Moderna’s Vaccine News Adds Fuel to Reopening Optimism

• Effective vaccines on the way – question is timing
• Will another COVID-19 spike over the holidays trigger more government lock-down measures?
• Three key tech stocks to watch and support levels

Last week it was Pfizer giving the market long awaited hope that an effective vaccine is on the way – today it was their competitor Moderna’s turn.

Their preliminary trial data showed a vaccine which was more than 94% effective.

The news boosted hopes for a faster than expected economic recovery… as investors continued last week’s trend of buying re-opening names whilst selling growth stocks.

For example, cruise lines, airlines and energy stocks all rallied strongly.

Leading tech names were either flat or lower (more on this shortly). 

From mine, it seems market participants are ignoring the new US COVID-19 cases are now topping 181,000 per day – where new cases hit more than 1 million last week. 

November 13 2020 – 181,196 New Daily US COVID-19 Cases

Just on this trend – keep an eye on COVID-19 infections 2 weeks after Thanksgiving (i.e.. which will be the week beginning Dec 10th) and 2-weeks post Christmas. 

Many families will be keen to re-unite after a 9+ months in relative isolation.

Will these turn out to be super-spreader events? And will people listen to government orders to cancel such events? 

I doubt it. 

Heck – if California’s Democrat Governor is allowed to attend a birthday bash with more than a dozen people – why shouldn’t you? Right?

Ahhh politicians…  “do as I say… not as I do”

I digress… 

And whilst I hope we don’t top 200,000+ new cases per day – if we continue to see new infections top 1M+ per week – it’s very likely we will see many states re-commence their lock-down measures. 

And that will fly in the face of the speedy economic recovery the market is pricing in.

Timing & Trust Will be Key

The news of two (or more) effective vaccines is great news….

However, I have two questions:

(a) when will these vaccines be available at scale (i.e. billions of doses)? and
(b) what confidence will people have if / when they do become available?

With respect to (a)… my guess for someone like myself (i.e. fit, healthy, no existing conditions and under 50) probably won’t have access to a vaccine until at least Q3 2021 (best case). 

It might even be 2022.

And if that’s the case – it’s quite plausible it could be 9+ months before the majority of the country has been vaccinated. 

With respect to (b) – I think this remains an open question. 

For example, I know that I would want to see at least a year’s worth of data before I felt confident (not less than).

Put another way, I would rather run the risk of contracting COVID knowing I have a 99.6% chance of survival vs the long-term side effects from some unknown vaccine. 

But that’s just me… there are probably some people who would take it straight away simply on the word of the FDA. 

Right?

Anyway, today the market is trading on the assumption these vaccines will not only be a panacea (which remains unproven) – but will also be disseminated at scale within 6 months and trusted. 

I remain hopeful but I think the timing is still optimistic. 

3 Tech Stocks at Key Support Levels

Tonight I want to look at three popular big tech-stocks (and two names I really like). 

Each are approaching what I think will be key areas of support. And If those levels break (and they may not) – it could be a quick trip lower.

However – I also think this will offer a good long-term buying opportunity for two of these names. 

1. Amazon

I will start with Amazon (a stock I like) which trades at a massive price multiple (i.e. more than 60x forward earnings). 

Investors have been willing to pay up for the “stay-at-home” commerce king…  as they consistently post earnings growth of 40%+

However, the price action has stalled since the first week of July. 

In fact, the week ending July 6 – AMZN closed at 3200. Today the stock closed at 3131. And this loss of momentum is showing up on the lower window below – the weekly MACD

AMZN – Nov 16 2020 – Losing Momentum

What I am watching here is the key support level of 2870 (the bottom of the distribution)

Amazon has found good support around that level on recent sell-offs… and it may find it again. 

However, if we see this level break, then I will be looking for prices around 2500 to 2600

This was previously resistance from April through to June – and is also 61.8% to 76.4% outside the current distribution. 

From mine, that would be a good long-term risk/reward buy for the cloud and retailing e-commerce giant. 

2. Microsoft

The other stock which deserves a place in every investors portfolio is Microsoft (MSFT)

Again, this is an expensive stock trading at a 32x forward multiple. 

That said, it is best-of-breed in terms of its cash flow, balance sheet, and market position. 

Not unlike AMZN – it’s testing a key area of support and if it breaks – could offer investors a great long-term entry point: 

MSFT – Nov 16 2020 – Losing Momentum

Similar to Amazon, Microsoft is trading at the same level it was June 6th this year. 

For over 5 months – the stock has not made any ground (supported by the falling weekly-MACD in the lower window) 

I think it’s possible we see MSFT test the area of $180 to $190. 

Now if MSFT continues its earnings growth of 30% – it will post 2021 FY earnings of $8.10 – which would imply a PE multiple of around 22x at $180

That’s not unreasonable in a zero rate environment given the quality of this company. 

3. Netflix

Amazon and Microsoft are two stocks I like for the long-term (and nothing new to those reading this blog the past 10+ years).  

But I don’t like them at the current prices… 

Netflix is another widely-held tech stock testing a key level of support – but it’s not a business that I believe in. And I talked to this recently… 

Let’s look at the weekly price action and levels I am watching: 

NFLX – Nov 16 2020 – Losing Momentum

The set-up for these three stocks is very similar… 

For example, all three have lost momentum since June. Furthermore, each are trading very close to 5-month support levels. 

For Netflix – that support level is $460 – where it traded in April. 

I think it $460 breaks – it could be a quick trip down to $400. 

Now Netflix trades at a forward PE of 56x – which assumes a growth rate of 21%. 

My view is Netflix is likely to come under increasing competitive (and margin) pressure and is not a good long-term buy.

The re-opening rally has been impressive. 

But it feels overdone. 

I think the period from now through to the New Year will be critical in what we see with 

(a) COVID-19 infection rates; and
(b) government’s response

There will be millions of people travelling – reuniting with loved ones as they do every year at this time. 

Will their behavior be curbed in light of the pandemic?

Perhaps not if you are the Governor of California.

And if there happens to be another spike of 1M+ new infections per week (as a result of these family holidays) – triggering further government lock-downs – this will undoubtedly threaten what is already a tepid recovery. 

And whilst vaccines are coming…  they won’t be here for at least 6-9 months at scale (best case).

In between now and then – there’s a lot of water to pass under the bridge.