Earnings Season is Here and the Market is Dying (October 23-27)
RIPPY GLOBAL WEEKLY OUTLOOK
October 23-October 27, 2023 by Adit Dayal for RIPPYGLOBAL.
Happy Sunday everyone and welcome back to the Rippy Global weekly outlook. The market had a horrible week, closing out at -2.39% on the S&P 500 for the week. Treasury yields flew over 5% for the first time since 2007 as well. In tangent with a lot of geopolitical concerns and earnings, this week should be super interesting for traders.
Let’s take a look at what this week has in store!
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Earnings season basically started last week, with Netflix and Tesla both reporting. Elon was super bearish on the overall market on the call and the stock tumbled, but I personally think he was just being objective and preparing investors for how a clean-energy stock can me impacted. On the other hand, a stock like SEDG (Solaredge Technologies) dumped almost 30%, so I think he’s just preparing investors for what can happen. Netflix saw a surge after their new program to prevent password sharing. In terms of upcoming earnings, a strong dollar and high interest rates make companies that need to take on debt very susceptible to huge shocks, and my personal take is that the US consumer is cutting back on spending here as the effects of interest rates actually hit.
The charts are shown below:
The banks all reported earnings, but this week, I read in Bloomberg that NYC finance jobs are at the highest point they’ve been in years - the issue is that investment banking and finance activity isn’t happening at it’s highest point in years. Seeking Alpha has this great chart that summarizes compensation for these companies. These banks seem to be cutting headcount as they mentioned on this call, which could signal they are expecting an even longer dry-period in banking markets and even a possible recession.
Wedbush analyst Dan Ives released a report this week where he believes GOOG and AMZN will benefit from an increase in digital ad spending. Paid spending has only declined 3% vs. 4% the year before and Wedbush expects improving social trends will help these stocks. Personally, I think we’ll see a slowdown in growth on online spending. The market seems to be pricing this in when you look at advertising names like Perion Networks which is down to $25 from highs of $42.
Chipmakers suffered losses this week from new US regulations on them as the US doesn’t want advanced progression from China with artificial intelligence. In the short run, it only affects the higher end, more advanced GPU’s and it seems like the long run doesn’t have much of a revenue impact. Morgan Stanley maintains Nvidia as its top pick and is not worried about this regulation. Speaking of AI, UBS held a fashion conference and believes generative AI will have a significant impact on fashion retailers like Ralph Lauren.
One thing making huge headlines recently is the advancement of weight loss drugs on companies. In fact, Ozempic’s new product can save United $60M if all their customers took it. Obviously this is a huge exaggeration of what it’s use cases are, but the market is going to watch food and beverage stocks going into this earnings season. Food companies are trading cheap relative to historical valuations and the advent of new beverage companies like Celsius growing exponentially will also be a catalyst to historically “safe” names like Coca-Cola and Pepsi.
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#1) Earnings week is coming into one of the biggest weeks for big tech names like MSFT, GOOGL, AMZN, SPOT, and more. Other large companies like Coca-Cola are also reporting. When these huge companies report, an interesting way to play them is to do it via the ETF which they hold the most exposure to- that way your risk is limited but you can also take advantage of a bigger move.
#2) On Tuesday, the Robin Hood stock conference where huge investors will give out stock picks is going to happen: Stanley Druckenmiller, Paul Tudor Jones II, and Sam Altman are all expected to be there. US Oil inventories will also be reported (which will be important as geopolitical concerns spike in the middle east)
#3) On Thursday, the US GDP report is releasing, although the impact is pretty minimal as banks are able to make pretty accurate predictions based on the economic indicators we already have.
#4) On Friday, the University of Michigan will release their consumer sentiment report.
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S&P 500
The S&P 500 ($SPX index) dumped on heavy selling volume
My key breaks are $4301 for bulls and $4206 for bears. I will personally likely be testing a long position at SPY $417 on the 50% Fibonacci retracement.
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
As I mentioned last week, earnings was the catalyst to move the stock here and that’s exactly what it did as fears about upcoming macro climate conditions can hurt the stock. Since Elon was good about warning beforehand, I don’t think this stock will sell off too hard and news will slowly be priced in.
AAPL
Apple is trading in this downwards channel and hasn’t broken out yet. Once again, pretty choppy trade and there’s likely better opportunities elsewhere in the market.S
SHOP
Shopify is right at this massive support level here but I take it that if the overall market fails this will break through pretty swiftly. The gap fill is right down to $48 which is where this one can get another bounce.
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Insider Activity
Insider buys are slowing (not a good sign for the market), but Bill Ackman’s fund keeps buying up HHH stock.
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Thanks for reading this weekend’s article, have a great week!
-Adit Dayal (https://twitter.com/tradelikehulk)