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December 18, 2023
Monday morning, and the air is electric! The market's recent rally has left hearts racing and portfolios bulging, but is this euphoria built on solid ground, or are we teetering on a cliff of correction?
Don't fret, for Traders on Trend is here to navigate the financial labyrinth. Sponsored, of course, by our brilliant friends at Marketbeat, who help us stay ahead of the curve so you can trade with confidence.
The question on everyone's lips: Can this upward rocket keep its trajectory? We'll dissect the bullish whispers and bearish rumbles, peering under the hood of the market's engine to see if the fuel gauge is nearing empty.
Chart of the Day throws META into the spotlight: a tech titan at a crossroads. Is it destined for Olympian heights or facing a digital Hades? We'll crack its technical code and reveal its fate in pixels and predictions.
So, are you ready to conquer this market Monday? Let's dive in and turn financial uncertainty into informed opportunity!
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Today's Market Mood: EXTREMELY BULLISH!
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The Week That Was:
Another week, another win for the bulls... well, mostly. While the party seemed to end a little early on Friday, leaving some confetti on the floor and champagne flutes half-full, the major indices still managed to extend their winning streaks for a seventh consecutive week. Can you feel the optimism in the air? It's thicker than eggnog on Christmas Eve.
This week's rally was fueled by a double dose of good tidings: the Fed keeping rates on hold (surprise!) and whispering sweet nothings about potential cuts in 2024. It's like Santa came early with an interest rate reduction gift card. Then, Uncle Fed showed up and, in true holiday spirit, threw in a bonus of easing inflation data as a stocking stuffer. Talk about a market's dream come true!
However, amidst the celebratory cheers, a voice of reason emerged from New York Fed President John Williams. "Hold your horses, folks," he said, reminding everyone that rate cuts aren't exactly on the Fed's immediate to-do list.
This was like the awkward moment when Dad tells you there's no pony under the tree because you "haven't been good enough." The market, ever the sensitive soul, responded with a slight frown and a downtick.
So, where does that leave us for next week? While the technicals and that ever-helpful holiday cheer still favor the bulls, we might see some consolidation or even a pullback. Think of it as a market-mandated nap before the New Year's Eve countdown.
Here's my strategy for navigating this potential pause in the party:
- Take profits: If you've been riding the rally wave, consider taking some profits off the table. This way, you'll have some padding if the market decides to do a snow angel in December snow.
- Be cautious with new positions: Don't get FOMO-ed (fear of missing out) into buying just because the market has been on a tear. Remember, even Santa needs a break before another gift-giving spree.
- Stay diversified: Spread your bets across different asset classes and sectors. This way, you'll have a safety net if one area takes a tumble.
Remember, the market is like a moody teenager – unpredictable and prone to dramatic swings. Don't let the holiday spirit lull you into complacency. Keep your eyes peeled for those technical indicators, listen to the whispers from the Fed, and be ready to adapt. And, hey, if the market does take a dip, consider it a buying opportunity for those New Year's resolutions!
Enjoy the rest of your week, and don't forget to leave some milk and cookies for Santa (and maybe a few charts for the Fed).
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What's the difference between the stock market and a Christmas tree?
One sheds ornaments after the holidays, the other sheds valuations throughout the year! Just remember, folks, Santa might bring new highs, but he also brings volatility eggnog, so drink responsibly.
Bonus Fact:
The first "stock market crash" happened in Holland in 1637, triggered by the tulip bubble – yes, tulips! This floral frenzy saw single bulbs selling for more than houses, until the bubble burst, leaving investors with nothing but wilted stems and bruised egos. So, learn from history, folks: don't let your investment strategies get too flowery.
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@META: Xmas Rally or New Year Fizzle?
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Today’s chart of the day features META, the king of the metaverse. META has been on a stellar run lately, but it is facing a tough choice right now. Will it keep climbing or take a breather?
As you can see from the weekly chart, META is trading in a rising rectangle, a bullish continuation pattern that suggests a breakout to the upside. However, the MACD indicator, which measures the momentum, has turned negative, indicating a loss of steam and a potential reversal.
If META breaks below the support line (RED), it could fall to the next strong support zone at 244 - 242, where it may find some buyers. If META breaks above the resistance line (BLUE), it could soar to the near target at 430, where it may encounter some sellers.
So, what will META do? Will it follow the trend or the momentum? Will it make a move or stay in the range? The choice is yours, traders. Choose wisely.
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The Market's House of Cards: Can Fundamentals Hold Up the Rally?
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The past week was a head-scratcher in the market, fueled by a confusing Fed and a hefty dose of options magic.
This week, however, the spotlight shifts to Austan Goolsbee, Chicago Fed President and master of "doom and gloom" pronouncements. But don't worry, it's not all doom and glitter: we'll have GDP, PCE, and even some Treasury auctions to keep things spicy.
Now, here's the elephant in the room: the rally may be built on a foundation of sand (or possibly playing cards). Earnings estimates keep shrinking, margins are doing the limbo, and the PE ratio's doing ballet across the stratosphere. The whole thing feels a bit like a house of cards propped up by a short squeeze and vol compression.
Remember, while bond yields play nice, the earnings yield gap is screaming "danger zone." To fix this, the market needs earnings to do some serious gymnastics – a 15% jump to justify current valuations? Good luck with that.
So, what does this mean for the week ahead? Vixperation fades, OPEX is history, and if the market truly stands on sand, things might get... melty. That JPMorgan collar trade at 4,500? It might just become the beach towel this rally desperately needs.
Don't get me wrong, a dip to 4,100 in early 2024 wouldn't be a shocker. At this point, it might even be fair value for a market juggling shrinking earnings and sky-high aspirations.
