Stock Market Commentary
For one day, the stock market suddenly cared about rising inflation numbers. The recovery mode is already underway. After slamming into the wall of inflation, the stock market is now climbing the wall of inflation. On Friday, in its survey of consumers, the University Michigan had the following to say about the wall of inflation looming over the U.S. economy:
“Consumer sentiment fell in early November to its lowest level in a decade due to an escalating inflation rate and the growing belief among consumers that no effective policies have yet been developed to reduce the damage from surging inflation. One-in-four consumers cited inflationary reductions in their living standards in November, with lower income and older consumers voicing the greatest impact.”
Perhaps the caveat of “lower income and older consumers” deflated the message. The stock market continued its rebound with the S&P 500 and the NASDAQ effectively finishing a reversal of the 1-day inflation-driven plunge.
The Stock Market Indices
The S&P 500 (SPY) gained 0.7% and perfectly filled the gap left behind by the inflation surprise on Wednesday. The index now looks poised to challenge its all-time highs before testing support at the uptrending 20-day moving average (DMA) (the dotted line below).
The NASDAQ (COMPQX) did the S&P 500 one better with a 1.0% gain to close the week. The tech-laden index left a hair’s width of distance left to close the gap from Wednesday.
Stock Market Volatility
The volatility index (VIX) went right back into fade mode while the stock market climbed the wall of inflation. The fade began on Wednesday and continued until the VIX closed the week at 16.3. With the market apparently ready to dismiss inflation problems, the VIX looks resigned to a lower trading range between 15 and 20.
The Short-Term Trading Call While Climbing a Wall of Inflation
- AT50 (MMFI) = 64.4% of stocks are trading above their respective 50-day moving averages
- AT200 (MMTH) 55.8% of stocks are trading above their respective 200-day moving averages
- Short-term Trading Call: neutral
In my last Market Breadth post, I noted the new saliency of the inflation narrative. I also thought the narrative was powerful enough to keep weighing on the market, or at least market breadth. AT50 (MMFI), the percentage of stocks trading above their respective 50DMAs, failed just under the overbought threshold of 71%. The lack of follow-through suggests that the stock market is already prepared to climb that wall of inflation. If AT50 manages to finish that climb with a visit to overbought territory, then the inflation narrative will officially be in the stock market’s rear view mirror. My neutral short-term trading call could then last for an extended period of time.
AT200 (MMTH), the percentage of stocks trading above their respective 200DMAs, remains in synch with its shorter-term cousin AT50.
Stock Chart Video Reviews
Stock Chart Reviews – Below the 50DMA
Bumble (BMBL)
Woman-centered online dating company Bumble (BMBL) raised Q4 revenue guidance, but the stock plunged 19.2% anyway. Apparently, subscriber numbers are a big concern. Sellers followed up with another 5.2% slide. Even with BMBL well below its $43 IPO price, I got back into the stock with shares and a call spread. BMBL started trading at far too high a price. Now, the chart has the look of exhaustion. BMBL needs time to heal as a fresh upside catalyst should remain elusive. If the market delivers much lower prices, I will add to my position.
ViacomCBS Inc (VIAC)
After ViacomCBS Inc (VIAC) collapsed in March, I thought the stock would stage some kind of comeback in a few months. Instead, VIAC has spent the last 7 months waning. November earnings placed additional pressure on VIAC, and the stock closed at an 11-month low. I will just continue to watch for a sign of life.
Beyond Meat, Inc (BYND)
I have long been skeptical of Beyond Meat, Inc (BYND). The valuation is extremely high for a retail food company. However, BYND is streaky and periodically provides rapid upside, typically on the heals of new partnership and distribution announcements. Those press releases had little impact the last 4 months as a downtrend solidified. Taking cues from other stocks with strong downtrends culminating in post-earnings plunges, I bought a put spread ahead of BYND earnings. BYND dropped 13.3% post-earnings, and I closed out the trade.
El Pollo Loco Holdings, Inc. (LOCO)
The chicken trade has been on pause for El Pollo Loco Holdings, Inc (LOCO) for a year and a half. With LOCO reversing recent post-earnings gains and trading back to the bottom of its trading range, I nibbled into a new position on LOCO. If support breaks, I will brace myself: I do not see a lower level of “natural” support until $12.50.
Stock Chart Reviews – Above the 50DMA
Boise Cascade, LLC (BCC)
After its 200DMA breakout in August, wood products company Boise Cascade, LLC (BCC) looked ready to return to a bullish position. BCC failed to confirm the breakout, and I dropped BCC from my radar. BCC popped right back on my radar after this month’s well-received earnings report. Lumber prices seemed to bottom in August, and BCC is benefitting. BCC is a buy on the dips from here although May’s all-time high looks like formidable resistance.
Airbnb, Inc (ABNB)
The post-earnings trading in Airbnb, Inc (ABNB) surprised me. The surge looked bullish, the pullback toppy, and then right back to a bullish look. After a 13.0% post-earnings gain, ABNB faded from an intraday high the next day and pulled back from the all-time high. The week ended with a 7.8% gain that puts ABNB back in position to challenge the all-time high.
iShares U.S. Home Construction ETF (ITB)
I bought iShares U.S. Home Construction ETF (ITB) earlier in the week to start the seasonally strong period for housing stocks. The rally since the October lows looks very telling. The rally is part of a firming foundation for the home builder stock buying season.
DoorDash (DASH)
My put spread on DoorDash (DASH) looked good just ahead of earnings. I decided to hold. I lost after DASH gained 11.6%. Despite a sharp fade from the high, buyers returned with a gap up to a 6.2% gain. DASH ended the week at an all-time high with an 8.2% surge. My negative bias on DASH was partially based on my understanding of the poor economics of the business, both from using the service and in my readings. However, this quarterly report apparently showed no impact from people returning to on-site dining. Moreover, DASH provided strong guidance. Still, the company’s acquisition of a Finnish food delivery service invites new risks to the business I would not want to take on.
QuantumScape Corporation (QS)
At the start of the month, I made the case for a bullish breakout in QuantumScape Corporation (QS). Last week QS validated the case with a confirmed 200DMA breakout. I am holding for at least a test of the February/March highs.
Fossil Group (FOSL)
Luxury accessories retailer Fossil Group (FOSL) soared 22.7% post-earnings. The jump out of 8 months of consolidation is bullish and makes FOSL a buy on the dips going forward. FOSL looks poised to challenge the intraday high from the January surge.
Tapestry, Inc. (TPR)
The week was good for luxury goods retailers. Tapestry, Inc (TPR), formerly Coach, surged 8.4% post-earnings. The move confirms a 200DMA breakout and makes TPR a buy on the dips.
MP Materials (MP)
The Mountain Pass rare earth mine in Nevada re-emerged in the form of MP Materials (MP). MP enjoyed a strong post-earnings week and breakout from a period of consolidation. The stock closed just under the all-time high set in March. You guess it – the stock is a buy on the dips from here.
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 #398 over 21%, Day #61 over 31%, Day #33 over 41%, Day #13 over 51%, Day #10 over 60% (overperiod), Day #178 under 72% (underperiod)
Source for charts unless otherwise noted: TradingView.com
Grammar checked by Grammar Coach from Thesaurus.com
Full disclosure: long QS, long ITB, long ABNB, long LOCO, long BMBL shares and call spread, long QQQ 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.