The Bullish Trap: Why Market Optimism Could Be Misleading

January 10, 2024.  

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The market may be prancing with exuberance, but beneath the shiny surface, whispers of caution go quietly. Today, we unmask the potential perils lurking within the current bullish stampede, revealing why joining the herd might not be the wisest bet.

 

Here's what's cooking in the Traders on Trend kitchen:

  • The Bullish Trap: We expose the hidden pitfalls of the market's current giddiness – sky-high valuations, inflation's lingering threat, and overhyped tech darlings. Prepare for some contrarian perspectives that might make you raise an eyebrow or two.
  • Chart of the Day: We shine a spotlight on JPMorgan, the banking behemoth seemingly moving towards record highs. But is this graceful performance sustainable, or will a closer look reveal cracks in the facade?
  • Market Moving Maneuvers: From surprise earnings leaps to activist investors stirring the pot, we'll keep you abreast of the news making stocks gallop in diverse directions.
  • Random Roundup: Ditch the rose-colored glasses and grab your magnifying glass. We'll dish up some unexpected financial tidbits and historical gems to spice up your day.

Before you blindly join the bullish stampede, saddle up with some critical thinking and join us for an insightful ride through the market's intriguing scenarios. Let us help you navigate these uncertain times with clear heads, not just blind enthusiasm. Ready to set off?

 

Today's Market Mood: EXTREMELY BULLISH!

The Bear/Bull Meter

 

Daily Market Roundup: A Balancing Act on Wall Street

 

Technology staged a comeback Tuesday, propelling the Nasdaq to its third straight win, but the broader market remained hesitant as investors awaited key inflation data and big bank earnings.

 

The day unfolded much like the year so far, with tech giants like Nvidia leading the charge while other sectors shuffled their feet. A hint of optimism and caution played out, fueled by a rising Treasury yield and the looming December CPI report.

 

After a brutal start to 2024, the Nasdaq found its footing, clawing back some of last week's 3.2% loss. We see this as a healthy consolidation and a potential "flip" in sentiment, with money flowing back towards familiar tech names.

 

Here's the scorecard:

  • S&P 500: Down 0.2%, closing at 4,756.50.
  • Dow Jones: Down 0.4%, settling at 37,525.16.
  • Nasdaq: Up 0.1%, ending at 14,857.71.
  • 10-year Treasury yield: Up 2 basis points to 4.019%.
  • VIX: Down 0.32 to 12.76.

Despite the tech rebound, energy stocks wilted despite a rally in crude oil, and banking and materials sectors also felt the chill. Small caps continued their downward spiral, dragging the Russell 2000 down 1.1%.

 

While the market's early year wobble might raise eyebrows, Kevin Gordon, a senior investment strategist at Schwab, offered a nuanced perspective. He cautioned against excessive bullishness, but noted a "healthier" breadth of market participation compared to much of 2023. This, he believes, keeps the broader uptrend intact, albeit on shaky legs.

 

The Takeaway:

 

It's a balancing act on Wall Stre et. Tech is finding its groove, but other sectors remain hesitant. Inflation data and big bank earnings loom large, and investors are understandably cautious. Remember, the market is a marathon, not a sprint. Stay informed, diversify, and don't get swept away by the latest tango. Patience and a cool head will be your best assets in this uncertain dance.

 

Bonus Tip: Keep an eye on the Treasury yield. A sustained rise could put further pressure on non-tech sectors. Consider defensive plays like utilities or consumer staples if you're feeling the heat.

 

Stay tuned for more insights in tomorrow's edition of Traders on Trend!

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Just five companies, all heavily involved with AI, have boosted the major averages into bull market territory.

 

One of those stocks, Nvidia, was up 189% in the first half alone.

 

Nvidia is a legendary home run, but our Weiss Ratings AI specialist, Jon Markman, has homed in on one high-rated AI stock in particular.

 

It’s our pick for The #1 AI Stock of 2024 and Beyond.

 

Market Mischief: The Meme Stock Mystery

 

Remember those meme stocks that mooned last year? Well, like a mischievous cat, they're back! AMC and GameStop are suddenly spiking again, leaving analysts scratching their heads. Is it retail investors returning? A coordinated meme-fueled surge? Or just a random blip on the radar?

 

Nobody knows, but one thing's for sure: the market just got a whole lot more entertaining. So grab your popcorn, folks, and get ready for another meme-stock mystery with more twists and turns than a TikTok dance challenge. Just remember, in the wild world of investing, sometimes the only thing crazier than the price swings is the reasoning behind them!

