January 23, 2024

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Sharpen your pencils, Trendsters! Today's briefing is a potpourri of market murmurs, masked rallies, and golden glimmers. ✨

First up, the whispers on everyone's lips (but somehow not the headlines): earnings season. Turns out, those rosy reports might be hiding a not-so-pretty truth.  Is the market's recent moves just a well-rehearsed facade? We'll peel back the layers in "Market Moving News."

Speaking of facades, Morgan Stanley's chart is sporting a brand new accessory: a "golden cross."  Is this a sign of long-term favor or a fleeting fashion statement? "Chart of the Day" has the scoop.

But wait, there's more! We've got random bits of wisdom guaranteed to tickle your fancy, plus expert insights to keep you ahead of the curve.

Ditch the FOMO and settle in, Trendsters. This edition of Traders on Trend is about to drop some knowledge bombs you won't want to miss.

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Today's Market Mood: EXTREMELY BULLISH!

The Bear-Bull Meter

Wall Street blitzed to a record-setting tune on Monday, with both the S&P 500 and Dow Jones etching new closing highs for the second consecutive day. This market merriment comes despite a less-than-stellar start to earnings season, suggesting investors are taking a broader, rosier view of the economic future.

Earnings in Focus: While corporate scorecards might not be bursting with blockbuster numbers, the market seems to be shrugging off these near-term jitters. The whisper on the wind? A focus on the bigger picture – expectations for stronger growth in 2024. This week, earnings season heats up with heavyweights like Netflix, Intel, and Tesla taking center stage. These reports could provide key insights into the market's trajectory.

Economic Data on Deck: Later this week, we'll get a fresh pulse on the economy with key reports like Durable Goods and the initial GDP estimate for the fourth quarter. Keep an eye out for any surprises that could sway investor sentiment.

Transportation Takes the Lead: Transportation stocks, often seen as a barometer for economic health, have been on a three-day tear, fueling optimism that a recession might be sidestepped. This optimism is reflected in the Dow Jones Transportation Average hitting its highest close of the year.

Energy Heats Up: Crude oil prices climbed near a four-week high, fueled by concerns over potential supply disruptions from the ongoing conflict in Ukraine. This sent energy shares skyrocketing, with the Russell 2000 index, a small-cap benchmark heavily concentrated in energy stocks, reaching a two-week high.

Strategies for Trendsters:

• Embrace the Long View: While earnings season might bring some short-term volatility, consider focusing on the bigger picture – the potential for stronger growth in 2024.
• Keep an Eye on Economic Data: This week's key reports could provide valuable clues about the health of the economy and influence market sentiment.
• Transportation and Energy in Focus: These sectors seem to be riding a wave of optimism. Keep an eye on them for potential trading opportunities.

Keep in mind that even in a record-setting market, vigilance is key. Stay informed, analyze data, and adjust your strategies as needed in order to be always ready,

Did you hear about the stock market bull who walked into a library and asked the librarian for books about bears?

The librarian, ever helpful, pointed him to the "predatory animals" section. The bull scoffed and said, "Bears? Please, those are just bedtime stories for scaredy cats. I'm looking for real investment advice!"

The librarian, stifling a chuckle, suggested the "economic history" section instead. But the bull, still convinced of his invincibility, stormed out, muttering about outdated pessimism.

Fast forward a few weeks, and the bull is back at the library, looking sheepish. "Okay, maybe I underestimated those bear stories," he mumbled. "Can I get those books now?"

The moral of the story, Trendsters? Even the strongest bulls can get blindsided by a good ol' reality check. Keep an eye on those earnings reports and economic data this week – they might just be the bears whispering in the market's ear.

$MS - Glimmer of Gold for Morgan Stanley?

Morgan Stanley has been on a bit of a time at the crazy town lately, rallying in November and December before taking a sharp pullback. But could this recent dip be a buying opportunity for Trendsters with an eye for long-term potential?

The chart today throws some intriguing clues our way. The most prominent one is the formation of a "golden cross" - that's when the 50-day simple moving average (SMA) crosses above the 200-day SMA, often seen as a sign of a potential shift in the long-term trend.

However, let's not get ahead of ourselves. Here are some additional factors to consider:

• Price finding its footing: After its recent surge, MS seems to be stabilizing around a key support level - the 50% retracement of its climb. This could indicate buying interest emerging.
• Bouncing off old support: Remember that $82 zone that held firm earlier last year? MS is currently hovering just above it, hinting at potential buying pressure at that level.
• Oversold stochastics perk up: This technical indicator, which measures momentum, is trying to shake off its "oversold" status, suggesting some buying pressure might be brewing.
• Bullish candle in the making?: Friday's price action formed a potentially bullish "outside candle," where the low dips below the previous day's low but closes above the previous day's high. This could signal a potential trend reversal.

So, should you jump right into MS? Not necessarily. While the chart shows some encouraging signs, remember that technical analysis is just one piece of the puzzle. Consider the broader market sentiment, upcoming earnings reports, and any company-specific news before making your move.

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Markets can be funny creatures, prone to dramatic rallies fueled by pure sentiment, just as susceptible to brutal reversals when the tide turns. Remember the Fed pivot optimism of 2022 that sent stocks soaring, only to be crushed weeks later? History whispers that such pauses often culminate in wild, fleeting rallies followed by gut-wrenching plunges.

But beyond the short-term noise, let's not forget the fundamentals – the very businesses we're investing in. How much are they earning, what's their growth potential, and are we paying a fair price?

Here's the curious case of Q4 2023 earnings: while the stock market cruises to a record tune, corporate scorecards tell a different story. Earnings appear to be down 1.7% year-over-year, with revenue growth failing to keep pace with costs. Profit margins, once pandemic darlings, continue their descent, expected to fall below pre-pandemic levels.

