February 9, 2024

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Greetings, Trendsters! You're reading Traders on Trend, where we cut through the hype to bring you winning strategies.  Today, we're spotlighting why it pays to play it safe. Forget chasing risky fads—2024 is rewarding investors who focus on reliable, quality stocks. We'll explain the power of the "quality factor" and help you spot companies built for steady growth.

Our Chart of the Day focuses on SHOP. Its classic pattern hints at a breakout – we'll break down what this means and the potential impact. In Market Roundup, we'll catch you up on the movers and shakers, plus insights into the Fed's next move. And hey, who doesn't love a good trivia nugget? We'll sprinkle in some for good measure!

Ready to learn the ways of the careful investor? Let's go!

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Today's Market Mood: EXTREMELY BULLISH!

The Bear-Bull Meter

Trendsters, the earnings train keeps on chugging! The S&P 500 and Dow Jones hit fresh records yet again as solid corporate reports boost market sentiment. It seems investors are still happy to overlook inflation jitters, for now.

Here’s how the major benchmarks ended:

The S&P 500 index added 2.85 points (0.1%) to 4,997.91, after briefly rising to 5,000.40, breaching the 5,000 level for the first time

The Dow Jones Industrial Average gained 48.97 points (0.1%) to 38,726.33

The Nasdaq Composite climbed 37.07 points (0.2%) to 15,793.71

Disney stole the spotlight, surging over 11% after a blockbuster quarter and a hefty dividend boost. It's a reminder that solid fundamentals still resonate in this market. Tech giants continue to power the broader indices, propelling the Nasdaq to recent highs.

But let's not get too complacent. Cracks are starting to show beneath the surface. While mega-caps thrive, a growing number of sectors are feeling the pinch. Market breadth, a key indicator of overall health, is narrowing. That's a yellow flag worth watching.

Eyes will be glued to next week's inflation data. This could be the make-or-break moment for the current rally – the Fed's reaction will have ripple effects across the market.

And what about those yields? The 10-year Treasury is starting to act feisty again, climbing steadily. Keep an eye on those bond moves, they tend to send important signals about investor sentiment.

Strategies to Consider:

• While big tech enjoys the limelight, look for potential bargain plays in undervalued sectors that could make a comeback if inflation numbers ease.
• Diversification is your friend. A mixed portfolio approach can help to protect against unforeseen market bumps.
• Bonds still have a role to play. Consider using short-term bonds to manage portfolio risk and add an element of stability.

Let's remember, Trendsters, slow and steady wins the race. Stay informed, keep your strategy dynamic, and we'll navigate this market together!

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Now, let's talk about those tech giants throwing their weight around. It seems the market's all about size these days, with those mega-caps calling the shots. Smaller stocks? Might as well be watching from the sidelines!

$SHOP: Handle With Care

SHOP's textbook Cup & Handle paints a bullish picture, and the breakout adds fuel to the fire. With shares already doubling from the low, there's significant upside potential if growth stocks remain hot. The $70 mark appears as a reliable support.

A few notes for traders:

• Entry Point: $45 would have been ideal, but those going long now MUST implement a tight stop near $70.
• Targets: Realistically, aim for $98-100 initially. Reaching $150 will be a challenge, with shakeouts likely along the way.
• Patience Pays: Expect consolidation around current levels before a potential earnings-driven push upwards.

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Hype is out, consistency is in. Funds like AQR Capital Management are cleaning up with strategies that reject 'hot' stocks and embrace safe, reliable performers. In January alone, AQR's Delphi strategy roared ahead with a 7.1% return, significantly outpacing the broader market.

This marks a drastic shift from the growth-crazed market of recent years. After a decade of hedge fund underperformance, cautious investing is suddenly proving the winning ticket in this volatile, high-interest-rate environment.

AQR's success hinges on the "quality factor" – spotting consistent profit generators. That translates to seeking out solid companies, regardless of whether they're the latest buzzword. Forget flashy promises, 2024 is about reliable results.

While the Fed navigates its next steps, individual stock performance has diverged wildly. Earnings powerhouses like Meta and Eli Lilly soared on impressive reports, while Tesla took a hit after a messy call. In a market driven by results, choosing winners is increasingly an active trader's game.

Momentum-based strategies that ride short-term trends are also gaining traction – another AQR fund saw a 5.5% gain in January. This all underscores one big theme: the old investment rulebook is getting rewritten.

Here's the lowdown on today's noteworthy stock movements:

Winners & Losers:  It's a mixed bag as earnings season rolls on. Hershey delivered sweet results, boosting shares, while PayPal's guidance miss led to a sharp selloff. Auto suppliers like BorgWarner felt the heat following disappointing numbers.

Energy Recharges: Despite broader jitters, ConocoPhillips rode strong production to outperform.

Fashion Flex: Ralph Lauren rallied on robust earnings, proving some brands still have runway in this market.

Eyes on Inflation: With a relatively light earnings week, attention is turning to the upcoming CPI and PPI reports. Investors will be on edge, seeking confirmation that inflation continues to ease. This will be a key factor in guiding Fed policy and interest rate expectations.

Fed Watch: Recent hawkish Fedspeak has investors cooling their bets on potential rate cuts. This week's jobless claims data showed slight easing, further complicating the rate picture.

The Bottom Line:  Earnings remain inconsistent, and the inflation saga continues to dictate market mood swings. Buckle up for potential volatility as those key economic reports drop next week.

Random Musings

In investing, as in life, sometimes staying put offers greater long-term rewards than chasing every shiny new trend. Just ask those holding classic 'quality' stocks right now.

Inflation numbers hold the market hostage this week. History suggests that even good news might not guarantee smooth sailing – volatility waits for no one.

A well-rounded portfolio often draws inspiration from outside the financial world. Diversification isn't just about sectors, it's about a diversity of ideas.

Every era has its hyped-up darling stocks. It's wisdom, not cynicism, that helps you spot the diamonds amongst the duds.

Market cycles come and go, but fundamental research skills are timeless. Today's trendy strategy might be tomorrow's cautionary tale – keep your analysis toolkit sharp.

On this day in history, February 9

1895:  William G. Morgan invents the game of volleyball (originally called "Mintonette"). A reminder that even leisure activities can evolve into booming industries!

1942:  Year-round Daylight Saving Time begins in the US during World War II.  Proof that government policy can play a surprising role in shaping markets.

1964: The Beatles first appear on The Ed Sullivan Show, launching Beatlemania across the globe. This pop culture moment underscores the unpredictable power of a breakout trend.

1996: The element Copernicium is officially discovered and named. Even fundamental scientific breakthroughs find their way into commodities markets, eventually...

2018: The Winter Olympics kick off in Pyeongchang, South Korea. Major sporting events, with their sponsors and stakeholders, offer a microcosm of economic forces at play.

Alright Trendsters, ready to close the books on today's market insights?  As legendary basketball coach John Wooden once said, "Ability may get you to the top, but it takes character to keep you there."

Today, it's clear that a cautious, "quality-focused" character is driving success. Whether you're trading on earnings surprises or technical patterns, don't neglect the fundamentals...or a healthy dose of skepticism towards market hype. After all, as George Bernard Shaw quipped, "A fool and his money are soon parted."

Let's end the week right! We hope you learned something new today, and we look forward to seeing you again in our next newsletter. Until then, happy trading!

Disclaimer:

Trading foreign exchange, stocks, options, or futures on margin carries a high level of risk, and may not be suitable for all investors. Before deciding to trade, you should carefully consider your objectives, financial situation, needs and level of experience.

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