What History Says Will Happen After A Correction (October 30-November 3)
October 30-November 3, 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!
The market officially entered a “correction” this past week as defined by falling >10% from the highs:
The question is: what does this mean historically for the stock market? Based on historical data, it takes about 3 months for the market to recover its losses, but it gets even better when you look further out: usually the market is up 10% about a year later.
Another big factor for the market is treasury yields which just hit 5%. Legendary investor Bill Ackman announced he closed out his bond short this week. The reason high yields are generally bad for stocks is twofold: first, it makes it harder for businesses to borrow and second, why would investors put their money in stocks when the stock-risk premium is so low? Essentially, the value of taking a bunch of risk gets lower as you can just get 5.5% risk free.
Cathie Wood said this week that she doesn’t think the US economy is as strong as the government is making it seem especially as the revenues from these companies are not as strong as people are making it seem. She also doesn’t think we will have soft landing, which is interesting because most of her portfolio consists of growth stocks.
There are two upcoming events that can put pressure on stocks this last quarter: tax loss selling and window dressing. First let’s explain what the both of those are. Tax loss selling is when people sell their losers to realize the losses to reap the advantages of taking a realized loss on their taxes. The last day to do this is usually the 30th of the year so people and funds slowly do it as the year comes to a close. Second is Window Dressing where hedge funds sell their worst losers and buy up their best winners so that they can include only the best names in their end of year reports and act like they had great picks for the year - a bit slimy, but should be known about. Therefore, we may see some end of year pressure and then a rebound in the worst performing names of the year in January.
Intel reported great earnings this past week with he semiconductor space still super strong. An analyst from Piper Sandler said that although NVDA has been the undisputed leader in AI processing GPU’s, AMD’s new product should be able to outperform. Last week I reported how there are now restrictions coming on Nvdia and AMD is reporting this week, so maybe semiconductors get a new market leader with AMD?
#1) Earnings week is amazing once again with some consumer companies like McDonalds and Starbucks giving insight into the usual spender and Apple, which is the largest holding in the S&P 500 also reporting on Thursday.
#2) On Monday, Apple has their product event and we will get more news on JetBlue’s acquisition of Spirit Airline which has been facing a lot of legal uncertainty recently.
#3) On Wednesday, the Chinese EV maker like NIO and LI have their delivery numbers releasing and at 2:00PM EST we get the FOMC statement which will move the markets.
#4) On Friday, the US Jobs report will be released with the unemployment rate expected to be 3.8%.
The S&P 500 ($SPX index) dumped on heavy selling volume
My key breaks are $4175 for bulls and $4106 for bears. Personally think we will chop out the first part of the week, but we are pretty sold off here out of the main Bollinger Bands so would’t be surprised to see a bit of a run some point this week.
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 basing out here after that earnings report last week where Elon was very blunt about the upcoming state of the EV market. Looks like they’re defending the $200 level and I will use that as my line in the sand for bulls. Gap to fill above at $240.
Apple is trading in this downwards channel but they do have a catalyst this week with the “Scary Fast” Macs releasing (a play on Halloween being this week as well).
Coinbase is sitting right at crucial support after a short-lived Bitcoin rally on rumors sparking of an ETF for Biotin being able to be listed on US Exchanges. It looks like risk is off for any market (I mean, take a look at biotechs) and if we get another leg down this can go to the $50’s.
Insider buys are slowing (not a good sign for the market) just like last week., but the Director of Carnival Cruise made some purchases. Nothing too notable overall though.
Thanks for reading this weekend’s article, have a great week!
-Adit Dayal (https://twitter.com/tradelikehulk)