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Chart Advisor: Pushing Higher


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Friday, July 9th, 2021

1/ Stocks hit new highs, but small-caps lag 

2/ Morgan Stanley maintains upward momentum

3/ Schwab sliding before earnings  

4/ The bottom line

1/ Stocks Hit New High, But Small-Caps Lag 

In the wake of yesterday’s panic sell-off, investors eagerly took advantage of the opportunity to buy in, sending large-cap stocks to new highs. The majority of the ETF’s are looking to close at all-time highs for the week with the only lagging one being iShares’ Russell 2000 ETF (IWM). However, investors seem to be anticipating an explosive economic recovery in the near future. IWM has been most affected by the slew of uncertainty. Being comprised of small-cap companies makes it a better indicator on the overall state of the U.S. economy as opposed to a few narrow sectors. The tech sector has already made a parabolic move, and it’s hard to say how much further it will continue.

IWM seems to have more potential since it has not yet broken its all-time highs made in mid-March. Investors have been accumulating a position every time price made a correction back to the 50-day moving average, as seen by the dramatic increase in volume. Perhaps this means it is only a matter of time before it breaks out and catches up to the other ETFs.

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2/ Morgan Stanley Maintains Upward Momentum

Morgan Stanley (MS) operates as a global financial services company. The company has given returns of 93.35% over the past year, outperforming State Street’s Financial ETF (XLF). Morgan Stanley has a weight of 3.27% in XLF, and generally moves in tandem with the ETF. 

Morgan Stanley is due to announce its earnings on Thursday, with an estimate of $1.66 per share and revenue of $13.98 billion. After the Federal Reserve released the results of banks’ stress tests, Morgan Stanley said that it will double its quarterly common stock dividend to 70 cents per share from 35 cents currently. Also, MS reported a new increased share repurchase authorization of up to $12B through next year. 

3/ Schwab Sliding Before Earnings  

Charles Schwab (SCHW) recently said it will take a $200 million charge in the second quarter related to a U.S. Securities and Exchange Commission probe of its robo-adviser platform. The compliance inquiry relates to past disclosures around the firm’s Schwab Intelligent Portfolios product.  

This ongoing issue casts a cloud over Schwab’s earnings announcement next week with an estimate of $0.75 per share and revenue of $4.45 billion. The share prices of SCHW are mildly correlated with State Street’s Select Financial ETF (XLF). SCHW has shown relative strength over the past year, giving a return of 104.83%. However, its price pattern has been trading weaker in recent weeks. It will be interesting to see the movement of the stock after the earnings release where it might find a hurdle at the former support price around $70. 

4/ The Bottom Line 

Major ETFs ended the week on a high, while small-caps lag as hopes for an economic recovery continue. Morgan Stanley is rising before earnings while Schwab appears to be weakening.  

Originally posted on 9th July, 2021

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