Weekly Commentary, Market Analysis and Stocks Picks - October 25

Market Uncertainty: A Delicate Balance

The S&P 500 finds itself at a crossroads, with investors carefully navigating a complex landscape of economic indicators and upcoming events. Despite ending a six-week winning streak with a modest 1% decline, the market's resilience remains evident. Nasdaq, however, dodged the bearish pressures and ended up with a +0.2% weekly gain. The performance of major markets was as follows:

Index Friday (10/25) Weekly YTD 1 Year

S&P 500: -0.03% -0.96% +21.77% +38.73%

Dow Jones Industrial: -0.61% -2.68% +11.74% +27.48%

Nasdaq 100: +0.59% +0.14% +20.96% +41.51%

Nasdaq Composite: +0.56% +0.16% +23.36% +44.44%

Russell 2000: -0.38% -3.00% +10.01% +35.36%

It is important to note that historically the week of Oct 21-26 has been the weakest period of the year (since 1950), however, this time it was much better (Nasdaq even closed in green). This shows that the market rally is still strong but the increased volatility (VIX is around 19-20) means investors are not clear about the near future economic and political landscape. This is reflected in the performance of small cap stocks; Russell 2000 was turned down at its highest level and could not break out, signaling that investors are in a waiting mode before taking on further risk.

The performance of individual S&P 500 sectors was as follows:

Sector Weekly Performance

Discretionary, XLY: +0.65%

Technology, XLK: -0.27%

Communications, XLC: -0.42%

Energy, XLE: -0.63%

Staples, XLP: -1.43%

Real Estate, XLRE: -1.50%

Utilities, XLU: -1.92%

Financials, XLF: -2.08%

Industrial, XLI: -2.78%

Healthcare, XLV: -2.96%

Materials, XLB: -3.76%

Only one sector (Discretionary) ended the week in green due to Tesla. Tesla beat earnings, sending shares higher and igniting a rally. GM shares were also up by 10% on earning beats and raised future guidance above the Wall Street estimates. In fact, GM shares are already up 50% this year. Automobiles (mainly Tesla) heavily impact on the Discretionary sector and caused it to finish in green.

Market Sentiments:

Investors are grappling with uncertainty surrounding three major upcoming events:

1. Big Tech Earnings: Upcoming reports from industry giants will set the tone for market direction. Companies like Apple, Amazon, Meta, Google (Alphabet) and Microsoft will announce their latest results this week. These five Mega Caps have a combined valuation of more than $12 trillion, roughly a quarter of the S&P 500 ‘s entire capitalization. Visa, AbbVie, Lilly, Chevron, and ExxonMobil will also report this week. For more details, please see the Earnings section below.

2. US Elections: Political outcomes could significantly impact economic policies and market sentiment. Investors are keeping their fingers crossed, resulting in increased market volatility as elections are getting close.

3. FOMC Decision (November 6): The Fed's stance on monetary policy will be crucial for market stability. Investors are expecting the central bank to remain on the path of keep cutting rates in the coming months.

Economic Indicators: Mixed Signals

The economic landscape presents a paradoxical picture:

- Fed's September Rate Cut: The Federal Reserve cut interest rates by half a point in September signaling concerns about economic outlook.

- Strong Economic Data: On the other hand, however, recent strong economic data has led to the Atlanta Fed's GDPNow model predicting a 3.4% Q3 growth.

- Inflation Fears. The fear of rising prices once again causing the 10-year Treasury yield spiking to 4.23%

- U.S. Dollar Strength: 3% October gain contradicts typical inflation scenarios.

- Gold Performance: Record highs despite dollar strength.

- Minimal S&P 500 movement over the past two weeks indicates investor hesitation especially in the wake of US elections.

- The US existing home sales are expected to record its worst year since 1985

- Strong earnings season (80% of companies beating forecasts) contrasts with market hesitation.

As the market navigates this period of uncertainty, the resolution of upcoming events (outcome of elections, Tech earning reports and Fed decision) is likely to provide much-needed direction. Investors remain poised by potential shifts in market dynamics, with a focus on how these contradictory signals will ultimately align. We however, are confident that technically market is sound and look poised to overcome the wall of worries and going further up during the historically bullish period of the year.

