EB Weekly Market Report - Friday, October 4, 2024 (for Monday, October 7th)

Tom Bowley - October 04, 2024

Early Report

I have personal issues to tend to on Monday, so I wanted to make sure you received this EB Weekly Market Report today and would have the weekend to review it. We'll be back on Tuesday with our next EB Daily Market Report.

Thanks!

ChartLists Updated

The following ChartLists were updated earlier today:

Strong Earnings (SECL)
Strong Future Earnings (SFECL)
Raised Guidance (RGCL)
Short Squeeze (SSCL)
Bullish Trifecta (BTCL)
Seasonality - October 2024 (SEASCL)

We updated our ChartLists on Friday, October 4th and we will update them again in two weeks on Friday, October 18th. After October 18th, earnings reports will accelerate and we'll be looking to update our ChartLists weekly.

Weekly Market Recap

Major Indices

There was a lot of back and forth last week, but outside of transportation stocks, which were weak on a relative basis, all of our other major indices were very close to the flat line.

Sectors

Energy (XLE) benefited from rising crude oil prices ($WTIC, +8.11%) after Middle East tensions increased between Iran and Israel. The WTIC closed above $74 per barrel, which eclipsed key short-term crude resistance near $72 per barrel. The move higher could trigger more buying in the XLE next week.

Top 10 Industries Last Week

Clearly, energy dominated the industry group leaderboard as many energy industry groups soared.

Bottom 10 Industries Last Week

After renewable energy enjoyed a few solid weeks in September, the group turned lower last week, giving back much of its recent gains. Footwear took a hit after Nike (NKE, --8.05%) withdrew guidance. Finally, automobiles were weak, because Tesla (TSLA, -3.99%) once again failed to negotiate overhead price resistance at 265. It'll have to try again this week.

Top 10 Stocks - S&P 500/NASDAQ 100

Bottom 10 Stocks - S&P 500/NASDAQ 100

Big Picture

Here's an update of the Big Picture, 100-year chart of the S&P 500:

The S&P 500 ended last week just beneath its all-time high close. Check out the bottom two panels, where the 120-month (10-year) rate of change and 240-month (20-year) rate of change both have begun to accelerate. You can see that we're nowhere near the level that these 2 ROCs peaked in 1959-1962 and 1999-2000.

Stay long-term bullish.

Rotation/Intermarket Analysis

Here's the latest look at our key intraday ratios as we follow where the money is traveling on an INTRADAY basis (ignoring gaps):

QQQ:SPY

We were slightly lower throughout much of last week. As the S&P 500 consolidates further, much of this sideways action is to be expected. A strong move to the upside in this ratio, especially in the top panel that tracks the relationship ignoring gaps, would be very bullish. However, value names tend to lead the market in Q4, so a breakout in this ratio to the upside may not occur until 2025.

Remember, this chart is actually calculated QQQ:SPY, despite its "@SPYQQQ" name.

IWM:QQQ

Our major indices treaded water much of last week, so this IWM:QQQ ratio remaining flat for the week is fine. It's really providing no significant signal at this time.

XLY:XLP

I like the slight rally in the XLY:XLP ratio that ignores gaps. We haven't seen much of that since April, but last week's XLY intraday relative strength carried the ratio higher to test the downtrend that's been in play since April as well. A move through 97, and especially through 100, would be extremely bullish just as we head into the most bullish seasonal period of the year, October 27th (close) though January 18th (close).

Sentiment

5-day SMA ($CPCE)

The CPCE continues to tell us to be very, very careful. Based on the 5-day moving average of the CPCE remaining at or below .55, the bulls do need to be aware that a period of consolidation in October is quite possible:

We've remained in this .55 area on the 5-day SMA for over a week now. We haven't seen much selling, but it's been difficult to move higher too.

253-day SMA ($CPCE)

The 253-day moving average keeps pushing lower and that, historically, has been undeniably bullish. These types of moves lower are indicative of a healthy stock market rise. While the 5-day moving average tells us to be cautious near-term, the drop in this 253-day moving average says this secular bull market advance is NOT over and that we're very likely to see new all-time highs in Q4 and into 2025.

