- Some analysts believe this month of October could be less volatile than expected
- The coming week filled with high profile revenue releases
- Tesla shares currently behave like traditional value auto companies
Earnings releases from some of America’s biggest companies will likely be catalysts for financial markets next week, when a range of companies from various industries provide their quarterly results. Also note that the term “catalyst” could be misleading. This would suggest stocks were languishing and in need of an extra boost.
This is hardly the case. Currently, an assortment of stocks has provided significant returns.
What happened in the scariest month of the year for the markets?
At the start of the month, we warned that it was by far the most volatile month of the year. This statistic is true for every October in general, but in a year when inflation and tightening was already weighing on the markets, we figured the market action might just get overly wild. .
We issued our warning after the first for US stocks in eight months, and the worst monthly drop since the infamous low in March 2020. However, so far in October, stocks have been doing very well.
Three of the four major US stock indexes — the, the, and the (the Composite and the) —have two straight week gains in October. Additionally, the Dow mega-cap is on track for its best month since March and its most profitable October in six years.
Perhaps we have been too alarmist and investors will be able to safely avoid losses during what is the scariest month of the year for the markets. And maybe they can even enter November with winnings.
This seems to be Jim Cramer’s point of view. During a recent Mad Money segment, he called future corporate profits “the cavalry is finally here to save the day.” In his view, not all corporate results will be necessarily positive, but they will provide the upside distraction needed to keep investors from worrying about inflation and tightening.
It is certainly a heartwarming thought, but we are not convinced. Here is what we see on the S&P 500 chart:
While we recognize that trading has developed a strong weekly candle, the first two days of trading last week extended the previous Friday’s sell-off, which occurred after the volatile session the previous Thursday. Although the broad benchmark opened considerably higher last Monday, it closed well above its highs, forming a shooting star – a signal for technical analysts to come out, ahead of the three-day drop. This is what volatility looks like.
In addition, the index closed last Friday at the top of the bullish channel, where it meets resistance formed from September 23-27, increasing the chances of a pullback when trade opens on Monday. Note, however, that the daily RSI has completed an H&S low and the MACD has triggered a buy signal.
As such, we can see a conflict between the indicators and the alleged resistance of the bullish channel, made worse by the previous high. This could be the technical setup of volatility. The weekly chart provides additional reasons to be cautious:
From a longer term perspective, it is evident that the S&P 500 has fallen below its long term uptrend line from the March 2020 low mentioned above. Additionally, the same indicators that were bullish on the daily chart are clearly bearish on the weekly view, further evidence of potential volatility.
Finally, we have repeatedly pointed out in previous articles during the period described above a variety of market anomalies and contradictions. For example, the market narrative dictated that stocks were selling because investors worried about inflation, but small cap futures outperformed the highly technical NASDAQ 100 contracts by a factor of 2. : 1.
The Small Cap Index has been the star child of value stocks in a post-pandemic world. When investors believed the economy was about to pick up, they bid on domestic stocks. When they thought the COVID epidemic would continue to persist, they sold off small caps and value sectors, redirecting capital to tech stocks, the pandemic’s so-called darlings.
Why, then, were Russell futures outperforming, while NASDAQ contracts lagged, as investors feared inflation could upend the delicate economic recovery?
The Russell 2000 was actually volatile, as was the S&P 500 at the start of trading last week. Additionally, unlike peer indices which rose over the two weeks of October trading, the Russell 2000 was only one week ahead. Additionally, the Small Cap Index hit highs and lows, eventually closing near its weekly opening level for five consecutive weeks.
Such a pattern illustrates a loss of direction; Given that the Russell 2000 could be seen as an indicator of investors’ outlook on the economic recovery, this could mean something. So, in our opinion, it is not fair to say that the markets have been calm, as some financial outlets have claimed. It is also not a given that the profits will turn out to be the “cavalry” that will drive stocks up, as Jim Cramer puts it.
Yet, whether stocks rise or become more volatile, they could provide a rich target environment for traders. Among the dozens of companies that are expected to release their results in the coming week, such as Netflix (NASDAQ :), Tesla (NASDAQ 🙂 and Intel (NASDAQ 🙂 are expected, as well as publications from blue-chip companies like as Procter & Gamble (NYSE :), which publishes before the opening on Tuesday, October 19, and American Express (NYSE :), which publishes its results on Friday, October 22, also before the opening.
Netflix, which is expected to release results on Tuesday, October 19 after the close, recently broke an H&S high, putting the $ 700 level in sight.
The streaming entertainment giant outperformed when people were stuck at home during shutdowns. Could this mean that investors are not seeing the economy pick up in the medium term?
Electric vehicle maker Tesla, which released a report on Wednesday, Oct. 20 after the close, recently completed a bearish wedge, which could push its share price to the $ 1,000 mark.
The uptrend for TSLA is surprising. The expectation of higher yields would generally put pressure on tech companies, including this one, as the expectation of higher rates reduces the value of Tesla’s future earnings. This is because giant tech companies are generally categorized as growth stocks, but TSLA acts like value stocks just like any other auto company. This could be because investors have high hopes for Tesla’s earnings this week.
Treasury yields, including the benchmark, fell last week, for the first time in eight weeks.
UST 10Y Weekly
Rates are caught between extending an incipient uptrend and what conservative investors may still see as a broader downtrend. This is because rates have yet to show two bullish peaks and troughs, independent of the ups and downs of the downtrend. Therefore, the 1.1776% level is critical in determining whether rates have bottomed out. Note that the trading activity described is that of an H&S fund.
The decline, extending volatility for a third week.
This came after the greenback hit a massive double dip from its January low.
fell hard Friday, despite the weak dollar, on higher yields.
The yellow metal has retested what could be a weekly continuation pattern for health and safety.
jumped for three consecutive weeks.
Crypto price activity over the past three weeks has produced a bullish candlestick pattern dubbed Three White Soldiers. This could be followed by a decline, although the uptrend then resumes. This would be understandable given that the digital token price has stopped below its April high.
broke through the $ 82 level for the first time since 2014 amid a global oil crisis, pushing WTI to its eighth consecutive weekly gain, the longest weekly commodity bull run since 2015.
The coming week
All times shown are EDT
22h00: China – : is expected to fall to 5.2% from 7.9% year-on-year.
22h00: China – : is expected to decline to 4.5% from 5.3% year-on-year.
9:15 am: United States – : should have slipped to 0.2% in September from 0.4% previously.
9:30 p.m .: Australia –
8:05 am: United Kingdom –
8:30 am: United States – : forecasts should have dropped to 1.680M from 1.721M.
9:30 p.m .: China – : previously set at 3.85%.
2:00: United Kingdom – : probably remained stable at 3.2% year-on-year.
5:00 p.m .: Euro zone – : assumed to have remained at 3.4% year-on-year in September.
8:30 am: Canada – : last month’s reading printed at 0.2% year-on-year.
10:30 am: United States – : is expected to increase to 0.702M from 6.088M.
8:30 am: United States – : should go from 293K to 303K.
8:30 am: United States – : is expected to fall to 24.5 from 30.7.
10:00 am: United States – : saw climbing to 6.06M from 5.88M.
2:00: United Kingdom – : should drop from -0.9% to 0.4%.
3.30 p.m .: Germany – : on the lower edge, at 56.9 against 58.4.
8:30 am: Canada – : is expected to soar to 3.0% from -1.0%.