Stock Market Commentary
A week ago I pointed out the key signs suggesting the bear cycle was likely already ending. Last week, the S&P 500 (SPY) confirmed the end of the bear cycle with fresh all-time highs. Yet, consistent with this year’s theme, market breadth was left behind in catch-up mode. The momentum on both the short and long-term breadth indicators has stopped drifting down, but looks sluggish and reluctant to confirm a bullish swing in sentiment. A thicket of upcoming earnings in big cap companies likely holds the key for the start of the seasonally strong period of the stock market.
The Stock Market Indices
Until Friday’s trading, the S&P 500 (SPY) stacked more and more bricks for the case ending the last bear cycle. Still, at an all-time high, the worries and tribulations of that period become more and more of a distant memory. I jumped into SPY call options on the confirmed 50DMA breakout and took profits two days later.
The NASDAQ (COMPQX) made little progress after confirming its 50DMA breakout from the previous week. Still, it looks poised to continue the rally soon. I am a buyer on a test of 50DMA support.
The iShares Trust Russell 2000 Index ETF (IWM) is the same ol’ story. I will drop IWM from these updates until some different behavior(s) develop.
Stock Market Volatility
The volatility index (VIX) placed a new vote for complacency by tumbling right back to the 15 level. I could not resist one more swing at UVXY call options given the prospects of even a small bounce from this multi-month long support.
The Short-Term Trading Call With Market Breadth In Catch-Up Mode
- AT50 (MMFI) = 55.9% of stocks are trading above their respective 50-day moving averages
- AT200 (MMTH) 51.2% of stocks are trading above their respective 200-day moving averages
- Short-term Trading Call: neutral
The S&P 500 is likely to close out October with a mere 0.2% for its maximum drawdown for October. That performance would make the month an outlier given the dangerous history of October. The major market breadth indicators are also at highs of the month. However, stalled momentum puts the breadth indicators in catch-up mode.
AT50 (MMFI), the percentage of stocks trading above their respective 50DMAs, ended the last downtrend in the previous week. My favorite technical indicator has made little progress since then despite the S&P 500 streaking higher. This catch-up mode does not inspire enough confidence to flip bullish on the market, so I left my short-term trading call at neutral.
Stock Chart Reviews – Below the 50DMA
Zillow Group, Inc. (ZG)
A tight labor market and challenged supply chains finally forced Zillow Group (ZG) to suspend its Zillow Offers program for the rest of the year. The news drove a 9.4% loss on the stock. Buyers jumped in from there and have yet to look back. The gap closed on Thursday on an intraday basis. It is very possible that skepticism about Zillow Offers helped to drive ZG’s under-performance since the February all-time high. At the bottom, ZG made a 58.1% year-to-date loss. As a result, I am looking for a close above the gap to confirm that all the bad news is finally priced in, a kind of “buy-the-news” trade.
Brinker International, Inc (EAT)
Buyers stepped into Brinker International, Inc (EAT) after a 9.7% post-earnings loss. However, the stock is far from a buy-the-news trade. EAT even remains below its lower Bollinger Band (BB) right now. Brinker’s results are another example of the inflationary challenges facing the restaurant industry.
Snap Inc (SNAP)
Snap Inc (SNAP) surprised the market with particularly bad impacts from Apple’s privacy push on the iPhone.
Here is an example from the prepared remarks:
“We are continuing to work through the ongoing changes to digital advertising driven by Apple’s App Tracking Transparency framework, which was introduced as part of iOS 14.5. We saw meaningful adoption in June and July, when Apple pushed all of its users to update to the new version of iOS. Broadly speaking, these changes have upended many of the industry norms and advertiser behaviors that were built on IDFA, Apple’s unique device identifier for advertising, over the past decade, which now require a double opt-in by users in order to access directly….
…as our advertising partners have explored and tested SKAN’s solutions, they have surfaced a variety of concerns about its limitations. Every advertiser has their own unique, fine-tuned perspective on the optimal parameters to measure ROI for their business, but SKAN requires them to use Apple’s fixed definitions of advertiser success. For example, advertisers are no longer able to understand the impact of their unique campaigns based on things like the time between viewing an ad and taking an action or the time spent viewing an ad. Additionally, real-time campaign and creative management is hindered by extended reporting delays, and advertisers are unable to target advertising based on whether or not people have already installed their app.”
The chart says the rest:
Facebook (FB)
I earlier lamented the lack of moral clarity from the CNBC Fast Money crew as they explored excuses for buying the dip in Facebook (FB) in the face of awful headlines and accumulating accusations. The marketplace got a lot of clarity following the disappointing earnings from Snap Inc (SNAP). FB fell 5.1% and essentially retested 200DMA support.
I am a bit surprised FB took this much of a hit given Apple’s data privacy push on the iPhone is well-known. Moreover, Facebook, Zynga (ZNGA), and others have provided reports on the hits to their business from Apple’s privacy initiatives. Still, if FB closes below 200DMA support, it becomes a short again. I expect earnings to help determine whether that support magically holds again.
