Sep 27 Market Analysis and Stocks Picks

Hi there,

After recent significant weekly gains, major stock indexes enjoyed another strong week, with the S&P 500 and Dow Jones Industrial reaching all-time highs. The Nasdaq composite surpassed the 18,000 mark, approaching its own record levels. Micron Technology (MU) emerged as a notable performer, seeing its stock rise sharply following positive earnings results. Meanwhile, Chinese stocks and related sectors in US markets, along with copper prices, surged due to China's economy stimulus measures. Conversely, crude oil prices saw a decline, and Treasury yields experienced an increase. XLB – the Materials Select sector ETF gained 3% last week amid the sentiments that materials and mining will benefit from the Chinese stimulus in future.

I’ll be honest that the strength and resilience of the stock market has surprised those who were expecting some sort of heavier pullback however, some skeptics believe that there is a desire to avoid losing the upcoming U.S. elections in November, prompting efforts to bolster the market while simultaneously alleviating concerns about a recession.

Last week, the major markets performed as follows:

Index Friday (09/27) Weekly YTD

S&P 500: -0.13% +0.62% +20.30%

Dow Jones Industrial: +0.33% +0.59% +12.27%

Nasdaq 100: -0.53% +1.10% +18.92%

Nasdaq Composite: -0.39% +0.95% +20.71%

Russell 2000: +0.68% -0.22% +10.74%

The Volatility Index ($VIX) rose over 10% on Friday, even though the S&P 500 experienced only a slight decline. This points out that there is somewhat increasing uneasiness, and the market may struggle to absorb negative news. Next week, the September nonfarm payrolls report will be released, and the third quarter earnings season will begin. There is speculation about potential earnings warnings or layoffs from major companies, but if bad news does materialize, it could lead to another downturn in October. Add geopolitical conflicts such as rising Middle East tensions and fear of war spreading into Lebanon and beyond, no wonders that there is uneasiness and increased volatility in the market.

Do we have history on our side in October? This is an important question to investigate. October has seen some sharp declines in the past like the 1929 crash and the famous 1987 crash. In fact, as Tom Bowley (Earningbeats.com) notes that a calendar month declines of 9% or more occurred 17 times since 1950 and October has played a historical role with the S&P 500 bottoming in 41 of the past 74 years in October, i.e., 55% of the time S&P 500 bottom for the year was found in the month of October.

This led us to the same conclusion till the elections are over that we should remain nimble in our selections and be aware of the possibility that a sharp pullback could bring even strong stocks down quickly. Our main focus as usual will remain to find stocks which are relatively strong performers within their industry groups (i.e., leading stocks in leading industry groups) backed by continuing strong earnings in the past several quarters and positive analyst expectations for the near future.

Important Events next week:

Monday: Chicago PMI (Sep), Fed Chair Powel speaks.

Tuesday: JOLTS Jobs openings (Aug), ISM Manufacturing PMI / Prices (Sep)

Wednesday: ADP non-farm employment

Thursday: Initial Jobless Claims, S&P Global Services PMI (Sep), ISM Non-manufacturing PMI/Prices (Sep)

Friday: Average Hourly Earnings (MOM), Nonfarm Payrolls, Unemployment Rate

Important Earnings this week:

Not much left for this week as most of the important companies have already reported their 2nd Quarter results.

Monday (9/30): Carnival (CCL)

Tuesday (1/10): McCormik (MKC), Nike (NKE)

Wednesday (2/10): Levi Strauss (LEVI)

Actionable Stocks:

Long-Term View: We still believe that the long-term trend is intact hence if investors have enough cushion on these stocks, then they could hold it for the long-term. In any case, once you have 10-15% profit on any stock then do not allow it to go down and end up in a loss. Cut down your losses or at least close the positions at par. We can always re-enter a stock later.

Long-Term Stocks:

MSFT:

Microsoft lost 1.7% last week but remains above its key moving averages. Perhaps it is consolidating before its next results scheduled for October 22. Sep-Oct are generally weaker months for Microsoft allowing to set up for another move.

NVDA:

Nvidia gained 4.66% last week and is still above key moving averages but the stock has been consolidating for the last few months within a range after a huge move since early 2023. There are investors in the market who want to hop on this AI leader on any attractive pullback such as 113 or 100 providing better entries. The long-term trend remains intact for Nvidia.

AAPL:

Apple also consolidated last week and looks like it is setting up to pick a direction soon (which could be a pullback in line with the broader market). The long-term leader remains an attractive buy at any pullback to its 50-Day or 200-Day Moving averages (221 and 202 respectively).

COST:

Costco announced its 3rd quarter results last week. Although it beat its bottom line (EPS), but the revenues were slightly short of expectations. Costco pulled back below 900 and could further pull down to 868 level at which it is likely to fund support. The long-term trend remains intact and is likely to continue in the future.

Medium- and Short-Term Picks:

META:

Meta continued to perform well in line with our expectations and rose by 1.07% last week. Aggressive and long-term investors could still find it actionable at current prices. However, any pullback to 500 level will provide better entry.

AMZN:

Amazon failed at 200 levels and is currently pulling back. The long-term trend, however, remains intact. As mentioned last week, the last quarter is traditionally not a strong one for Amazon but watch out for a consolidation between 182-185 levels before making another attempt to break above 200.

PLTR:

We are adding Palantir Technologies to our Medium Term watchlist. Since bottoming in early August, the stock has shown a significant increase by 78% while up by 148% during the last 52 weeks. The Denver Colorado based company builds software platforms that serve as the central operating systems for its customers. It seems extended at current levels but any pull back to close its last gap at 33 will provide an alternate entry.

Interesting Stocks for Watchlist:

As stated above, we are targeting companies which have strong fundamentals, continuous earnings growth and are expected to increase their earnings in future as well, so even if they drop with the broader market, chances of their rebound are stronger based on their relative strength to the rest of the market. Here are some stocks to consider:

CMG:

As expected, CMG consolidated before attempting to move higher. It is actionable at current prices and perhaps is waiting for its next earnings announcement on October 29 before picking a direction.

AMD:

As pointed out last week, AMD was poised to move higher and rose by 5.39% last week amid strong results by Micron Technologies. The stock is likely to test 187 if the market remains strong. However, be aware that it is a volatile Tech stock requiring wider stop losses.

HOOD:

The owner of the famous stockbroker “Robin Hood” has shown strengthening short-term outlook since making its low in early August. Long-term indicators support a trend continuation at 24.06 buy point.

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Happy Trading and best regards,

Disclaimer:

The information provided here is for educational / learning purposes only and should not be taken as purchase or sell recommendations. Trading / Investing in Stocks and derivatives is highly risky and could result in a substantial or complete loss of invested capital.

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