Berkshire Booms, Summer Heat, CPI, and Upcoming Billionaire Battles (August 7-August 11)
August 7-August 11, 2023 by Adit Dayal for RIPPYGLOBAL.
Happy Sunday everyone and welcome back to the Rippy Global weekly outlook. The market closed weak last week, with Apple earnings missing the mark for investors along with the new jobs report which signaled that the labor market may be getting weaker. Fitch Ratings also surprised the market by downgrading the US Government’s debt leading all three of the major indexes to close lower, with specific focus on the tech index QQQ.
Let’s take a look at what this week has in store!
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Berkshire Hathaway just reported their largest quarterly gain, boosted by high rates in their insurance businesses along with the huge rally in the equity markets, although they did say to be weary of stocks after this run and are holding a record amount of cash.
On a technical basis, the strong close in July provides a very valid argument into why one should buy this next dip in the S&P 500 as these recent pullbacks were expected. In fact, on Friday, JP Morgan shifted their point of view to “no recession” which would obviously be good for the markets. I will go deeper into the technical aspects of the market later. For now let’s look at what’s happening this week.
This week is big because we have a lot of earnings in small cap land (which is the prime opportunity for small cap traders and investors to make wins this month) and we also have the CPI inflation number releasing. The expected number is 3.3% and economists are expecting core CPI to remain unchanged from July’s number.
The issue with the jobs number on Friday, while it is great for inflation in the idea that less jobs being added means the economy and therefore inflation is cooling down, is that wages remained firm rising almost 4.4% over the last year, although many economists are saying that this is not vital to playing a role in policy.
We also have a lot of interesting earnings this week, the main being Disney as traders will watch to see how they are dealing with subscribers slowing, the overall TV market with writers striking, and how they are using AI. I will watch all the TV and movie names for a sympathy play based on what they say this week
As the Summer gets into full blaze, Bloomberg has reported that Texas power and electricity prices on the grid are up 800% amidst a massive heat wave this summer, with a weather watch in focus of higher demand and lower reserves. Power names like $NRG $CEG and $NRGV are on my watchlist this week.
Amid a boring IPO market this year, 2023 is still looking to be huge for biopharma mergers and acquisitions. Deals have hit $80 billion, boosted by Pfizer's $43 billion bid for Seagen. Biotech valuations have slipped, driven by declines in key indexes but many are still watching for M&A into the second half of the year. If the tech names continue to show a weak bid, let’s keep biotech on watch as it’s the forgotten corner of the market right now, even though great things are happening behind the scenes.
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#1) Earnings week continues with mid and small cap stocks getting a lot of love this week. Disney is the largest name reporting, but many of the high short interest names (Upstart, IonQ, Rivian) are all reporting this week as well and can either be in play for one more squeeze or they can dump heavy.
#2) On Wednesday, JP Morgan’s auto conference is set to take place with a wide array of presentations from companies like Carvana, BlackBerry, LIDR, and a presentation from Ford on how they are using electric vehicles as well. Kellogg’s also has an investors day event that afternoon.
#3) On Thursday, Wayfair (which has notably high short interest) is holding an investors day event along with WIX. The DefCon hacker event takes place, but this year many different companies (including GOOG and NVDIA) are providing their AI models for a hacking test as well. The CPI report will also release at 8:30 AM and will be volatile for the market.
#4) On Friday, the Michigan consumer sentiment report will release at 10AM with the expectation that sentiment will increase this month.
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S&P 500
The S&P 500 ($SPX index) is finally cooling off here, but most technical indicators are pointing to a dip buy at 4432 if we get there. With a strong monthly close in July and no real bearish catalyst as of now, I do not expect this correction to be > 5%.
My key breaks are $4524 for bulls and $4469 for bears.
The best ways to play the S&P 500 are via. SPY/SPX options or SPXL (3X Bull S&P 500 ETF.
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INDIVIDUAL STOCKS & LEVELS
Let’s recap some of the levels of some popular names:
TSLA
Tesla is still choppy and with no real catalysts ahead for this name I think it’s just going to be at the mercy of the overall market. Options are currently expensive on this name, but, and although it sounds silly, I would keep tabs on Zuck vs. Elon fight because I would expect options to increase in IV until then making it either a great opportunity to play the run up or sell the options while they are expensive (do not sell options unless you have the collateral to do so or you are cash covered).
AAPL
This chart is really ugly here and I don’t see any support until $177.50. As long as Apple is weak the entire market will be dragged down, so I think this weakness will be short lived and we may see a larger bounce by next week.
WYNN
Although my eyes will mostly be on SPX this week and my small cap names which are reporting earnings, one play that looks good for Monday is WYNN. Nice buyers into the OTM September $92.5 put options and I like this distribution on the chart for a weak day tomorrow.
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Insider Activity
In terms of insider trades we have a lot more this week which is great and tells me that under the cover insiders are more confident in their companies. I really like XOM because I think that name has been basing for a while near this $105 level so I will watch for a breakout this week.
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High Short Interest Stocks (S3 Data)
#1 - ALLO 49% SI
#2 - CVNA 47% SI
#3 - BTAI 43% SI
#4- NVAX 42% SI
#5- LCID 41% SI
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Thanks for reading this weekend’s article, have a great week!
-Adit Dayal (https://twitter.com/tradelikehulk)