Clearly, through this transaction, Mr. Gates is betting that luxury travel will rebound from disastrous results during the pandemic and lockdowns. Bill has been on a roll with some great investments in biotechs that have run on Covid-19 vaccine rollouts.

One such investment was in BioNTech (BNTX) that ran from $13 in October 2019 to over $300 as I write this. When smart money makes big investments, that gets my attention, so the first thing I do next is look at some other stocks in the sector to see if there are any great setups.

Four Seasons shareholders took the company private in 2007 with Gates and Prince Alwaleed leading the deal. Then it managed 74 hotels. Now, the chain manages 121 hotels and resorts, and 46 residential properties, and has more than 50 projects under development, according to a statement released by the company.

Vaccinations and the end of lockdowns around the world have led to a rebound in holiday travelers, but luxury hotels are lagging behind lower-quality properties, according to data from STR.  

In July, a survey of members by the Global Business Travel Association found 68% said they planned to begin business travel sometime in the next three months. By August, that had dropped 35%. “It’s a pretty dramatic change of plans,” said Adam Sacks, president of Tourism Economics. “We expected to see some traction from business travel in the fall. Now we’re not certain when it will happen.”

Other airlines have also pushed back some of their forecasts for a revenue rebound. Southwest Airlines (LUV) warned investors that a drop in bookings and a rise in cancellations means it now doesn’t expect to remain profitable for the third quarter, despite a profitable July.

However, despite these concerns, Bill Gates clearly believes that luxury travel that is usually associated with business clients is due for a pickup. Given his immense knowledge of vaccines and experience with the Covid virus, clearly, Mr. Gates believes the worst is behind us, and now is a good time to buy the luxury travel sector.

Personally, I agree with this sentiment. People are tired of being locked down and are ready to resume traveling. They will take vaccines and will move on with their lives. They are no longer as fearful of the virus as they might have been previously. This should filter into the business community as well. One upcoming event is Expo 2020 in Dubai, which was delayed a year due to the virus but is set to begin October 2021, attracting business leaders and start-ups from all over the world.

Now let’s look at some charts and businesses in the sector that might benefit.

Hilton Worldwide Holdings (HLT)

Based in Virginia, one of the world’s largest hotel firms manages, franchises, owns, and leases hotels and resorts, as well as licenses its trademarks and intellectual property. Hilton opened 414 new hotels totaling 55,600 rooms in 2020, representing a net unit increase of 47,400 rooms.

The company has a market cap of $35 billion and full-year revenue of $4.3 billion in 2020, down from $9.4 billion in 2019.

Right now, HLT is consolidating at all-time highs near $137. Given that it is trading at approximately 8 times revenue at the moment, if it were to regain its 2019 revenue, it would only be trading at a multiple of 4. Given the increase of new hotels, over the long term, despite being near its highs, HLT may still be cheap at these levels despite the tremendous run it has had since the March lows.

Hyatt Hotels Corporation (H) is one of the world’s leading luxury hotel and resort operators, with a portfolio of 1,000 properties worldwide. The company has a market cap of $8.5 billion and total revenue of $2.06 billion in 2020. Shares of Hyatt increased 55.89% over the past twelve months. Given that it is trading at only 4 times the revenue that is expected to grow in the near future, H also appears quite cheap fundamentally despite its run.

Marriott International, Inc. (MAR) is one of the leading hoteliers in the world with a portfolio of 30 brands, including Ritz-Carlton, The Luxury Collection, and Marriott Hotels & Resorts. The company owns approximately 7,600 properties with nearly 1.4 million rooms in 131 countries.

The company has a market cap of $48.7 billion. The company’s revenue in full-year 2020 came in at $10.6 billion, down 50% from 2019. The stock has gained 86% in the last twelve months.

Right now, it is only trading at 5 times revenue which could double over the next year or two as travel resumes to normal levels. It is consolidating at the highs and could break out, as it is at the same levels from 3 years ago.

Bottom Line

When there is a big merger or acquisition and the smart money talks, I listen. Bill Gates has had a great track record recently with his investments. His foray into taking control of Four Seasons hotel is a bet on value in the luxury hotel space as the world reopens and business travel increases.

I agree with this sentiment, and running through the fundamentals, these stocks still look quite cheap, especially if travel returns to its previous levels. Technically, these stocks look like they could also make a significant, sustained breakout over the longer term.

These decisions are largely based on supply and demand laws that often move at a glacial pace.

When deflation is present, as was the case for a little more than a decade leading into the Covid crisis of early 2020, energy supplies are abundant due to decreased demand.

Conversely, when inflation is present, increased demand causes energy supplies to become scarce.

