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Technical Forecast: Frothy with a Chance of Complacency

This week, I gave a Technical Market Overview to Zacks Ultimate members in our monthly 45-minute webinar we call the ZU Strategy Session, or ZUSS. In one of my segments, I looked at general index-level price action and advised to "trim profits and raise cash" as I do a few times a year after big runs.

In the video that accompanies this article, I show 5 charts and explain my views of the current market froth and digestion as we head into earnings season. My theme is that an inevitable market pause and probable re-connect with the 50-day MA is coming in the next 3-6 weeks.

Obviously, I'm not trying to time the probable turn in the next month. This market is too strong to fade it by going short, or even running to more than 40% cash if you are a serious long-term investor. I just want to have more cash than I do for whatever opportunities may come as we head into earnings season.

And here were two partial sales I made today for my TAZR Trader portfolio in this "trim and raise" regard...

Infinera INFN: Selling another chunk (1/3 of original position). Even with Verizon leading the 5G charge across the nation (Infinera's biggest customer), the stock has pulled back 15% and cannot find traction for further highs after the capitulation by the Citi analyst on Dec 21 that sent shares to new highs above $11. Here was that call...

Citi analyst Jim Suva upgraded Infinera to Neutral from Sell with a price target of $11.50, up from $7. "Infinera is one of the top five vendors in the optical transport market, and its market share is finally growing after a prolonged time of loss," the analyst wrote. Suva noted he sees an opportunity to gain market share from Huawei, the leading optical transport vendor.

I told TAZR members this morning, "Remember when we first bought INFN in August, I highlighted the bearish views of the Citi analyst. Glad to see he is finally on board the 5G train!"

Another downgrade on Dec 21 came from B. Riley as INFN shares cruised into the $11 handle...

B. Riley analyst Dave Kang downgraded Infinera to Neutral from Buy with a price target of $11.50 (from $10.50). The analyst cited "valuation" for the downgrade with the shares up 41% year-to-date. He attributed some of the rally to "hopes of unlocking the value of its digital signal processer," but noted "this is easier said than done."

Infinera has potential catalysts in 800G and XR, but Kang felt 800G may not ramp significantly until the second half of 2021 while XR's future is "still cloudy at this point." The analyst also has concerns that 600G may not ramp as expected.

A $10 Trillion TAM -- And You're Selling?!

I also trimmed some profits in Shopify SHOP and I may really regret this one! But here's what I told my members...

I really thought this one would stay strong and make another run at the $1250-1275 highs at least before earnings in early Feb. And it still may. But my sense is that a lot of investors with fat profits on the table are waiting and watching the exits before earnings. So I'd rather take a little off and be ready to add under $1100 again.

Here are the Bull vs Neutral views from two analysts. First the underwhelmed view...

On Jan 4, Barclays analyst Ross Sandler assumed coverage of Shopify with an Equal Weight rating and his unchanged price target of $1,060 due to a realignment in the firm's coverage universe.

Clearly Ross hasn't done his homework on The SHOP like us. Now let's hear from a rockin' analyst who was singing our tune with this call on Monday...

KeyBanc analyst Josh Beck raised the firm's price target on Shopify to $1,300 from $1,250 with an Overweight rating. The analyst wrote that he's "more constructive on Shopify's opportunity to expand its brick-and-mortar presence providing a re-vamped product offering, a surge in omnichannel demand in the wake of COVID-19 and associated rising importance of features like multi-location inventory, and $10T-PLUS TAM based on 200M-plus global SMBs with leading cloud players market share only approaching about 1%, suggesting a massive untapped market opportunity and benign competitive environment."

Damn! Who wants to sell any SHOP after thinking about a $10 TRILLION TAM with 200 million global SMBs -- and little meaningful competition!

Plus, Josh Beck says "with leading cloud players market share only approaching 1%, suggesting a massive untapped market opportunity!" That sounds like Amazon AMZN and Alibaba BABA have barely penetrated the $10 trillion TAM (total addressable market) of e-commerce potentials.

Well that thought confirms my stake in BigCommerce BIGC who, as a little David among Goliaths, has a lot of ground to capture.

Be sure to watch the video where I go over the broad market and supporting breadth that make this a time to "trim profits and raise cash."

Disclosure: I own shares of BABA, BIGC, SHOP, and INFN for the Zacks TAZR Trader portfolio.

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Last year, it generated $24 billion in global revenues. By 2020, it's predicted to blast through the roof to $77.6 billion. Famed investor Mark Cuban says it will produce ""the world's first trillionaires,"" but that should still leave plenty of money for regular investors who make the right trades early.

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