Why Did the Market RIP and What's Next?
November 6-November 10, 2023 by Adit Dayal for RIPPYGLOBAL.
Happy Sunday everyone and welcome back to the Rippy Global weekly outlook. Last week I noted we were in a correction: I can’t say the same after a MASSIVE rally that destroyed shorts and rewarded longs heavily adding 5.85% (!!!) for the week. What is Wall Street saying about this, why did it even happen, and what will happen next week?
Let’s take a look at what this week has in store!
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Larry Adam from Raymond James is still very bullish on the market and said he believes there will be an end of year rally in a private letter to his clients with a year end target of 4400, and after this huge rally this week I don’t see why he’s wrong. He mentions the market has posted blended EPS growths of 44% YoY and earnings are crushing estimates. Seasonal wise, this is also the time when most late stage rallies take place. On the other hand, some advisors from Bridgewater are saying that the real golden investment opportunities lies outside the US markets, specifically in Japan. The reason is that Japanese markets have been so ignored for so long that they never really cared about the shareholders, but they believe that will change.
So what really drove the market up so high and so fast? Some believe it was a gamma squeeze boosted by news from the markets. First, the Treasury announced they’re borrowing less than expectations which sent yields down and stocks up initially. Tbh is is where gamma comes into play - reportedly net gamma was the most negative it has been since Summer 2022, but now, after positioning is over gamma is highest at 4400 (lining up with the Raymond James PT) and will likely act as a wall here.
This was also a fun weekend for value investors because Berkshire Hathaway run by Warren Buffer reported earnings. They did more share buybacks (although that is slowing) and their insurance businesses were really good (watch insurance stocks on Monday - MET, MKL, UNH, etc.). They increased positioning in OXY as well and there’s chatter he wants to take them over. Their cash increased to $157B which nets ~$9B risk free for them from the treasury rate: amazing.
After Apple earnings, which lacked good strong guidance and initially sold off, still is viewed as the top dog here with most of the big banks having it at an outperform. Why? Well Goldman Sachs likes its presence in emerging markets and personally I think their move away from China is strategic in terms of supply chain. The move to India should be super beneficial to them, but also the release of the Vision Pro headset next year will draw a lot of attention to the name, kind of like the Apple Watch announcement.
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#1) Earnings week is amazing once again with growth names like Rivian and Roblox setting the tone of how Q4 names will end up playing out. These, in my experience, give the best post earnings moves and I am excited to see these companies are doing.
#2) On Monday, Costco has their monthly sales report along with the Mannheim Used Vehicle Index report to see how auto manufacturers are doing. OpenAI is also having their first ever developers day.
#3) On Wednesday, Fed Chair Jerome Powell speaks at 2PM EST.
#4) On Friday, the UMich consumer sentiment index will be released right before China has their Singles Day shopping event which is noted to be higher than any event the US has.
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S&P 500
The S&P 500 ($SPX index) dumped on heavy selling volume
My key breaks are $4339 for bulls (be weary) and $4332 for bears. Fast upward movement needs healthy consolidation so don’t be surprised for a bit of indecision this week, at least until Powell speaks.
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
Tesla has really noticeable relative weakness here and it may be due to the warnings from Elon on the call, but I think this name is a “no trade for me” stock because as a high beta name it should have really run this last week but the gap above is currently acting as resistance.
AAPL
Apple is right about to breakout here and when it does the entire market will go with it. It didn’t have the strongest earnings so it’s possible we do a false breakout to trap longs and then fail the retest.
DKNG
DraftKings had an amazing run after earnings and I think it’s just getting started with so many tailwinds on the sports betting industry. If growth is the theme for Q4 I believe DraftKings will outperform and so does the market after that earnings reaction.
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Insider Activity
Insider buys are still pretty dry, but ASAN jeeps getting hit and finally the stock seems to be breaking out so I would keep my eye on this for a play with a SL at $17.50 where the buy was.
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Thanks for reading this weekend’s article, have a great week!
-Adit Dayal (https://twitter.com/tradelikehulk)