 

Chart of the Day

$JPM: From Sparkling Gem to Potential Pebble?

 

JPMorgan's recent run has been a banker's dream, a dazzling ascent worthy of a king's ransom in diamonds. But like any fairytale, cracks can appear in the facade. Friday's earnings release looms, a potential reality check ready to test the bank's gilded armor.

 

Loan provisions, mark-to-market adjustments, and that delayed tax selling are like hungry gnomes eyeing JPM's treasure chest. Will they chip away, leaving behind a tarnished bauble?

 

Technical indicators paint a curious picture. A harmonic 5-0 pattern, a potential crab formation, and oh yeah, overbought territory with bearish tendencies? This is a financial crossroads, not a ballroom for bulls.

 

A break below $169 could be the champagne cork popping on the bear party. Watch the broader market, like a nervous dance partner, for clues to the music's tempo.

 

My crystal ball, fueled by market wisdom, sees a mid-$150 target if JPM stumbles. This Friday's key earnings report between JPM and its financial demons could be a gold mine for informed traders.

 

Remember, diamonds aren't forever, especially in the stock market!

 

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Contrarian Corner: Why Everyone's Bullish Makes Me Nervous

 

2023 surprised us all, roaring back from a rocky start to finish at record highs. But as the champagne fizz settles and we face 2024, a different picture emerges. The air crackles with optimism, analysts predicting a stellar year, and retail investors gung-ho. While the sentiment is infectious, I find myself leaning contrarian, cautiously skeptical of the exuberance.

 

The "Experts" Say Up, Up, and Away?

 

Wall Street seems determined to make up for last year's underestimation. Price targets for the S&P 500 are soaring, envisioning a year of continued ascent. Sounds great, right? But here's the thing: analyst track records are, well, spotty. They tend to chase trends, revising targets upwards after good times and downwards after bad. Case in point: 2023. Remember the doom and gloom? We ended far above their forecasts.

 

This doesn't mean ignoring analysts entirely, but it does demand a healthy dose of skepticism. The consensus for 2024 could be just as flawed as it was for 2023. Don't let headlines or talking heads sway your investment decisions. Do your own research, stay disciplined, and pick your spots carefully.

 

Retail: Chasing the Rally's Tail?

 

It's not just professionals brimming with optimism. Retail investors, emboldened by the recent gains, are jumping on the bullish bandwagon. This, too, raises eyebrows. Retail sentiment often lags market movements, turning bullish after rallies and bearish after downturns. Look at the chart: bullishness surged in December, right after the November-December upswing. This "late to the party" mentality is a red flag for me. It suggests complacency, a potential prelude to a correction.

 

Pricey Peaks and Inflation's Lingering Shadow

 

The current market landscape adds to my cautious stance. Large-cap US stocks, particularly tech, are perched at lofty valuations. The S&P 500, heavily weighted towards these giants, reflects this inflated state. This exuberance might not be sustainable, especially considering inflation's stubborn persistence. While lower than its peak, it remains significantly above historical averages.

 

The market, however, seems to be betting on an early Fed pivot, pricing in aggressive rate cuts. I'm not convinced. Chairman Powell hasn't signaled such a dramatic shift, and with inflation still high, I see rate cuts coming later and slower than market expectations. This disconnect could lead to disappointment and a market correction.

 

The Contrarian Play: Opportunities Beyond the Herd

 

So, is it all doom and gloom? Not necessarily. While I see some potential downside, I also see opportunities for those who dare to think differently. If large-cap US stocks are expensive, look to emerging markets or developed markets trading at discounts. Explore thematic plays like small caps, energy, and financials offering better value. And remember, cash yields a respectable 5%, not a bad option while you wait for the right moment to strike.

 

The market's current euphoria might be tempting, but it's crucial to remember that contrarian thinking often yields the sweetest rewards.