Caterpillar, Inc. (CAT)
Caterpillar (CAT) may have survived September and October lows with a double-bottom. Still, CAT needs to fight through 50DMA resistance and really is not “safe” until it pulls off a 200DMA breakout.
Intel Corporation (INTC)
Talk about surprises, Intel Corporation (INTC) got slammed after reporting earnings. The stock lost a quick 11.7% and closed near a low for the year. Intel raised revenue guidance but dropped earnings guidance. Profits won over market sentiment. I am poised for the next “between the earnings” call option trade.
Whirlpool Corporation (WHR)
Whirlpool Corporation (WHR) rebounded smartly from a post-earnings gap down. WHR is a 200DMA breakout away from returning to a bullish position.
Beyond Meat (BYND)
Beyond Meat (BYND) continues to suffer a year of disappointment. BYND dropped 11.8% after the company provided the following business update:
“…the Company is reducing its third quarter net revenues outlook…Although the Company’s previous third quarter guidance anticipated a sequential decline in net revenues, the deceleration was larger than anticipated. Multiple factors contributed to the shortfall during the quarter…
…the Company believes demand was impacted by broader ongoing macro and micro-economic factors, including among others, the effects of the COVID-19 Delta variant. The Company also experienced a decrease in retail orders that persisted longer than expected from a Canadian distributor coinciding with the reopening of restaurants, expected incremental orders that did not materialize from a change in a distributor servicing one of the Company’s large customers, observed delays in distribution expansion and shelf resets believed to be driven by customer labor shortages, and incurred shortfalls at certain U.S. foodservice customers believed to be driven by the effects of the COVID-19 Delta variant.
The Company further experienced challenges in operations that led to unfulfilled orders, with severe weather as a key driver resulting in the loss of potable water for two weeks in one Pennsylvania facility and water damage to inventory in another.
These impacts were partially offset by accelerated orders from an international customer during the third quarter.”
BYND is down 23.4% year-to-date, near a 16-month low, and essentially trapped in a trading range that started soon after the 2019 IPO.
Stock Chart Reviews – Above the 50DMA
Apple Inc (AAPL)
Apple Inc (AAPL) is back in position for the Apple Trading Model (ATM) with the confirmed 50DMA breakout. I hope to be back in business after earnings coming up this week.
Upwork (UPWK)
Upwork (UPWK) remains on my radar. The latest rally took the stock right to the all-time high. If UPWK fails to break out, the stock will form the notorious triple top. A breakout from here should be very bullish.
Realogy Holdings Corp (RLGY)
Realtor company Realogy Holdings Corp (RLGY) has resisted the recent drag in housing-related stocks. RLGY even broke out briefly to a new 3-year high. The reversal of the breakout ahead of earnings is a bad sign. Still, the stock is likely only a good short with a break below the last consolidation range.
Martin Marietta Materials, Inc. (MLM)
Support at the 200DMA held well for Martin Marietta Materials, Inc (MLM). Last week delivered a confirmed 50DMA breakout. I remain on the sidelines and think that the stock will continue to build an extended trading range.
Advanced Micro Devices (AMD)
While Intel (INTC) sinks, Advanced Micro Devices (AMD) rises. Ahead of earnings this week, AMD is enjoying a straight shot up from the previous lows. The new closing all-time high is a good sign ahead of earnings.
Tesla (TSLA)
My trade on Tesla (TSLA) worked out well. I closed out the call spread ahead of earnings per the plan. With a new all-time high in place after earnings, TSLA looks well-positioned to hit $1000 in due time.
Cleveland-Cliffs Inc (CLF)
A 12.7% post-earnings surge and breakout has iron ore company Cleveland-Cliffs (CLF) positioned for a resumption of the previous rally. I am looking to buy a dip.
Be careful out there!
Footnotes
“Above the 50” (AT50) uses the percentage of stocks trading above their respective 50-day moving averages (DMAs) to measure breadth in the stock market. Breadth defines the distribution of participation in a rally or sell-off. As a result, AT50 identifies extremes in market sentiment that are likely to reverse. Above the 50 is my alternative name for “MMFI” which is a symbol TradingView.com and other chart vendors use for this breadth indicator. Learn more about AT50 on my Market Breadth Resource Page. AT200, or MMTH, measures the percentage of stocks trading above their respective 200DMAs.
Active AT50 (MMFI) periods: Day #382 over 21%, Day #45 over 31%, Day #17 over 41%, Day #7 over 51% (overperiod), Day #88 under 62% (underperiod), Day #162 under 72%
Source for charts unless otherwise noted: TradingView.com
Grammar checked by Grammar Coach from Thesaurus.com
Full disclosure: long UVXY calls
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*Charting notes: Stock prices are not adjusted for dividends. Candlestick charts use hollow bodies: open candles indicate a close higher than the open, filled candles indicate an open higher than the close.