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6/3/2024 10:19:38 AM Eastern Time

Yes, The 493 Can Carry the Rally Baton
By Charles Payne, CEO & Principal Analyst

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The title of our Hotline report on Friday was: CAN THE 493 CARRY THE RALLY? 

Well, we got an emphatic answer, with an emphatic reversal.  The S&P 500 opened higher then swooned big time, only to regain its footing around noon and then surge in the last thirty minutes of trading.

The move was extraordinary. 

Last week was difficult, especially with all the Treasury issuance pushing bond yields higher after poor auction results. 

There was a temperamental aspect to trading all week that lent itself to the possibility of a massive selloff as pressures mounted.  There was a moment of truth on Friday and somehow the market turned higher on huge volume.

Same Tide 

All eleven sectors were higher as there was lots of bottom fishing. 

Market Breadth

Advancers swamped decliners, especially on the NYSE.  The NASDAQ composite continues to see wide bifurcation resulting in more new lows than highs. 

Once again, the focus shifted to small caps as small cap value surged.

Value outperformed core and growth.

Up Arrows

It’s all up arrows, but where are the opportunities? 

The Russell 2000 (IWM) looks very compelling, bouncing off its 50 day moving average. 

The NASDAQ might be vulnerable as tech not named Nvidia (NVDA) are putting in mix performances of late. 

Equal weight underscores how skewed this rally has been. 

Portfolio Approach

We are adding Meritage Homes Corporation (MTH) to the Hotline Model portfolio this morning. 

Long Idea: Meritage Homes Inc. (MTH) @ $178.78
Industry: Consumer Discretionary; Housing
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BACKGROUND: Meritage Homes Corporation, together with its subsidiaries, designs and builds single-family attached and detached homes in the United States. The company operates through two segments, Homebuilding and Financial Services. It acquires and develops land; and constructs, markets, and sells homes for entry-level and first move-up buyers in Arizona, California, Colorado, Utah, Texas, Florida, Georgia, North Carolina, South Carolina, and Tennessee. The company also offers title and escrow, mortgage, insurance, and closing/settlement services to its homebuyers. Meritage Homes Corporation was founded in 1985 and is based in Scottsdale, Arizona.

SKINNY: The first quarter's results saw strong margins at 25.8% vs. guidance of 23.5 to 24%. The numbers gave confidence to management to raise its FY24 guidance in orders (14,500 to 15,000 vs. prior 14,000 to 15,000). The decline in lumber prices could contribute to a decrease in operating costs that could benefit margin expansion. The stock broke above its 20-day moving average and filled the early May gap. The next leg higher should see a breakout above $200. Our target is $212.