Near-term market weakness would be a buying opportunity, in my opinion.

Long-Term Trade Setup

Since beginning this Weekly Market Report over one year ago, I've discussed the long-term trade candidates below that I really like. Generally, these stocks have excellent long-term track records and many pay nice dividends that mostly grow every year. Only in very specific cases (exceptions) would I consider a long-term entry into a stock that has a poor or limited long-term track record and/or pays no dividends. Below is a quick recap as of today:

JPM - weekly chart shows negative divergence, but rising 20-week EMA shows great support thus far
BA - remains one of the weakest stocks since the pandemic began, test of 120 price support is possible
FFIV - uptrend and bullish momentum remains in play
MA - July 50-week SMA test has led to solid action for past 10-11 weeks or so
GS - looks a lot like JPM technically, as rising 20-week EMA continues to provide support during advance
FDX - earnings helped FDX test overhead support near 301, now 240-250 support looks solid
AAPL - price support at 200 should be solid and the 20-week EMA held earlier in September
CHRW - hit 110 this week to test key overhead price resistance from August 2022
JBHT - rough week, but 150-160 support still looks solid
STX - been trending higher for nearly 2 years now
HSY - lengthy sideways consolidation continues; dividend remains healthy
DIS - a BA-type chart, wandering not too far above MAJOR long-term support at 80
MSCI - I seen building strength in MSCI and expect a rally to 650 by year end
SBUX - definitely much better off technically since the new CEO from Chipotle was announced
KRE - still trending higher and I love this area of the market in Q4 and into 2025
ED - struggling to clear 105 currently, but uptrend remains intact
AJG - bouncing off recent 20-week EMA test
NSC - railroads strong off the June low, NSC following suit
RHI - recent push higher cleared 20-week EMA, a short-term positive development

Keep in mind that our Weekly Market Reports favor those who are more interested in the long-term market picture. Therefore, the list of stocks above are stocks that we believe are safer (but nothing is ever 100% safe) to own with the long-term in mind. Nearly everything else we do at EarningsBeats.com favors short-term momentum trading, so I wanted to provide an explanation of what we're doing with this list.

Because September is historically a very poor month in terms of stock performance, it should make sense that it's also a great time to be considering buying opportunities. We started our list last September and we added 5 stocks in September and another 4 in October. That's one reason why the performance of many of these stocks has been so strong. While I could see more market struggles ahead for perhaps the next 2-3 weeks, adding solid long-term performers is something we will do. Given the short-term warning sign from options, we won't add any long-term stocks today, but I do expect to add at least a few additional stocks to this long-term portfolio during October.

Please keep in mind that I'm not a Registered Investment Advisor (and neither is EarningsBeats.com nor any of its employees) and am only providing (mostly) what I believe to be solid dividend-paying stocks for the long-term. Companies periodically go through adjustments, new competition, restructuring, management changes, etc. that can have detrimental long-term impacts. The stock price nor the dividend is ever guaranteed. I simply point out interesting stock candidates for longer-term investors. Do your own due diligence and please consult with your financial advisor before making any purchases of securities.

Looking Ahead

Upcoming Earnings:

This is a very slow period for company earnings, as you can see below. This is NOT a list of ALL companies reporting this week, so please be sure to check for earnings of any companies that you own or add. Any companies in BOLD represent stocks in one of our Portfolios:

Monday: None
Tuesday: PEP ($233 billion)
Wednesday: None
Thursday: DAL ($31 billion)
Friday: JPM ($590 billion), BLK ($142 billion), BK ($52 billion), FAST ($41 billion)

Key Economic Reports:

Monday: None
Tuesday: None
Wednesday: August wholesale inventories
Thursday: Initial jobless claims, September consumer price index (CPI)
Friday: September producer price index (PPI), October consumer sentiment

Historical Data

I'm a true stock market historian. I am absolutely PASSIONATE about studying stock market history to provide us more clues about likely stock market direction and potential sectors/industries/stocks to trade. While I don't use history as a primary indicator, I'm always very aware of it as a secondary indicator. I love it when history lines up with my technical signals, providing me much more confidence to make particular trades.

