‘Russell 2000 is still in a caution phase’: Marketgauge.com Partner

Michele Schneider, Marketgauge.com Partner and Director of Trading Research & Education, joins Yahoo Finance to discuss the market rebound, earnings season outlook, and the energy market.

Video transcript

- All right, I want to bring in Michele Schneider. She's the partner and director of trading research and education at Marketgauge.com. Michele, always great having you here with us. I want to ask about this kind of about-face that we've been seeing in the market action just from yesterday to today. Do you think that there's been some sort of mood shift or really change in investor sentiment between what happened yesterday amid, you know, those COVID cases, the delta variant that is spreading, and what we're seeing today with this really nice rally and pop in the markets?

MICHELE SCHNEIDER: Well, we definitely are in an environment where everything has sped up to incredible proportions. So whereas a 700 point drop might be a couple of days to get back, we're seeing it within 24 hours. And that's just the nature of the fact that the retail investors are so hungry and trained, well trained, to buy every dip. So the question really is what happens from here.

And we're coming into this point, we saw a flight to bonds, the 20-plus year treasuries. And that was definitely a warning because what we're saying is flight to safety while NASDAQ is making new highs. And where did we see the warning signs? We saw it in the small caps. We saw it in transportation, retail, the financials. And then, of course, oil took a little bit of a tumble, which seemed to be more OPEC plus related. And also the variant, of course, with demand maybe retracting a little bit.

But now, we're at a point where seeing this bounce, the question is going to be what happens not so much with NASDAQ and the mega cap stocks-- we do have all those earnings coming up, of course-- but what happens with the Russell 2000 and transportation. And right now, we are still within a situation where there's a lot of overhead resistance. The Russell 2000 is still in a caution phase. So is the transportation. And yes, they did bounce off of big support, 2 10 and IWM around 250 in IYT, but we really need to see more follow-through here before we're convinced that this is more than just a one-day, like I said, habitual follow the herd into buying dips.

- Mhm. Michele, look, we're in the middle of earnings season. We've got some big names coming after the bell, including Netflix and Chipotle. What's your take on earnings season thus far? And any surprises for you?

MICHELE SCHNEIDER: Well, the bank earnings, which of course were all great, was followed by selling. So it just goes to show you that expectations are one thing, market reaction is everything. In terms of what's coming up, same thing. I think we're seeing tremendous expectations for a lot of the mega cap stocks that are about to report, including Netflix and also Chipotle, which is more because of the rise in online ordering.

So let's look at Netflix. I'm actually-- to me, in terms of the mega cap stocks, that has been so underperforming. And they have so many good fundamentals on the table, not just for the next quarter, but for the upcoming quarters. And we're going to be forward-thinking, as opposed to backwards-thinking. I think Netflix could actually be a good surprise to the upside.

- Where else are you seeing opportunity, Michele?

MICHELE SCHNEIDER: Well, it's interesting to me, when you get these kind of selloffs, I try to go to the areas, to the stocks that now give us a lot less risk to buy, and in megatrends that I like. So if we just stick with the back to work, back to normal type of situation, I've been watching Uber for months now. And we actually got into Uber today because it really is giving you a great opportunity against the low of yesterday. You're either right or you're wrong. And if you're wrong, it's not too painful.

And the same thing with Fastly, which is a stock I'm really interested in. It doesn't report yet, I think August 3rd or 4th. But it's a technology that we really like, it's kindly fallen to a point where there's a very low risk, and the momentum is actually shifting upwards while the price is trying to clear a 50. And then Monster Beverage, which is part of the consumer staples here, is another one that we are looking at. And that looks like it's about to take off, as well. So there's a lot of opportunity there, but like I said, always try to stick to not just these pure reversals, but plays of stocks in companies that you know could be good going forward, but now you have probably the optimal risk on this correction.

- Michele, what do you make of the energy sector? It was the sector that led us lower yesterday. It is bouncing back nicely today. But goodness knows crude oil has really been all over the map. And we're getting those earnings reports from some of the big oil companies. What's your take there? And do you have any of those companies in your portfolio?

MICHELE SCHNEIDER: We're actually-- except for natural gas, we're not in any energy space. And natural gas has been flying. I don't know you guys have been watching it or not, but we've been buying it through UNG. I mean, people-- it's a controversial ETF, but nonetheless, when you catch the move right, it's a good one to be in, whereas oil now has started to lag versus natural gas. And I think there are some real fundamental reasons for that in the near term. One, of course, is that carbon emissions, a lot of these oil companies, like British Petroleum, are talking about getting rid of their carbon emissions over time and going to more EV space.

Then you have OPEC plus, although 400,000 barrels a month to rise in production compared to the 6 billion that they had cut back before pandemic is going to take a while. And then, of course, you also have the idea of the fact that the delta variant has now shown that global demand can step back. So overall, I'm still bullish, particularly in oil. I don't think we've seen the top of it yet. And again, this correction be good. I'd like to see a little bit more. I'd like to see oil, if we're going to base the energy on the oil market, get closer to $60 a barrel. Then I feel a little bit more comfortable getting in.

- You know, Michele, we're actually going to have a conversation on what I'm about to ask you next with Chad Anderson from Space Capital, but you know, we saw that really successful rocket launch or, you know, visit to space from Jeff Bezos. We had Richard Branson just a little bit over a week ago. So I think a lot of this space exploration is on everyone's mind. Kathy Wood obviously launched that space, ETF. Do you think space exploration right now is an area that you're getting interested in and that investors really should be paying so much more attention to, especially as we've seen so many of these space exploration and space companies going public lately?

MICHELE SCHNEIDER: I think it may be a little bit like-- and this might be a little bit of a contradictory type of opinion to most people, but to me, it sort of reminds me of what happened when the electric cars really came out. It was sort of like, before the event, those stocks went flying, and then once things became much more mainstream, they've all sold off. We were in space last year, as far as SPCE, in anticipation of all of this. And actually, this last rally got out, we haven't been involved.

I think, on one level, of course, the space exploration is great. On the other level, it is the race to space through the billionaires. And that might be somewhat suspect in terms of how much we, you and I, could actually ever participate in it. And then the more insidious side of me-- and I'm saying this to be a little bit funny, but not really-- there was a movie called "Elysium" that was out with Jodie Foster years ago. And it was a movie where they built a space capsule above Earth where all of the mega-rich went, and everything was great there-- the schools, the health care, the jobs. And everybody sort of fend for themselves on Earth. And there's this sort of silly part of me that keeps-- that keeps haunting me, with all this big money going into space while the rest of us plebeians stay down here.

- I definitely remember that movie, and I know that you are being somewhat facetious, but it is a criticism that a lot of folks have definitely been raising, especially as these billionaires head to space. Michele Schneider, Marketgauge.com partner and director of trading, research, and education, always great to have you here with us. Thanks so much.