Behind The Street - Issue #1

September 26, 2021

September 26, 2021

Behind The Street Newsletter

The Nasdaq, S&P 500, and Dow Jones Industrial average all faced harsh sell offs early in the week but managed a strong rally into Fridays close. The Nasdaq and S&P 500 reclaimed their respective 50-day moving average with the Dow lagging and failing to rally back above its 50-day. Final print on the S&P 500 was 4455.47, Nasdaq 15329.68 and Dow Jones 34798.01.

As of June 29, the following are the five largest S&P 500 index constituents by weight:

1) $AAPL - 5.89%

2) $MSFT - 5.63%

3) $AMZN - 4.07%

4) $FB - 2.32%

5) $GOOGL - 2.03%

With mega cap tech making up such a large weighting in the S&P, it is important we monitor the health of these businesses and their respective stock charts. As expected, these stocks were leaders in the midweek rally on Wall Street with Amazon, Microsoft and Alphabet recapturing or finding support at their 50-day moving average. Apple and Facebook are still below their 50-day lines as of Fridays close. The market needs strength in mega cap tech to support a sustained rally.

Distribution Days: (Days where index sells off in heavier volume than the previous day. Signaling institutional selling. 5 - 6 distribution days in the span of 4 weeks signals market weakness) Investor’s Business Daily

4 on S&P 500, 4 on Nasdaq

Leaders up in volume: $CRM, $INMD, $SNAP, $TSLA

Leaders down in volume: $DECK, $NKE, $TASK

What’s The Fed Doing?

The Fed did not approve a bond taper at its latest policy meeting. Jerome Powell signaled that it would likely come in November, with asset purchases falling to zero by mid-2022. Possibility of a rate hike next year. (Remember, pay attention to what they DO not what they SAY.)

The Federal Reserve is creating what I believe will be a two-tier society with extreme haves and extreme have-nots. As the Fed continues to support the market, equities prices will continue to trend higher, thus benefiting the 1% who owns these assets. The same can be said for the real estate market. The market, in my view will continue to be in a confirmed uptrend.

View the U.S. 10 Year Treasury here: US10Y: 1.454% -0.007 (0.00%) (cnbc.com)

The debt market is the most important factor in relation to the stock market. Bond prices and yields move in opposite directions. When yields go up, prices go down and when yields go down, prices go up. Assuming the 10 Year Treasury yield remains stable, stock prices should trend higher. An uncontrolled sell off in the bond market, sending rates higher is very stock market negative.

The VIX: CBOE Market Volatility Index

September 20, 2021 saw a massive spike in the VIX to a high of 28.73. Historically when we have extreme moves to the upside in the VIX it is often wise to go short vol. VIX is a fear indicator in the market and sure enough, we saw the VIX collapse to 17.74 to close the week. Follow the VIX here: VIX 17.74 ▼ −4.83% Unnamed (tradingview.com)

Looking Ahead:

The National Association of Realtors releases its Pending Home Sales Index for August. Expectations are for a 1% month-over-month rise, after a 1.8% dip in July. (Barron’s)

In my view, demand for housing will remain high due to extremely low interest rates and low housing supply. The pandemic has encouraged people to invest more money into their primary residence. We see this trend playing out in the increased earnings and sales at companies such as $HD, $FND, $LOW, and $WMT.

In addition Homebuilders are coming off a strong week of earnings reports. $LEN reported Q3 EPS rose 54% to $3.27 as revenue climbed 18% to $6.9 billion. $KBH reported ESP up 93% to $1.60 as revenue increased 47% to $1.4 billion. Both companies pointed to supply-chain constraints that curbed their ability to sell the target number of homes as projected.

Highlight

$ZI - Zoominfo Technologies has been acting well closing at the high of its range at $67.85. Valuations are running high but fundamentals seem to be supporting premium valuation. $ZI is sporting a 91 RS line with Jun-2021 EPS up 100% to 0.14 on 57% revenue increase to $174 million. 2021 EPS estimates call for FY ESP of 0.51 and 2022 EPS estimates of 0.68.

Lastly as a rule of thumb, I like to watch $CL1! (light crude oil futures) $DXY (U.S Dollar Currency Index) and The 10 Year Yield when determining overall market direction. Strong price gains in crude are stock market positive as well as a weaker U.S. Dollar and stable 10 Year Yield.

Have a happy and productive week ahead and I will see you right back here next week for the second edition of the Behind The Street Newsletter!

Your Pal,

Tom

Email: walkswallstreet@gmail.com

Much of the data in this Newsletter can be found here:

Investor’s Business Daily | Stock News and Stock Market Analysis - IBD (investors.com)

Barron’s | Financial and Investment News (barrons.com)

***The Behind The Street Newsletter is for educational purposes only. This is not an endorsement to buy or sell any securities. Please consult with your personal financial adviser. This is a collaborative space where we talk about the financial markets for educational purposes only.***