Tech, often hailed as the savior, shows some promise, but not the earth-shattering boom narratives suggest. Profit margins even dipped from Q3 to Q4. So much for that AI-driven earnings explosion, right?

The culprit? A cocktail of rising labor costs, taxes, and interest expenses. Even adjustable-rate mortgages are putting a squeeze on consumers, as evidenced by job losses in the UK and Australia. Seems people might have overindulged on variable-rate debt, and the party's coming to an end.

Meanwhile, analysts cling to the mirage of a 2024 earnings boom, conveniently pushing back their forecasts when reality bites. But expecting such a boom at this point in the credit cycle feels like defying economic gravity. Let's face it, the past three years have seen earnings stagnate, and with valuations stretched thin, investors buying in now might be staring down long-term returns in the meager 6-7% range.

The bottom line? With lackluster earnings and lofty valuations, the S&P 500 deserves better. While it's early days in earnings season, the signals are far from rosy. Until AI delivers the promised earnings bonanza, the market might have some sobering realizations ahead. So, keep your eyes peeled, Trendsters, as the rest of earnings season unfolds. The elephant in the room might just start trumpeting.

Stocks in the Spotlight:

• AMD: Tumbled 3.5% after Northland Capital downgraded the chipmaker, citing valuation concerns and potential slowdowns in pricing and demand.
• ADM: Plunged 24% after lower-than-expected earnings guidance and an accounting probe involving its CFO. Yikes!
• GILD: Dropped 10% after its lung cancer drug failed a key trial. Back to the drawing board for Trodelvy.
• JBHT: Rose 4.5% after UBS upgraded the trucker, betting on a stronger freight cycle. 
• Macy's: Gained 3.6% after rejecting a buyout bid, citing concerns over financing and valuation. Not for sale (yet).
• NSC & UNP: Both railroads chugged higher on Bernstein's "outperform" ratings, fueled by optimism for the freight industry. Choo choo!
• S: Gained 5.8% after BTIG upgraded the cybersecurity firm, seeing brighter days ahead for the security market.

Earnings Season Scorecard:

• It's early, but analysts are dimming their expectations. S&P 500 companies' Q4 EPS are now forecast to decline 1.7% year-over-year. Uh oh.
• So far, 62% of reporting companies have beaten estimates, but that's a lower-than-usual figure. Is the party over?
• The S&P 500 trades at 19.5 times forward EPS, implying strong earnings growth ahead. Can companies deliver?

Recessionary Rumble on the Horizon:

• The Conference Board's LEI slipped again in December, marking 21 straight months of decline – a pattern that often precedes recessions. Brace yourselves.
• The Conference Board even predicts a brief recession this year. Suit up, buttercup.

Takeaways:

• Despite recession fears, the market remains optimistic, buoyed by recent strong economic data and hopes of a Fed pivot.
• Investors' bets on rate cuts have cooled, but the market still sees a 40% chance of a cut in March. Stay tuned!
• Key economic reports this week include GDP and PCE inflation data. Can the economy maintain its momentum?

Remember, Trendsters: The market is a complex beast, and even the best indicators can be wrong.

Random Musings

Market Mirage: The recent rally feels like a desert mirage, shimmering with Fed pivot promises but potentially masking the harsh realities of the economic landscape. Remember, Trendsters, sometimes the most beautiful oases are just mirages.

Earnings Enigma: So far, earnings season is a kaleidoscope of surprises and disappointments. Some companies are exceeding expectations, while others are falling flat. Is this a temporary glitch in the matrix, or are there deeper cracks in the foundation?

Recession Rhapsody: The Leading Economic Index keeps humming a somber tune about recession, but the market seems blissfully unaware. Are investors dancing to a different beat, or are they simply ignoring the discordant notes?

Data Deluge: This week, prepare to be swept away by a data tsunami – GDP, PCE, and more economic reports are about to hit. Will they provide much-needed clarity, or will they leave us paddling in a sea of uncertainty?

Fed Follies: The central bank's next move is shrouded in mystery. Will they stick to their hawkish script, or will they offer a dovish serenade? Investors are waiting with bated breath, hoping to avoid another policy pirouette that throws them off balance.

On this day in history, January 23

1519: Hernán Cortés lands in Mexico, marking the beginning of the Aztec Empire's "say hello to my little friend" moment.

1920: The 18th Amendment takes effect in the US, making alcohol production and sale illegal. The Roaring Twenties just got a whole lot quieter (or did they?).

1973: President Nixon announces the formation of a special unit to investigate the Watergate break-in. Spoiler alert: it wasn't his finest hour.

2002: The euro becomes legal tender in 12 European countries, marking a continental currency revolution.

2009: The U.S. Treasury launches the Troubled Asset Relief Program (TARP), injecting billions into the financial system to avert another Great Depression. (Sometimes, government intervention becomes a necessary evil.)

As we close the book on this week's market musings, remember the sage advice of Yogi Berra: "It's tough to make predictions, especially about the future."

Earnings season has only just begun, and while the initial reports haven't exactly been a box-office smash, don't hit the eject button just yet. The market, like a stubborn toddler, sometimes throws tantrums before settling down to listen to reason (or, in this case, strong earnings growth).

Focus Trendsters, and remember, even the Oracle of Omaha occasionally whiffs on his predictions. As for the rest of us mere mortals, let's just keep our wits sharp and our portfolios diversified.

That’s it for today, thank you for reading and subscribing to Traders on Trend. We appreciate your support and feedback. Stay tuned for the next issue, where we will bring you more market analysis, commentary, and fun content. Until then, happy trading!

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