AI Gets Put to the Test, Powell Sets the Tone, and Disney Buyout? (August 21-August 25)
August 21-August 25, 2023 by Adit Dayal for RIPPYGLOBAL.
Happy Sunday everyone and welcome back to the Rippy Global weekly outlook. The market suffered steep losses last week, although we did close green on Friday. Many traders believe the “higher for longer” narrative in terms of interest rates, although we have a catalyst this week that will really define what will happen.
Let’s take a look at what this week has in store!
Financial conditions in the US have been much more resilient than many economists expected, and this week a rising dollar did not help the stock market. The reason the market usually drops when the dollar rises is because a strong dollar makes international trade worse for many companies and impacts their earnings. This, in tangent with the idea that interest rates may remain high is not good for risky assets. This can easily be seen in Bitcoin’s price drop over the weekend.
In the chart below, you can see how the S&P 500 trades inverse to the Dollar which is on the verge of a breakout:
On Thursday, Piper Sandler predicted that the S&P 500 will end the year at 4,825 noting that pullbacks to key supports can be buying opportunities. They have noted support at the July low of 4,385, and the August 2022 high of 4,325.
Put option trading is at the highest it has been since March as investors fear more downside is in store:
An interesting under-the-radar catalyst that released last week was that Amazon is restarting work on their Amazon Shipping service which will be a direct competitor to UPS and FedEx. It allows you to sell products sold on other sites as long as you sell on Amazon and they are also working to double the amount of same-day delivery websites by next year. This can be a negative catalyst for UPS which holds 24% of parcel volume while Amazon accounts for 23% according to Pitney Bowes.
Investors in Disney are looking to see what catalysts can drive this stock again. Speculation is that Apple is looking for a buyout, but this idea seems a bit far fetched to me. CEO Bob Iger said this week that parts of the television business were not crucial to Disney leaving the implication that it may be on sale - possibly to Apple? Dan Ives, an analyst at Wedbush said that Apple is continuing work on Apple TV+ and therefore would not be a bad candidate for the ESPN business. The main issue is regulatory and the fact that apple does not usually do large M&A deals (one of the recent largest being Beats by Dre for $3B in 2014). That being said, I do think the ESPN business may be up for sale soon with Iger addressing the problem on his call stating that “…we’re looking at strategic options both for ESPN and for the linear networks, obviously addressing all of the challenges that those businesses are facing.”
#1) Earnings week slows in comparison to previous weeks, but still some huge names on the radar for this week. AI stocks will get their first real test after the hype has faded with NVDA earnings and other cult-favorite stocks like Peloton and Affirm also get put to the test.
#2) On Monday, both VMware and Intel have events where they plan to speak and talk about new technologies.
#3) On Tuesday, two Fed speakers are scheduled during the day, Plug Power is planning to hold an analyst day, and crude oil futures expire for September leaving room for extra volatility.
#4) On Wednesday, TWLO has an investors day and Nvidia has their earnings call after hours.
#4) On Thursday, AMC will undergo a 1:10 stock split and Fed Member Barkin is expected to speak during the day.
#5) On Friday, Fed Chair Jerome Powell will speak at Jackson Hole at 10:00 AM.
The S&P 500 ($SPX index) is rapidly unwinding and it’s possible a head and shoulders pattern is playing out unless we reclaim some of the key levels above.
My key breaks are $4430 for bulls and $4319 for bears.
The best ways to play the S&P 500 are via. SPY/SPX options or SPXL (3X Bull S&P 500 ETF.
INDIVIDUAL STOCKS & LEVELS
Let’s recap some of the levels of some popular names:
Tesla DECISION WEEK! If you like trading this name this week will tell you all you need to know about where the stock is going to go. I opted for the weekly chart here so you can see how this test is very important of the $215 level. I want to see a bottoming hold of $215 but if the weekly closes under the trendline this name will be great for puts.
Apple is continuing to slide after earnings and $170 is key support for the stock. $180 is resistance so it’s possible we just chop around in this zone for a bit.
SBUX is a name that is at a do-or-die point here with $95 being the key level and a gap to fill down at $84. It looks like traders may be rolling down their Starbucks put options on the tape as well.
In terms of insider trades I really like LYFT and TNGX as possible names that can move this week.
Thanks for reading this weekend’s article, have a great week!
-Adit Dayal (https://twitter.com/tradelikehulk)