We Just Had the Best Quarter in 5 Years. Now What?
April 1-April 5, 2024 by Adit Dayal for RIPPYGLOBAL.
Happy weekend everyone and welcome back to the Rippy Global weekly outlook. The stock market finished last quarter for the best it’s had in five years, up 10% for an amazing start to what has been an amazing quarter after a difficult time for the economy. Opportunities continue to present themselves every day as we get new catalysts and trades every week.$
Let’s take a look at what next week has in store for us!
——-
The market is currently pricing in three 25bps rate cuts by the end of the year, but the current economic conditions do not actually imply this will happen from my point of view. There are a few reasons for this. The first is that inflation is above target here from 2%. The February PCE data showed that prices rose higher in February and consumer spending also got stronger. The US market has hit new all time highs as well and risk-on assets like cryptocurrency hitting highs. Gas prices and gold are also reaching records. In terms of the labor market, Vanguard shows that through 401K enrollment that hiring is also picking up. All these factors beg the question: will we get three rate cuts by the end of the year? Looking at the data, probably not, and the market is historically very bad at predicting the Fed Funds Rate, leaving an inefficiency for us to get involved with here.
Reddit had a stunning IPO, priced originally at $32-34, it opened in the mid $50’s and continued to run to $69 before falling. Insider sold $41M worth of stock units based on a performance that the price of the name is over $31.45. To me, most IPO’s are just trades and not investments as the original IPO process weeds out a lot of people with a stake in the company that just needed the liquidity to cash out. According to MarketWatch, a study from Harvard Business School and NYU shows that when IPO’s are exuberant there is a lack of returns in the market. Luckily, as much as you’re hearing about IPO’s, they cite this study as a good thing: showing that this IPO “heatup” really is nothing in the context of history. Therefore I think we can expect this market to continue to be steady with risk just rotating into different sectors, even with a small market pullback. Nothing is showing exuberance yet and that’s a good sign for investors.
I mentioned the Donald Trump de-SPAC last week which happened to go from #35 at the time of writing to $80 for massive gains, but what happens now? The cost to borrow the stock to short is too high in my opinion and I think that it’s a possible short squeeze candidate here. Trump’s net worth is up over $4B this year, mainly due to the IPO, as he is struggling with. Tough legal battle and a presidential run. As I will mention soon with Disney, the board of directors are some of the most important parts of a company and the board is what’s going to make or break this name. At a time when Trump is in dire need of liquidity for his wealth, will he be permitted to sell before his 6 month lockup expires? That’s the main downside catalyst for this name, but other than that it makes to be an interesting squeeze play.
——-
#1) Earnings week is super boring this week. Pretty much nothing that will move markets or sectors.
#2) On Monday, FTNT is hosting an event where one of the main topics to be talked about is AI.
#4) On Wednesday, Disney is hosting a meeting to decide who is on the board after a tough fight with activist investors. This is going to be very interesting because the board is one of the most important parts of a company that most people forget about. Dicks Sporting Goods will also be participating in a chat with JP Morgan retail
#5) On Friday, the jobs report for March will be released at 8:30 AM.
——-
S&P 500
The S&P 500 ($SPX index) continues to trade up in this channel although the ATR (average true range aka the daily $ move) seems to be getting more stable and therefore there is less volatility for intraday plays. This is a classic sign of distribution/accumulation of price and means that investors like where we currently are. Therefore, I think the best way to play the index is to wait for a large key move to either side, especially since we are at most Wall St. price targets at 5200 and may see some selling after the window dressing last quarter. The weekly chart looks frothy and tells me we need a retest.
My key breaks are $528.38 for bulls and $521.45 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:
TSLA
Tesla is in a classic bear flag pattern here as long as we remain under $185. They had a “nightmare quarter” as reported by Wedbush and sentiment is as negative on the name as I’ve seen in recent years. According to Citi there are two things Tesla should be worried about and why price is falling. First is the launch of Xiaomi's SU7 electric vehicle taking market share in China and the second s their declining delivery estimates. Deutsche Bank wrote in a note “Although Tesla has announced it will raise prices in the U.S. and China effective April, we view it as an attempt to boost sales in March, rather than a sign of solid demand."
AAPL
Apple is another name who’s chart is just really nasty here. They announced their new event for WWDC which I had anticipated to be their AI event and it seems to be, note the capitalized letters in the tweet from their SVP of Marketing. This name is very prone to chop, and I think it’s a short under $170 and a long over $176.
TOST
I really like TOST as a trade here, it’s been getting consistent PT upgrades, the sector is strong, and the chart is in an amazing bull flag and ready to break out. I am thinking over $25.25 next week this is going to be a fun trade, especially as contracts are not too expensive for a move to $27.
——-
Insider Activity
Insider buys were pretty good this week, with names like SNOW getting a pop during the week. TSVT is a biotech name with lots of volume and GO is a great chart that’s ready to breakout.
——-
Thanks for reading this weekend’s article, have a great week!
-Adit Dayal (https://twitter.com/realaditdayal)