US Markets Round-Up

This week, the Russell 3000 index, an important benchmark for the US stock market, encompassing all market capitalizations, started on a negative note only to bounce back from lower levels. The Russell 3000, made a high of 2566.81 during the week and settled at 2566.46 with a decent week till date (WTD) gain of ~4.96 percent on March 17, 2022. Other major indices such as S&P 500 and NASDAQ Composite also showed bullish movement for the week. On March 17, 2022, the S&P 500 index settled at 4411.67 with a WTD gain of ~4.93 percent, while NASDAQ Composite Index settled at 13614.781 with a WTD gain of ~6.00 percent.

For the first half of the week, the markets remained in the negative territory following Ukraine and the Russian crisis along with the decreased PPI and retail sales numbers. However,  the indices turned positive after the release of improved weekly US initial jobless claims numbers to 214,000 from 229,000 (revised level) in the prior week and ongoing talks between both the countries to resolve the conflicts. Notably, the U.S. Federal Reserve increased the benchmark interest rate by 25 basis points in the latest policy meet which is the first hike since 2018, and markets inched higher since the move was very much priced in already.

Having understood the US market performance over the week, following the global macros, and based on our technical analysis of the Russell 3000, the one stock: Onto Innovation Inc. (NYSE: ONTO)  from the NSYE listed space, fits the parameters from the technical standpoint. Noted below is our recommendation based on generic insights, entry price, target prices, and stop-loss for ONTO for the next 2-4 weeks duration:

Onto Innovation Inc. 

Onto Innovation Inc. (NYSE: ONTO) is a semiconductor equipment and testing company engaged in the design, manufacture, development, and support of process control tools. Noted below are the key price indicators for the stock:

Price Action Analysis (on the Weekly Chart) 

ONTO has started to move upside after taking the support from an upward sloping trendline and recently broken a descending channel formation from the upside, indicating the possibility of an uptrend from hereon. The next major resistance level for the stock appears at USD 100 and prices may test this level in the short-term (2-4 weeks). A further breakout above USD 100 backed by volumes may extend buying in the stock.

Technical Indicators Analysis (On the Weekly Chart)

On the weekly chart, RSI (14-period) is showing a reading of 51.66, indicating a positive momentum forming at these levels. The volumes also seem supportive of the upside movement. Prices are trading above the trend-following indicator 50-period SMA, further supporting an up-move; however, the 21-period SMA is above the CMP and may act as the resistance levels.

Financial Summary:

Summary of the Key Financial Metrics for the past four years for Onto Innovation Inc. is as follows:

General Recommendation:

As per the above-mentioned price action and technical indicators analysis, we can conclude that Onto Innovation Inc. is looking technically well-placed on the chart, and we have a ‘Buy’ rating on the stock. Investment decisions should be made depending on an investors’ appetite for upside potential, risks, and any previous holdings. This recommendation is purely based on technical analysis, and fundamental analysis has not been considered in this report. The summary of our recommendation is as follows:

Markets are trading in a highly volatile zone currently due to certain macro-economic and geopolitical tensions prevailing. Therefore, it is prudent to follow a cautious approach while investing.

Upcoming Major Global Economic Events

Market events occur on a day-to-day basis depending on the frequency of the data and generally include an update on employment, inflation, GDP, consumer sentiments, etc. Noted below are the upcoming week's major global economic events that could impact the Russell 3000 Index and stocks’ prices.

Investment Related Risks: Based on the technical analysis, the risks are defined as per risk-reward ratio (~0.60:1.00), however, returns are generated within 2-4 weeks’ time frame. This may be looked at by Investors with sufficient risk appetite looking for returns within short investment duration. Investment recommendation provided in this report is solely based on technical parameters, and fundamental performance of the stocks has not been considered in the decision-making process. Other factors which could impact the stock prices include market risks, regulatory risks, interest rates risks, currency risks, and social and political instability risks etc.

Note 1: Investors can consider exiting from the stock if the Target Price or Stop loss mentioned as per the technical analysis has been achieved and subject to the factors discussed above. 

Note 2: How to Read the Charts?

The Green colour line reflects the 21-period moving average while the red line indicates the 50- period moving average. SMA helps to identify existing price trend. If the prices are trading above the 21-period and 50-period moving average, then it shows prices are currently trading in a bullish trend.

The Black colour line in the chart’s lower segment reflects the Relative Strength Index (14-Period) which indicates price momentum and signals momentum in trend. A reading of 70 or above suggests overbought status while a reading of 30 or below suggests an oversold status.

The Blue colour bars in the chart’s lower segment show the volume of the stock. The volume is the number of shares that changed hands during a given day. Stocks with high volumes are more liquid than stocks with lesser volume as liquidity in stocks helps in easier and faster execution of the order.

The Orange colour lines are the trend lines drawn by connecting two or more price points and used for trend identification purposes. The trend line also acts as a line of support and resistance.

Technical Indicators Defined: -

Support: A level where-in the stock prices tend to find support if they are falling, and downtrend may take a pause backed by demand or buying interest.

Resistance: A level where-in the stock prices tend to find resistance when they are rising, and uptrend may take a pause due to profit booking or selling interest.

Stop-loss: It is a level to protect further losses in case of unfavourable movement in the stock prices.

Risk Reward Ratio: Risk reward ratio is the difference between an entry point to a stop loss and profit level. We suggest ~60% Stop Loss of the Target 1 from the entry point. 

A trailing stop-loss is a modification of stop-loss in case of favourable movement in the price to protect the gains. We suggest Investors to Trail the Stop-Loss as per the aforementioned levels if the stock price achieves more than 60% of the Target 1. Investors should consider exiting from the position as per the Trailing Stop-Loss level if the price starts moving downwards after achieving more than 60% of the Target 1. 

The reference date for all price data, volumes, technical indicators, support, and resistance levels is March 17, 2022. The reference data in this report has been partly sourced from REFINITIV. 

Abbreviations

CMP: Current Market Price

SMA: Simple Moving Average

RSI: Relative Strength Index

USD: United States dollar 

Note: Trading decisions require a thorough analysis by investors. Technical reports in general chart out metrics that may be assessed by investors before any stock evaluation. The above are illustrative analytical factors used for evaluating the stocks; other parameters can be looked at along with additional risks per se. Past performance is neither an indicator nor a guarantee of future performance.

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Disclaimer

 

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