Important Events next week:

Tuesday (10/29): Consumer Confidence, JOLTS Job Openings, Atlanta Fed GDPNow

Wednesday (10/30): ADP Nonfarm Employment, GDP (QoQ), Crude Oil Inventories

Thursday (10/31): Core PCE Index (MoM and YoY), Chicago PMI

Friday (11/01): Average Hourly Earnings, Nonfarm Payrolls, Unemployment Rate, ISM Manufacturing PMI, S&P Global US Manufacturing PMI

Important Earnings this week:

Earnings announcements due from same major Tech companies this week:

Monday (10/28): Boot Barn (BOOT), Royal Caribbean (RCL)

Tuesday (10/29): PayPal (PYPL), Chipotle (CMG), Alphabet (GOOGL), AMD, McDonald’s (MCD), Pfizer (PFE)

Wednesday (10/30): Robinhood (HOOD), Eli Lilly (LLY), Meta (META), Caterpillar (CAT), AbbVie (ABBV)

Thursday (10/31): Amazon (AMZN), Apple (APPL), Intel (INTC), Merck (MRK)

Friday (11/01): ExxonMobil (XOM), Chevron (CVX)

Actionable Stocks:

Long-Term Stocks:

MSFT:

For long-term investors, Microsoft is providing a tight entry at current levels as it waits for its upcoming earnings on October 30, which will set the path for Microsoft stock going forward.

NVDA:

As expected, Nvidia staged a breakout and sustained it above 140. We still see growth in Nvidia stock amid strong demand for its future generation AI chips. As mentioned last week,

investors are expecting another exceptionally good earnings report from Nvidia (due on November 20). Actionable at current prices. From a seasonal perspective, November is also a strong month for Nvidia going back the last 10 years.

AAPL:

In line with our expectations, Apple also tried a breakout before pulling back. Any further pullback to its key moving averages around in 220-224 levels will find buyers again and will be healthy. It is showing good relative strength and is expected to show good earning results on October 31.

COST:

Costco has now pulled below its 50-Day EMA and is providing a suitable entry at current levels with a tight stop loss at 860. It remains a long-term leader and current pullback provides an attractive entry.

Medium- and Short-Term Picks:

META:

Meta has come down from 600 to as low as 561 this week. Its earnings announcement is on October 30th, and it is now trading in a tight range. Although risky, Meta’s investment in Meta AI is paying back and it is expected to increase its profitability. Shares are already up 550% during the last two years but investors could further push the META stock on positive future guidance. Suggest a 50% position to avoid earning volatility.

AMZN:

Waiting for its results, Amazon is also being traded in a tight range and is expected to come out of the 180-195 range, targeting 200 and beyond. Actionable at current levels as mentioned last week.

PLTR:

Palantir is another potential AI winner and is actionable on any pullback to its 20-day EMA (currently 41.49). We see it as another potential AI winner in the medium term (1-2 years).

Interesting Stocks for Watchlist:

As stated earlier, we target 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:

RACE

We mentioned Ferrari several months ago. Since then, the stock has been on a continuous run up 43% this year. The Italian luxury car manufacturer is able to continuously jack up its prices while selling very few cars intentionally (Annual sale: 14,000 cars only). Its customers are willing to pay higher prices causing it to enjoy very high margins on its cars. We expect to see another 10-15% upside from the current price of 484 in a few months from now.

AVGO:

Broadcom has pulled back to our desired range of 170-175 where it is likely to find support going forward. It is actionable at current levels, targeting the 200 level while maintaining a stop loss of 8-10%.

CMG:

We like the current price action as it continues to consolidate and rise slowly before its upcoming earning announcement on October 29. The stock is actionable at current levels, targeting its previous highs at 69.26. Any move below 50 will be a sell signal.

PEGA:

PEGA swung lower and then finally leapt to new highs as expected. Its weekly gains were impressive at 9.25%. However, it is a bit extended at current levels. Any pullback to 68.20 will provide another suitable location to re-enter.

FRPT:

We are dropping Freshpet from our list as it has moved below our stop loss at 132, however, it will remain on our radar for a possible re-entry in future.

Website:

Note: Our website is now up and running. Please review our offers and if interested in our Excel based software, the TR (Trend Recognition) Indicator and the commentary then you could purchase it on:

https://analyzestocks.net

or visit our Etsy store at:

https://www.etsy.com/listing/1540978608/advanced-excel-stocks-analysis-and

All customers will continue to receive the Market commentary for a period of 1 year from the date of the purchase.

Also, kindly subscribe to our YouTube channel to obtain the latest news and information about our products at

https://www.youtube.com/channel/UC8aS_P5xpWUDVG5IDdSjGEg

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.

Employees and Owners of MJ Software LLC are not registered Financial Advisors with FINRA or SEC and for any financial advice please consult a registered financial advisor.