Stocks: The Good, The Bad and The Ugly

Mean reversion or rotation?

Good morning,

If you didn’t see, this week’s edition of The Deep Dive was all on the communication services sector. After being the worst-performing sector in 2022, in the very early innings of 2023, it holds the top spot, up more than 6%. This isn’t a surprise, as signs of mean reversion have been shaping up in my work over the past few weeks.

Today, we’re extending that concept to our individual equity report, where it shows up even more starkly.

This week we will review:

• The 5 best and 5 worst S&P 500 stocks to start the year

• Managed care and insurance breaking down

• A rotation within the auto industry

• Strength in metals and mining stocks

• and more!

Top 5 S&P 500 starts to 2023

*Through January 10 close

WBD: Discovery Inc. Series A +32.5%

WBD started this year at its lowest level since 2009, a pretty big red flag. However, it is far from the only media stock soaring to start the year which helps the case something could be going on with the group. Tuesday’s 8.1% gain pushed the stock to its first higher high in a year, but there is just too much resistance lurking in the range from $15-17 to get excited about this one.

UAL: United Airlines +21.4%

You always have to be cautious around flat 200-day moving averages, but UAL looks to be a very large base. The relative chart has already broken out, giving an upside bias that UAL can clear $47 and signal a continuation of its YTD move.

WDC: Western Digital +21.0%

They say “from failed moves come fast moves” and that appears to be what is happening to Western Digital after a failed breakdown in December. If WDC can clear $42, it would complete the double bottom pattern and measure to about $53/share, but that is a big “if” and a tough risk-reward bet to make just $4 short of that level.

CCL: Carnival Corp +20.1%

Yes, this is what you think it is. Carnival is trying to complete a near-textbook inverse head and shoulders pattern, complete with a failed breakdown below its Covid lows. The stock needs to clear the neckline at $11.30 to complete the pattern, but the target would be $16.50, about 70% of upside from today’s levels.

AAL: American Airlines +19.4%