A change in administrations is likely to impact the financial markets over the medium to long term. For now, US stock markets are running red-hot courtesy of four years of Trump’s pro-growth economic policies. The pandemic slammed the brakes on the global economy, but US markets rebounded sharply after a lull in Q1 2020. The recent riots notwithstanding, a peaceful transition from Republican to Democrat control has taken place.
The Biden administration has wasted no time reversing Trump-era policies with respect to Immigration, the Keystone XL Pipeline, the Paris Agreement, and other special interest subjects. A Democrat-led house, a 50-50 Senate with VP Harris able to cast the deciding vote, and a Democrat incumbent in the White House clears the way for sweeping legislative changes across the board. Already some shifts have taken place in the stock market, particularly with energy stocks as the environmental-friendly approach by Biden has cancelled all permits for the pipeline, as the US looks to alternative sources of energy and foreign oil.
The provincial government of Alberta is already feeling the heat, but the blowback is also impacting multiple oil stocks such as Exxon Mobil, Royal Dutch Shell, British Petroleum, and a number of ETFs in the energy sector. The Goldman Sachs MLP Energy Infrastructure Fund, in addition to Vanguard’s Energy Fund are both down. Much of the bearish sentiment is unrelated to Biden’s executive orders; it has to do with a precipitous decline in demand owing to the pandemic, and Saudi Arabia’s oil price war.
The historical chart for crude oil prices paints an interesting picture between 2016 and 2021. In 2016 the average closing price was $43.29 per barrel for WTI crude, rising to $50.80 per barrel in 2017, and $65.23 per barrel in 2018. In 2019, the average closing price per barrel was $56.99, and in 2020 the price dropped to a multi-year low of $39.68 per barrel. In 2021, the price has risen slightly over the course of the month to $51.95 per barrel.
Beyond energy stocks, tech stocks are doing particularly well. There are several stocks to watch including Apple Inc (NASDAQ:AAPL), Expedia Group Inc (NASDAQ:EXPE), and Luminar Technologies Inc (NASDAQ:LAZR). These stocks have appreciated sharply in recent weeks. Apple Inc is particularly bullish, heading into February 2021. As can be seen from the chart below, the Ichimoku Cloud as a forward-leading indicator is strongly bullish, represented by the green cloud. Prices dipped slightly midway through January, but rose sharply to $139.07 per share (January 22, 2021). The performance of AAPL is similar in many respects to that of other leading tech stocks across the board.
It is worth pointing out that the Bollinger Bands for Apple are clearly reflective of a retracement to the downside. The upper Bollinger Band is currently at $138.11, the median band is at $131.57, and the lower band is at $125.03. The sharp appreciation in the price of Apple stock is likely to retrace as it reached overbought territory and a sell-off is expected with profit takers. This may reverse the price closer towards the median around $132 per share. The 50-day moving average price of AAPL is $125.58, and the 200-day moving average price is $105.20. The left-to-right price movements have been strongly bullish since Q4 2020.
Expedia is another example of a tech stock with strong upward momentum. As seen from the above chart, the year-to-date performance of Expedia over the first 4 weeks of January has appreciated from $130.96 to the spot price of $136.52. The 52-week high for Expedia is $147.55, so there has been a retracement in the stock’s price. The short-term, and mid-term performance outlook is bearish, but the long-term outlook is bullish.
While Expedia is deemed overvalued, with a -15.49 EPS, and a 1-year target estimate price of $127.96, the steadily increasing price outpaces the long-term moving average (200-day MA $96.30), and the short-term moving average (50-day MA $129.54). Bollinger Bands indicate that the current price is between the median and lower bands of $137.27 and $125.44 respectively. The downside retracement is due to the mini slump in recent days.
Another tech stock which has shown promise heading into 2021 is Luminar Technologies Inc (NASDAQ: LAZR). The stock was trading flat throughout 2020, and experienced a massive spike between December 2020 and January 2021. The price shot up from under $10 per share to over $47 per share in double-quick time, before speculators sold to take profits. The price steadied around $34 per share, for massive gains in the New Year. Part of the reason why the stock is surging is Tesla. As a laser light and sensor company, Luminar Technologies Inc stock is used in AI vehicles for measuring distances, and is a critical component in self-driving vehicle technology.
Disclosure: The author has no interests in any of these stocks. All stocks and ETFs listed above are volatile. It is incumbent upon traders to carefully assess each stock on its merits, and not to trade on ‘old news’ which may be invalidated after publication. Stock performance hinges upon economic data, the actions of speculators, and economic policy initiatives at Federal level. Conduct thorough technical and fundamental analysis to review each financial instrument.