Financial News vs. Noise
Latest Seeking Alpha Podcast: An Extremely Important Week Of Data; Understanding Technical Analysis
Last week we talked about the extremely important data points from Wednesday to Friday. All, except for AAPL earnings, came out in favor of the bulls. I have also talked extensively about how this market is all about the Fed, everything else is eye candy. Coming into last week the anticipation was that they were done for the year, and everything that happened reinforced that. Once the euphoria of the bulls being back wears off the debate will shift to a couple of key questions that we don’t yet have answers to:
When will the Fed start cutting and how aggressively?
What is the neutral rate?
Is inflation really coming down, and what happens if it ticks back up?
What damage has the Fed caused?
All of the major markets reclaimed their 50 day moving averages, except small caps so the bulls are clearly in charge. On the long side I think you now look for areas that are not extended. The rally we have seen in the shitco’s is impressive, but most, or all, of that is short covering, and remember we still have higher for longer on rates. I still think you can selectively short, but for now it needs to be selective. After a rally as strong as last week the market needs to cool off a bit. We are probably going to add some equity exposure to our ETF Model Portfolio, but not right away.
My favorite area continues to be the precious metals miners, which should get a boost from lowering interest rates, but also a flight to safety bid if the war heats up and/or some regional banks start going belly up. Friday was interesting in that regard. Right after the jobs number came out I noticed that silver was starting to run but the smaller precious metals names were not. My guess, and it’s just a guess, is that since the futures market was open you had precious metals futures traders right on the jobs number. It seemed to taka a bit longer for the stock traders to catch on and I was able to grab AU and AG in the premarket before they really started to move. Precious metals look a bit weak pre market so could be a chance to reload.
Something else I jumped on pre market was CFLT, which I tweeted about also. It was down over 40% on earnings on Thursday, yet it got two upgrades Friday morning. You normally don’t see that as analysts tend to downgrade stocks after major moves like that in too little too late fashion. I also noticed it undercut a low in January at 16.60 and was moving back in that direction pre market. Add in the fact that growthier companies like this were really catching a bid after jobs and it seemed about as close to a no brainer as possible. The one caveat was that Cramer said he didn’t think it should have gone down as much as it did on Thursday, but the trade still worked out. There is a ton of white space on the chart if this rally continues.
Speaking of names that are not extended I am going to be focusing on the commodity stocks. I picked up MOS on Friday when it undercut and rallied above it’s 10 day.
Still watching AA, FCX, and BTU for entry spots. NXE is another name that could interest me if it pulls back a bit more. Uranium has been hot and my favorite name there, CCJ, is extended.
On Friday I also talked about how much I like Brazil and how PAGS is the only name I watch that isn’t extended. It had a nice move yesterday but still is in range.
I also picked up KTOS yesterday, it’s a defense stock that tanked on earnings, but had undercut and rally moves at the 20 day EMA and the 10 day. It’s a bit volatile, but with the potential of WWIII I like owning a defense name.
Pre market the most interesting areas look to be oil and China, probably going to be watching CVX and BABA.
On the short side I added back one of my favorites from October, AX, which failed at it’s 200 day. I will keep shorts on a short leash in this type of environment.
Another short I added was TRUP, which ramped on earnings but failed at it’s 50 day.
SMCI is a name I traded on Thursday and came into Friday short. Immediately got stopped out, but I re-entered when it failed at it’s 50 day. This one gets a very short leash as it can rally pretty hard if the growthy stuff continues to move up. The thesis here is the same as it was coming into Friday, just want to have something over the weekend just in case. Was going to buy some volatility, but this looked better.
Not a ton of data this week and the most important earnings are behind us. We do have Fed speakers including Powell. Interesting to see if they say anything about the drop in rates last week. If higher rates are doing their job for them and those rates drop, what does that mean?
News vs. Noise
Assuming these “doubters” where short last week and sitting on major losses. The Dow ripped higher last week. Why doubters ‘don’t believe in this rebound.’-MarketWatch
At some point, yes. The Big 7 Have Been Winners. Now It’s Time for the S&P 500’s Other 493.-Barron’s
Fed may be done, but we still have higher for longer. BlackRock’s Boivin Says High Rates Still a Threat to Stock Rally-Bloomberg
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