Therefore, when commodities are cheap due to abundance, it dis-incentivizes companies from spending money to bring new supplies online.

Because of this, massive underinvestment across the energy sector since the financial crisis of 2008 likely needs to be reversed as inflationary forces bring a resurgence of demand.

For traders trying to find long-term ideas, this means that the energy sector should be full of opportunities.

Oil’s 2021 weakness is presenting numerous buying opportunities

When longer-term trends are in their infancy, one incredibly effective way of finding stocks that may be poised to rise for an extended period is to identify stocks bouncing off of their rising 10-month moving average.

With that in mind, this year’s summer pullback in shares of energy companies should be viewed as an opportunity to look for bargains.

I’m focusing on 2 stocks in particular that may be ready to resume their post-Covid crisis rallies well into the future.

Energy Transfer LP (ET)

Energy Transfer owns a large platform of crude oil, natural gas, and natural gas liquid assets primarily in Texas and the U.S. midcontinent region. Its pipeline network transports about 22 trillion British thermal unit per day of natural gas and 4.3 million barrels per day of crude oil. It also has gathering and processing facilities, one of the largest fractionation facilities in the U.S., and fuel distribution. Energy Transfer also owns the Lake Charles gas liquefaction facility. It combined its publicly traded limited and general partnerships in October 2018.

From a technical perspective, ET rallied above a 5-year downtrend earlier this year, and has spent the 3 – 4 months correcting its 2021 gains.

As Figure 1 shows, ET recently bounced off of its rising 10-month moving average, which, as we also learn from the chart, has a strong track record of smoothing long-term price trends.  

Based on this visual backtest, bullish positions can be established above the $8.60 level, which is where the most recent pivot low, established on August 19th, has combined with the 10-month moving average to form a powerful support confluence that must hold in order for this bullish thesis to remain valid.

Figure 1

Western Midstream Partners LP (WES)

Next up is Western Midstream Partners LP is a US-based company which own, operate, acquire and develop midstream energy assets. The company through its subsidiary is engaged in the business of gathering, processing, compressing, treating and transporting natural gas, condensate, NGLs and crude oil. It owns or has investments in assets located in the Rocky Mountains (Colorado, Utah, and Wyoming), the Mid-Continent (Kansas and Oklahoma), North-central Pennsylvania and Texas.

From a technical perspective, WES also spent the last 3 – 4 months correcting its 2021 gains, after rallying above a 5-year downtrend earlier this year.

As Figure 2 shows, WES is also finding support at its rising 10-month moving average.  

Based on this visual backtest, bullish positions can be established above the $18.50 to $18.00 area, which is where the most recent pivot low, established on August 19th, has combined with the 10-month moving average to form a powerful support confluence that must hold in order for this bullish thesis to remain valid.

Figure 2

Specifically, the inability to overcome one’s emotions, especially fear and greed, is often what causes so many to fail in this business.

This new generation of traders has been spoiled by an environment of extreme liquidity that has fostered one of the longest stretches in history without a correction of just 5% in the benchmark S&P 500.

But there have been a number of meaningful corrections in other widely followed corners of the market that have acted as a firm reminder to traders that markets don’t always go up.

The correction we’re going to look at today has been so slow and steady that it lacks the “sexy” factor that the financial media demand to be headline worthy. At the same time though, this correction has formed one of my favorite patterns that, if confirmed with a breakout, would create one of the biggest trading stories of the year.

The Russell 2000 ETF (IWM) is witnessing a correction in time

Corrections come in two forms: price and time.

When we talk about a correction in price, we’re typically talking about a steep, sharp drop in price.

Figure 1 below, on the other hand, shows a perfect example of the other type of correction, a correction in time.

Specifically, Figure 1 shows the Russell 2000 Small Cap ETF (IWM) near the end of a multi-month price range, which has taken the form of an “ascending triangle,” and in the process has allowed its long-term average (the 200-DMA) to catch up.

Figure 1

Time-based corrections such as this are usually viewed as being healthy because the orderly, sideways price action is a sign that there was not a lot of heavy panic selling during its formation.

Small caps were strong out of the gate in 2021 as the risk-on, high-beta narrative continued after jumpstarting in early November of last year.

By mid-March, small caps were actually ahead of large caps by about 14% before mega caps regained leadership.

A small cap breakout would be a healthy signal that introduces new trading opportunities

When small cap stocks are performing well, it is viewed as an indication that the overall market is healthy, as these smaller companies are often less well funded and can have riskier business models.

Therefore, a breakout in this market segment, should it occur, would indicate that there has been some much-needed improvement in market breadth and confidence.