This week could be where the music stops, the champagne fizzes out, and the house of cards faces its ultimate test.
But hey, even if things get a little wobbly, remember, there's always the 20-year Treasury auction to provide some fireworks. Stay sharp, you never know when the market might decide to do a cartwheel.
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Here are some of the news stories that moved the market this week and what to watch for this week.
- Boeing (BA) soared 3.1% after UBS analyst Gavin Parsons lifted his price target on the aerospace giant to $315, a 40% increase from his previous level, based on strong November deliveries.
- Colgate-Palmolive (CL) climbed 0.9% after Bank of America analyst Bryan Spillane upgraded the consumer products maker from “neutral” to “buy” and raised his price target, expecting stronger sales growth in the next two years.
- Costco Wholesale (COST) jumped 4.5% after the retailer reported better-than-expected quarterly results, showing solid revenue and earnings growth.
- Darden Restaurants (DRI) slipped 0.4% after the company, owner of the Olive Garden chain, reported mixed quarterly results, beating on earnings but missing on revenue.
- Lennar (LEN) dropped 3.6% despite the homebuilder reporting quarterly results that topped analysts’ expectations, as the market was concerned about the rising costs and supply constraints.
- Roku (ROKU) plunged nearly 7% after MoffettNathanson analyst Michael Nathanson downgraded the streaming device maker from “neutral” to “sell,” saying the stock was overvalued after a recent rally.
- Scholastic (SCHL) crashed nearly 12% after the publisher and distributor of children’s books reported a decline in year-over-year revenue and lowered its full-year earnings guidance, blaming the pandemic and the supply chain disruptions.
- Tractor Supply (TSCO) fell 3% after Bank of America analyst Jason Haas downgraded the farm and garden equipment retailer from “neutral” to “underperform” and cut his price target, anticipating demand and pricing headwinds will hurt profits.
This week’s earnings calendar includes shipping giant FedEx Corp. (FDX), which is expected to report quarterly results on Tuesday. FedEx stock ended the week at its highest level since July 2021 and has gained 62% this year compared to a 23% gain for the S&P 500, reflecting investor optimism that the company’s recent cost cuts will boost profit margins.
Wednesday’s quarterly earnings releases are expected to include top semiconductor company Micron Technology (MU) as well as BlackBerry Ltd (BB), General Mills (GIS), and Winnebago Industries (WGO). Nike (NKE) is scheduled to report results on Thursday.
Expectations for soft landing
The market also got a boost this week from the Fed, which signaled a more dovish stance on interest rates and inflation. The Fed announced that it would accelerate the tapering of its bond-buying program and end it by March 2022, paving the way for rate cuts next year. The Fed also updated its projections, showing that it expects three rate cuts in 2022, up from two in the previous forecast.
The market also received some positive economic data, such as the stronger-than-expected retail sales report and the relatively tame inflation readings in the consumer price index and the producer price index.
All in all, this week’s developments painted an encouraging picture for investors, reinforcing the belief that the Fed has likely ended its tightening cycle and may be able to manage a “soft landing” for the economy.
Late Friday, futures traders priced 62% odds the funds target will be 25 basis points lower following the FOMC meeting in March, down slightly from 65% Thursday but up from 43% a week ago, according to the CME FedWatch Tool.
Economic reports next week include next Friday’s personal consumption expenditures (PCE) index, the Fed’s preferred measure of inflation. The PCE is expected to show that inflation moderated again in November.
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Random Musings and the Time Machine
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Random Musings?
- The stock market is like a roller coaster, except you don’t know when it will go up or down, and you can’t scream or get off.
- The best way to predict the future is to create it. The second best way is to read our newsletter.
- Inflation is when you pay fifteen dollars for the ten-dollar haircut you used to get for five dollars when you had hair.
- The difference between investing and gambling is that investing is gambling with better odds.
- The only thing we have to fear is fear itself. And margin calls.
On this day in history, December 18:
- On this day in 1978, the Jonestown Massacre happened. A stark reminder of the dangers of manipulation and unchecked power, both in cults and financial markets. Always do your own research, question assumptions, and never blindly follow the herd.
- On this day in 1901, the first Nobel Prizes were awarded in Stockholm, Sweden, in the fields of physics, chemistry, medicine, literature, and peace. The prize is named after Alfred Nobel, the inventor of dynamite, who left his fortune to fund the awards. Today, the Nobel Prize is considered one of the most prestigious honors in the world, and the prize money is worth about $1.1 million.
- On this day in 1916, the Battle of Verdun ended, after 10 months of fierce fighting between the French and German armies during World War I. The battle was one of the longest and bloodiest in history, with an estimated 700,000 casualties. Today, Verdun is a symbol of the horrors of war and the resilience of the French people.
- On this day in 1962, NASA launched the Mariner 2 spacecraft, the first successful mission to another planet. The spacecraft flew by Venus and sent back data on its atmosphere and temperature. Today, NASA is planning to send humans to Mars, the next frontier of space exploration.
- On this day in 1989, the Romanian Revolution began, as thousands of people took to the streets of Timisoara to protest against the communist regime of Nicolae Ceausescu. The revolution spread throughout the country and led to the overthrow and execution of Ceausescu and his wife. Today, Romania is a member of the European Union and NATO, and has a market economy.
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As we close the ledger on today's newsletter, we hope you enjoyed reading it and learned something new. We also hope you had some fun along the way. Before we say goodbye, we want to leave you with this saying that sums up the essence of investing:
“An investment in knowledge pays the best interest.” - Benjamin Franklin
We couldn’t agree more. That’s why we are here to provide you with the best knowledge and insights on the stock market. We hope you will use them wisely and profitably. Until next time, happy trading!
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