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Picking Stocks in the Age of Covid-19

05/27/2020 9:55 am EST

Focus: STOCKS

Joe Duarte

Editor, Joe Duarte In the Money Options

Early winners and losers in the Covid-19 markets are changing, traders need to take notes, points out Joe Duarte.

As the Markets, Economy and Life (MEL) complex adaptive system evolves, it’s important to change our investment focus to the type of stock that is working at the moment. This week I’m looking at a stock that is suddenly out of favor, Campbell Soup (CPB), and contrasting it to one that is, homebuilder DR Horton (DHI).

Campbell was an early winner from Covid-19 as consumers where emptying out supermarket shelves of staples while DHI was taking it on the chin (see charts below).  

cpb

dhi

Campbell’s had been doing quite well during the early stages of the Covid-19 crisis as investors bet on food shortages and potential long term periods of having to stay at home. But as the trend toward ending the lockdowns began to take hold, CPB rolled over and is now on the verge of a long-term technical breakdown as it tests its 200-day moving average.

On the other hand, DR Horton, the largest U.S. homebuilder continues to climb as weekly mortgage data continues to show that demand for new homes is much more robust than would seem normal during a pandemic. Moreover, because supply for homes remains tight, the long term supply fundamentals for DHI remain favorable, of course, barring a complete economic meltdown.

Certainly, there are no guarantees that the U.S. economy will achieve any improvement in the short term, much less a lasting recovery, although we are starting to see somewhat encouraging, albeit anecdotal data in some areas of the country. But more important, from a trading standpoint, money is flowing out of the lockdown stocks into stocks that presumably would benefit from a recovery, which means that traders retail or otherwise are betting on some sort of improvement.

I own DHI.

For an in depth look at how I analyze the markets check out my May 25, 2020 interview with Stockcharts.com’s David Keller on his show “Behind the Charts” on StockChartsTV. For air time and details click here. Joe Duarte is a former money manager, an active trader and a widely recognized independent stock market analyst since 1987. He is author of eight investment books, including the best sellingTrading Options for Dummies

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