In addition, it would bring improved liquidity and greater interest to a different set of sectors.

Specifically, Figure 2 below shows the IWM sector weights, where Health Care is the top-weighted sector.

 Figure 2

Source: ishares.com

Next, Figure 3 shows the top 10 holdings within IWM.

Figure 3

Source: ishares.com

Sticking with the Health Care theme, I then focus in on the stock with the 2nd highest weighting, the Healthcare company Intellia Therapeutics (NLTA), to see if the stock is showing a strong technical setup with favorable risk/reward parameters and a high probability of success.

As Figure 4 shows, NTLA surged earlier this summer when the company released interim data from the Phase 1 trial of its collaboration with Regeneron on an experimental therapy for transthyretin amyloidosis (ATTR) – a protein misfolding disorder.

Since then, the stock has been consolidating in what can be described as a “saucer” or “cup & handle” consolidation pattern that, if confirmed with a close > $178.00, would produce measured potential to roughly $222.50 per share, which is another 27% of upside potential from Friday’s closing levels.

Figure 4

The other key aspect to this setup is the well-defined protection at the most recent pivot low of $152.06.

Specifically, since a critical part of my thesis for this trade is that I want to benefit from a continued uptrend in shears of NTLA, that tells me that the stock price simply cannot fall back below the most recent pivot low at $152.06 (see Figure 4) anytime soon, as this would negate the current uptrend.

I like this setup for the following reasons:

1. I’ll only be risking 1 on the downside to make 2 on the upside
2. I am placing the trade in the direction of the trend
3. Momentum is in a bullish regime
4. There is a large, resistance-free air pocket ahead of the potential target
5. The stock is in a sector that is poised to outperform in the event of a Russell 2000 breakout
6. Corporate earnings risk is not a factor until mid-November

]]> https://ragingbull.com/total-alpha/small-caps-may-be-nearing-a-break-above-one-of-my-favorite-patterns/feed/ 0 93510 https://ragingbull.com/total-alpha/these-3-uranium-stocks-may-be-ready-to-explode/ https://ragingbull.com/total-alpha/these-3-uranium-stocks-may-be-ready-to-explode/#comments Sat, 28 Aug 2021 18:06:39 +0000 https://ragingbull.com/?p=93341 Nuclear power gets a bad rap.

Justified or not, its track record as a reliable source of clear energy generation must be taken into serious consideration when thinking of ways to reverse the effects that fossil fuels have had on climate change.

In fact, as the world has been taking climate change more seriously in recent years, more nuclear projects have been coming online globally.

There’s a small number of stocks involved in the mining and production of the key mineral at the center of this industry, uranium, and today we’re going to take a look at how recent price action may be close to generating a short-squeeze in three stocks that I’m watching right now.

Nuclear power is the world’s unsung energy hero

The market is slowly moving away from fossil fuels, and nuclear energy is a top contender to replace them, for good reason.

Earlier this month, the Intergovernmental Panel on Climate Change (IPCC), the United Nations’ body for assessing the science related to climate change, issued a report entitled Climate change widespread, rapid, and intensifying, which the United Nations called a “code red for humanity.”

Recently, developing nations are looking for power sources that can keep up with the rapid expansion of their industries. 

Natural gas and coal capacity factors are generally lower due to routine maintenance and/or refueling at these facilities.

Renewable plants are considered intermittent or variable sources and are mostly limited by a lack of fuel (i.e. wind, sun, or water). 

As a result, these plants need a backup power source such as large-scale storage or they can be paired with a reliable baseload power like nuclear energy.

Nuclear power has reliably and economically contributed almost 20% of electrical generation in the United States over the past two decades. 

It remains the single largest contributor (more than 70%) of non-greenhouse-gas-emitting electric power generation in the United States, and in recent years has earned better confidence on the part of decision makers because of new and advanced light water and small modular reactor technologies, versatile test reactors, and space power systems. 

In addition, nuclear power plants are typically used more often because they require less maintenance and are designed to operate for longer stretches before refueling (typically every 1.5 or 2 years).

This has spurred demand for uranium to increase, which has allowed uranium stocks to benefit, with most registering incredible gains from their 2020 lows to their 2021 highs.

Since peaking earlier this year, however, Figure 1 below shows that the 3 stocks on my watchlist have been digesting these gains in a corrective cycle.

Figure 1

What are the technicals telling us about this industry’s near-term future?

I picked this industry as the topic of today’s discussion because of the technical setup that, while currently neutral, has the potential to generate a short squeeze in these stocks.