Below you'll find the next two weeks of historical data and tendencies across the 3 key indices that I follow most closely:

S&P 500 (since 1950)

Oct 7: -31.55%
Oct 8: +1.83%
Oct 9: -65.58%
Oct 10: +12.19%
Oct 11: +25.83%
Oct 12: +10.11%
Oct 13: +66.86%
Oct 14: +2.82%
Oct 15: -10.14%
Oct 16: -4.60%
Oct 17: -0.19%
Oct 18: +62.86%
Oct 19: -131.47%
Oct 20: +85.59%

NASDAQ (since 1971)

Oct 7: -72.97 %
Oct 8: -6.14%
Oct 9: -55.75%
Oct 10: +15.76%
Oct 11: +79.41%
Oct 12: +38.25%
Oct 13: +124.64%
Oct 14: +20.39%
Oct 15: +4.64%
Oct 16: -0.13%
Oct 17: -33.41%
Oct 18: +29.25%
Oct 19: -83.58%
Oct 20: +0.19%

Russell 2000 (since 1987)

Oct 7: -159.66%
Oct 8: -69.95%
Oct 9: -152.21%
Oct 10: +111.11%
Oct 11: +11.78%
Oct 12: +8.61%
Oct 13: +80.92%
Oct 14: +37.61%
Oct 15: +10.16%
Oct 16: +132.83%
Oct 17: -43.28%
Oct 18: +8.28%
Oct 19: -18.45%
Oct 20: +59.74%

The S&P 500 data dates back to 1950, while the NASDAQ and Russell 2000 information date back to 1971 and 1987, respectively.

Final Thoughts

Despite nonfarm payrolls exceeding expectations by a wide margin on Friday, and a huge gap higher that morning in our major indices, the Dow Jones has barely cleared its recent all-time high and the S&P 500 has rallied only to threaten its all-time close. The NASDAQ 100 and small-cap Russell 2000 still remain well off of highs set in recent months. Here are a few things to consider as we head into the week ahead:

Inflation. On Friday, the average hourly earnings came in at 0.4% vs. 0.3% expected and the August average hourly earnings was revised higher to 0.5% from 0.4%. Combine that with both the CPI and PPI reports for September due out on Thursday and Friday, respectively, of this week and we could see bears trying to rekindle the inflation story.
Banks ($DJUSBK). This group rallied strongly on Friday with the strong jobs report as the longer end of the yield curve (10-year treasury yield, or $TNX) spiked with a Fed that's essentially said that the short end of the yield curve is heading lower. This is a DIRECT increase to net interest income for banks and this group responded accordingly.
Volatility ($VIX). The VIX was unusually high last week (above 20), given the recent stock market rally. Clearly, a number of market participants were nervous. The strong jobs report laid some of that nervousness to rest as the VIX did fall back to close back below 19. Still, it remains quite elevated and the market is nervous, whether justified or not.
Election. During Presidential Election years, the typical bottom in the S&P 500 is late October. I have no idea if we'll see selling later this month as September was unusually strong, but just remember the stock market does not like uncertainty and if the election appears tight as we move towards November, a quick market selloff should not be ruled out.
Sentiment. The short-term market action remains dicey as a bullish 5-day equity only put call ratio ($CPCE) suggests that we be very careful near-term. However, the long-term 253-day CPCE has rolled over and is falling quite rapidly. This typically accompanies very strong stock market action. So I read this to suggest that we could see short-term selling, but should NOT ignore the high odds of a significant rally into year end and 2025.

Feedback

If you'd like to share your thoughts on our Weekly Market Report, positive or negative, you can reach us at "[email protected]".

Happy trading!

Tom