates risks, currency risks, and social and political instability risks etc.

Entry Price: For the given recommendation(s), Entry Price is assumed be at or above a certain level. However, a slight deviation on either side in the ‘Entry Price’ can be considered depending upon the potential expected or indicated.

Note 1: Investors can consider exiting from the stock if the Target Price or Stop loss mentioned as per the technical analysis has been achieved and subject to the factors discussed above. 

Note 2: How to Read the Charts?

The Green colour line reflects the 21-period moving average while the red line indicates the 50- period moving average. SMA helps to identify existing price trend. If the prices are trading above the 21-period and 50-period moving average, then it shows prices are currently trading in a bullish trend.

The Black colour line in the chart’s lower segment reflects the Relative Strength Index (14-Period) which indicates price momentum and signals momentum in trend. A reading of 70 or above suggests overbought status while a reading of 30 or below suggests an oversold status.

The Blue colour bars in the chart’s lower segment show the volume of the stock. The volume is the number of shares that changed hands during a given day. Stocks with high volumes are more liquid than stocks with lesser volume as liquidity in stocks helps in easier and faster execution of the order.

The Orange colour lines are the trend lines drawn by connecting two or more price points and used for trend identification purposes. The trend line also acts as a line of support and resistance.

Technical Indicators Defined: -

Support: A level where-in the stock prices tend to find support if they are falling, and downtrend may take a pause backed by demand or buying interest.

Resistance: A level where-in the stock prices tend to find resistance when they are rising, and uptrend may take a pause due to profit booking or selling interest.

Stop-loss: It is a level to protect further losses in case of unfavourable movement in the stock prices.

Risk Reward Ratio: Risk reward ratio is the difference between an entry point to a stop loss and profit level. We suggest ~60% Stop Loss of the Target 1 from the entry point.

 

A trailing stop-loss is a modification of stop-loss in case of favourable movement in the price to protect the gains. We suggest Investors to Trail the Stop-Loss as per the aforementioned levels if the stock price achieves more than 60% of the Target 1. Investors should consider exiting from the position as per the Trailing Stop-Loss level if the price starts moving downwards after achieving more than 60% of the Target 1. 

The reference date for all price data, volumes, technical indicators, support, and resistance levels is October 21, 2021. The reference data in this report has been partly sourced from REFINITIV. 

Abbreviations

CMP: Current Market Price

SMA: Simple Moving Average

RSI: Relative Strength Index

USD: United States dollar 

Note: Trading decisions require a thorough analysis by investors. Technical reports in general chart out metrics that may be assessed by investors before any stock evaluation. The above are illustrative analytical factors used for evaluating the stocks; other parameters can be looked at along with additional risks per se. Past performance is neither an indicator nor a guarantee of future performance.

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