Breakout stocks, stocks outperform the sector, stocks outperform the market

Sentiment becomes a powerful tool for analyzing stocks, sectors, or the overall market

At the beginning of the new year, we highlighted several stocks for our special report “Top Picks of 2021”. Was a seemingly random name Callaway Golf Company (NYSE: ELY). Sure, golf was a large socially distant activity during the pandemic, but choosing a niche golf brand that excels after the pandemic seemed outside of the left field. About halfway through 2021, ELY is up 41% since the start of the year, and when the rest of the broad market sold out last week, the stock bucked the trend, posting a weekly gain of 9.2%. What can we learn from the ELY selection and what does the company’s success mean for the rest of the retail sector?

Callaway’s first-quarter report resulted – no pun intended – in a bull gap this week after the company posted adjusted earnings of 62 cents per share on revenue of $ 651.62 million, which is what the company expected Surpassed analysts by 32 cents per share on revenue of $ 561.55 million. More important than the blowout numbers, the post-profit conference call revealed two macro trends that investors could use as guides in determining the next ELY winner.

First, the TopGolf stationary acquisition exceeded expectations and allowed Callaway to improve its financial outlook. On the conference call, Callaway noted that three more venues are planned to open in 2021. The balance since the beginning of the year is eight. It’s not great to say that you can replace “TopGolf” with another stationary venue generator from a similar retail company like Dave & Busters (PLAY) or casinos. As long as a company’s venues and stores reopen, the waning stages of the pandemic have created “unprecedented” demand for personal expenses.

This is a look into the future. To stay alive over the past year, retailers like Callaway had to adapt to the pandemic life. The conference call said, “Last year, the hero of the soft goods and apparel segment has been undoubtedly e-com. This is a channel that has been greatly strengthened by investments we made before the pandemic and our continuation to this day. “The broader investors should look here for retailers that have invested heavily in e-commerce before the pandemic forced their hand. In a way, Callaway’s earnings report is a roadmap for investors to find the next big winner on the charts.

When we first named Callaway stock a top pick for 2021, Schaeffer’s Senior Market Strategist Chris Prybal noted that it had just formed a double-top formation prepared for a breakout, possibly after a volatility event like the profit. On the first day of trading in 2021, a few days after our Top 21 report was released, Callaway shares closed at $ 24.28. On Tuesday, ELY hit a record high of $ 33.97 and exceeded a market cap of $ 5 billion. Meanwhile, pullbacks for the past two months have found support for the rising 100-day moving average for stocks.

Prybal also pointed to an easing of pessimism among analysts and short sellers. Five months later, and these scales have yet to tip completely. Despite the avalanche of bull notes following the early week’s profit, ELY’s 12-month consensus price target of $ 36.20 was a small premium to Friday’s closing price of $ 33.76. And among short sellers, interest in short selling has gradually diminished over the past two periods, but the 10.95 million short sales sold still account for a healthy 11.6% of the stock’s total available free float. With ELY’s average trading pace, it would take almost six days for the bearish bets to buy back. a sufficient amount of purchasing power that can relax and provide additional benefits.

This pseudo-post-mortem shouldn’t just pat us on the back. It is designed to show that sentiment combined with fundamental and technical factors (a three-step method we call Expectational Analysis®) becomes a powerful tool for analyzing stocks, sectors or the market as a whole. It becomes especially effective during the profitable season when one can look through conference calls and extract relevant information that can influence the next trading idea.


Bernie Schaeffer’s subscribers Chart of the week received this comment on Sunday May 16.


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