Are You Ready For Q4? (October 2nd-October 6th)
September 18-September 22, 2023 by Adit Dayal for RIPPYGLOBAL.
Happy Sunday everyone and welcome back to the Rippy Global weekly outlook. The market closed off the worst month of the year so far, but it’s set the stage for a great October and fourth quarter.
Let’s take a look at what this week has in store!
September finished the month off as the worst of the year, down almost 5%. This was mostly due to an updated Fed model (after they held interest rates steady) that we may have another rate hike in store. Powell also reiterated that a soft landing was no longer the base case which is quite different than the thin he’d been singing a few months earlier.
On a technical basis, the SPY closed weak into October with the monthly chart looking like this:
This can play out in two ways. The first is that we don’t break the 4180 Fibonnaci low on SPX and we form a cup and handle pattern that breaks to new highs, the second is that we have this double top formation and move back to what I call the “mother of all moving averages”.
The celebrated JP Morgan end-of-quarter collar trade was also placed this last week. It looks a bit like this: SOLD 4500c BOT 4050p SOLD 3410p. This trade works best for them if the S&P 500 stays under the low of year as that keeps their hedge the most effective. Here’s a full explanation of how these collars work:
In terms of China, the Golden Week holiday is an interest catalyst to watch amidst all the negativity over there. Reports say that gambling in the region have risen 404% YoY in the area, which is noteworthy. This is actually an interesting statistic I wanted to note. Gambling stays strong during times of recession and I think those stocks may provide an interesting alpha opportunity should we every get into one as some analysts are forecasting for next year. In terms of China, this holiday may provide a much needed boost to their markets and economy and hopefully help them reach their growth goals for the year. One stock to watch is WYNMF which trades OTC and therefore has very low liquidity (warning!) But is the Macau sector of Wynn resorts which does gaming for that area. Can be an interesting mover.
After what has seemed to be a great quarter for uranium bulls, it may be time for that sector to cool off into the end of the year. On Friday, the world’s largest uranium miner said that it will be reducing output production and that production will return to 100% for the first time since 2018! This large shift in supply should tame the price, although I don’t think the long awaited surge in demand for it will slow down anytime soon.
In my 5 Problems for Powell note in the newsletter last week, I mentioned a government shutdown, but it seems the threat of that has been thwarted this weekend with a 45 day funding bill through November 17th. House Speaker Kevin McCarthy pushed the bill and it’s passed without aid to Ukraine.
Speaking of Ukraine, Billionaire investor Bill Ackman spoke this weekend and mentioned how growing sentiment towards the country can provide great opportunity after the war is over there. He mentioned a specific drone company which we can look into when tensions ease there. That’s not the only reason he’s in the news this week though- he is launching a new SEC approved funding vehicle called a SPARC which is a SPAC but they announce the target before the proceeds are raised, as far as I understand right now. He even said he was open to taking X/Twitter back public again. This will play out super interesting and I will have my eyes on this over the next few weeks.
#1) Earnings week is super boring this week. Tilray is the only name that sticks out to me, but I don’t see any advantage trade there yet either.
#2) On Monday, the electric vehicle name swill have their delivery reports come out. Names like TSLA RIVN XPEV NIO and more will all release numbers and the market will decide where they want to move their stock over the next month.
#3) On Tuesday, Ethereum futures will begin trading for the first time doing the week and there are a few ETF’s looking for approval too, coming soon.
#4) On Wednesday, OPEC will have a meeting to discuss the recent spike in oil prices and COST will report September sales after the bell.
#5) On Friday, the September jobs report will release with unemployment to go from 3.8% to 3.7% (remember - lower unemployment is bad for inflation).
The S&P 500 ($SPX index) has broken down here and I think it may retest the breakout level, but the chart itself and the macro environments are both a bit bearish in my opinion. Should SPY reclaim $440 with strength, I will alter my view but I think the actionable trade idea is to wait here for more key levels.
My key breaks are $4390 for bulls and $4274 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 is in an interesting spot here and, like I mentioned earlier, delivery numbers will really get some volume on this stock and tell the market what kind of risk they want o put on it in Q4.
Apple is breaking down, but really this name is just going to follow the market here. We are in a chop zone, but under $167.5 this can go back to $162.
The Las Vegas Sphere has been making huge waves on social media this weekend and is actually publicly traded under SPHR. It’s in a tight pennant and can break out with the hype over the weekend.
In terms of insider trades, ASAN still getting bought (like it does every other week I write this letter), but the SPRY dip was bought and Ackman’s Pershing Square Capital keeps buying more HHH.
Thanks for reading this weekend’s article, have a great week!
-Adit Dayal (https://twitter.com/tradelikehulk)