Some of the greatest trades start with failed technical patterns

On this next set of charts, you’ll notice that there are currently two important bearish setups taking shape: First, potential “Head-&-Shoulders” patterns. Second, potential “death crosses,” which occurs when the 50-day moving average crosses below the 200-day moving average. 

Figure 2

Figure 3

Figure 4

Since none of the bullish or bearish setups shown on these charts  have been confirmed as of yet, as traders we have to understand that these setups only offer the “potential” for a big move.

How should traders approach Uranium stocks at this time? 

As of Friday’s close, price action seems to be signaling that some portion of the short base in these stocks is starting to get squeezed. 

This can be seen on the charts of Cameco Corp. (CCJ), Denison Mines Corp. (DNN), and Uranium Energy Corp (UEC), where prices have begun to creep above the lower sloping 50-day moving averages. Note: Finviz currently lists the percentage of floats short on these stocks at 2.68%, 2.94%, and 9.07%, respectively. 

At this point, prospective longs need to just wait for the point where shorts might officially start to break, and that would probably occur in the event these stocks close above the most recent pivot highs (see red lines on charts). 

In other words, they’re analysing how many of an index’s constituents are making new highs when the index is making new highs, or how many constituents are making new lows when the index is in a downtrend.

Throughout history, there are countless examples of how breadth divergences against the underlying index have acted as a leading indicator of major market pullbacks.

The problem with these divergences, however, is that they can often develop over very long time periods before the market finally turns. 

In other words, rather than using these divergences as precision timing tools they should be viewed as a reason not to carry too much leverage or overexposure that could cause your account to be wiped out when the market finally reacts negatively. 

Today, we’re going to examine the granddaddy of all breadth indicators, and combine its current signal with another key indicator to determine the potential that a meaningful top in the market is finally near. 

The NYSE Advance-Decline is the most widely followed Breadth indicator

According to Stockcharts.com, “The Advance-Decline Line (AD Line) is a breadth indicator based on Net Advances, which is the number of advancing stocks less the number of declining stocks. Net Advances is positive when advances exceed declines and negative when declines exceed advances. The AD Line is a cumulative measure of Net Advances, rising when it is positive and falling when it is negative. Chartists can use Net Advances to plot the AD Line for the index and compare it to the performance of the actual index. 

When an uptrend is strong, the Advance-Decline Line should confirm the advance by making new highs with the index.

Conversely, when a downtrend is strong, the AD Line should confirm the decline by making new lows with the index.

When non-confirmation, or divergence, occurs it usually foreshadows a trend reversal.

As I noted in my opening comments, however, timing these reversals is usually difficult. 

Keeping an eye on this breadth indicator is important because it can warn us when financial market liquidity is becoming a problem.

For much of the 2021 rally, one of the biggest issues that many bears have leaned on is the fact that the major indices have been carried higher by a handful of really big capitalization stocks, as the smaller companies have been fighting for liquidity in the same market.

When fewer buyers are entering the market it causes liquidity to dry up, and it’s usually the smaller companies that suffer first.

In the past, I’ve used the “canary in a coalmine” analogy to describe how certain market indicators provide an early warning that the underlying health of the market is not what it appears to be on the surface.

When it comes to the past divergence examples shown on Figure 1 below, this is yet another example of this.

To compare apples to apples, I’ve placed the New York Stock Exchange (NYSE) Advance-Decline line (top panel) on Figure 1 below along with the price of the NYSE (bottom panel).

Figure 1 

In the relatively short period of time that has passed since the COVID crisis lows, you can see how this indicator has acted as a coincident indicator, confirming the NYSE when it was in midst of strong rallies, and as a leading indicator, not only diverging lower against the index prior to the small downside corrections, but also diverging higher against the index prior to its late 2020 break higher.

How should traders play the current breadth divergence?

If it seems like we’ve had this discussion many times in recent months, that’s because we have. 

Bull markets usually produce numerous instances when prices make new highs at the same time many of our favorite indicators are not confirming the move, causing us to question the sustainability of the rally.

At some point, the major indices will no longer go straight up and will start to witness the kinds of volatility cycles that have occurred for hundreds of years.

Until that time comes, it’s certainly a good thing to be skeptical when things like major breadth diverges occur.

At the same time, though, we must trade the trend, which means fighting the urge to take big positions against the trend until the ultimate arbiter, price, tells us otherwise. 

So, while the NYSE Advance-Decline line’s lack of confirmation for the NYSE’s new August price highs now combines with a lack of upside momentum confirmation as shown on Figure 2 below, the broader market will not signal that the current uptrend is witnessing a major breakdown until the S&P 500 falls below 4367 and the NYSE falls below 16,345.

Figure 2