 

Market Movers

 

The following companies had stock price moves driven by analyst ratings, quarterly results, or other news:

  • CrowdStrike (CRWD) soared 4.8% after Morgan Stanley (MS) upgraded the cybersecurity company from “equal weight” to “overweight” and raised its price target from $203 to $304, citing expectations for improving demand from accelerating cyberattacks.
  • Illumina (ILMN) spiked 4.6% after the biotechnology company released fourth-quarter revenue guidance that surpassed analysts’ expectations.
  • JetBlue Airways (JBLU) plunged 10% after Bank of America (BAC) downgraded the stock from “neutral” to “underweight,” citing expectations for an oversupplied domestic market in 2024.
  • Juniper Networks (JNPR) jumped 22% after The Wall Street Journal reported the hardware company may be acquired by Hewlett Packard Enterprise (HPE) in a deal valued at about $13 billion. Shares of Hewlett Packard Enterprise dropped 8.9%.
  • Match Group (MTCH) rose 3% after The Wall Street Journal reported that activist investor Elliott Investment Management had accumulated a roughly $1 billion stake in the dating app.
  • United Airlines (UAL) rose 1.4% after Bank of America analyst Andrew Didora upgraded the company from “underperform” to “buy” and raised his price target from $40 to $56, citing expectations for a stronger 2024 after airlines underperformed last year.
  • Unity Software (U) fell 8% after the gaming technology company, in a filing with regulators, said it plans to cut 1,800 positions, or approximately 25% of its current workforce, as part of restructuring.
  • Urban Outfitters (URBN) jumped 7.7% after the apparel retailer reported net sales for the final two months of 2023 rose 10% from the same period in 2022.

Friday brings the unofficial start to the next earnings season, with several major banks expected to report results including Bank of America, Citigroup ©, JPMorgan Chase (JPM), and Wells Fargo (WFC). Those big four will be followed by Goldman Sachs (GS), Morgan Stanley, and PNC Financial Services Group (PNC) reporting results January 16.

 

Fourth-quarter earnings for S&P 500 companies are expected to grow 1.3% from the same period in 2022, weaker than the 2.4% year-over-year growth in the third quarter but still the second consecutive quarter with a gain. Analysts expect nearly 12% year-over-year earnings per share (EPS) growth for 2024.

 

Watching for upside inflation surprises

 

The CPI and PPI reports loom because they are potentially the most market-moving economic reports of the week. Investors will scrutinize the numbers for validation of widely held beliefs that inflation has eased sufficiently over the past year to prompt a potential “pivot” in Fed interest rate policy, from rate hikes to rate cuts.

 

Analysts expect December overall CPI to post a 0.2% increase over November, based on a consensus estimate from Briefing.com. The closely followed core rate, which excludes volatile food and energy prices, is expected to rise 0.2% over November. Compared to year-earlier levels, December core CPI is expected to slow slightly to a 3.8% increase, down from a 4.0% annual gain posted for November.

 

 

Random Musings and the Time Machine

 

Random Musings:

 

If inflation is the general increase in prices, does that mean deflation is the general decrease in pants sizes?

 

What if the stock market is just a giant game of rock-paper-scissors, where bulls beat bears, bears beat doves, and doves beat bulls?

 

Why do we call it a bear market, when bears are actually very fast and powerful animals? Shouldn’t we call it a sloth market, or a snail market, or a turtle market?

 

How come we never hear about the other metals, like bronze, tin, or zinc? Are they too shy to compete with gold, silver, and copper?

 

What if the market is actually a living organism, and every time we buy or sell a stock, we are feeding or starving it?

 

   

On This Day in History, January 10:

 

On this day in 1915, the United States House of Representatives rejected a proposal to give women the right to vote. It took another five years for the 19th Amendment to be ratified, granting women suffrage.

 

On this day in 1932, Hattie Caraway became the first woman elected to the United States Senate. She represented Arkansas and served until 1945.

 

On this day in 1966, Batman, the television series starring Adam West and Burt Ward, premiered on ABC. The show was known for its campy style, colorful costumes, and catchy theme song.

 

On this day in 1971, the sitcom All in the Family debuted on CBS. The show starred Carroll O’Connor as Archie Bunker, a working-class bigot who clashed with his liberal son-in-law, played by Rob Reiner.

 

On this day in 2010, a magnitude 7.0 earthquake struck Haiti, killing an estimated 230,000 people and displacing more than a million. The disaster sparked a global humanitarian response and a long recovery process.

 

The Final Ledger

 

This week, the market served up a smorgasbord of news – from earnings season kicking off to inflation data taking center stage. As we digest it all, let's leave you with a witty financial proverb for the ride:

 

"Bull markets are born on pessimism, grow on optimism, and die on euphoria." - John Templeton

 

Remember, dear investor, while optimism is a potent cocktail, overindulging can lead to a nasty hangover. Keep a level head, diversify your portfolio like a gourmet buffet, and remember – this too shall pass, whether it's a soaring market or a dip in your favorite stock. Until next time, happy investing!

 

 

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