Behind The Street - Issue #3

October 10, 2021

October 10, 2021

Behind The Street Newsletter

The 50 Day moving average seems to be the major point of resistance for all the indexes in last week’s trading. The NASDAQ Composite, S&P 500, and Dow jones Industrial Average all rallied into their 50 Day moving averages and closed lower on Friday. Even though all major indexes closed positive for the week, Friday’s close was very telling and could signal more volatility as we now head into the beginning of earnings season. Final print on the S&P 500 was 4391.35, NASDAQ 14579.54, and Dow Jones Industrial Average 34746.26

Nonfarm payrolls increased by just 194,000 in September according to the Labor Department. Economists were expecting a jobs gain of roughly 500,000. This is an absolute massive miss, but we can dig a little deeper to find out exactly what is going on. In last weeks newsletter and on many livestreams, we talked about the added importance the September jobs number brings due to a statement from Fed Chair Jerome Powell regarding tapering. Powell alluded to the fact that should we see a positive print on the jobs report, he would authorize a taper of $120 billion in monthly bond purchase. So is taper talk off the table? Well, no.

When we peel back the onion of the jobs report we see that the previous two reports were revised upward to the tune of 169,000 people. In addition, the unemployment rate took a nosedive to 4.8% from 5.2%, potentially signaling a tight labor market. In my eyes the true health of the American economy comes down to the labor force participation rate that now stands at 61.6% of the working age population. It seems as if employers will continue to have a hard time finding employees for the foreseeable future judging by the data we have. At the end of the day, what we are looking for is “what is the Fed doing?” and as of now it looks like the Fed may be forced to taper, if not from employment data but from inflation pressure that continues to pound American consumers.

My final thought on the Fed: I believe they will use these “bad” employment numbers to “move goal posts” regarding tapering. I would not be surprised if the Fed delays the taper and kicks the can down the road yet again. Remember, pay attention to what the Fed DOES, not what they say.

Earnings season is here again. Third quarter earnings reporting for S&P 500 companies kicks off at the start of the week with 6 major wall street banks reporting earnings. Expect volatility through earnings season, however my view is that banks will post very strong earnings as American consumers increase their debt levels to record highs. This will be the last earnings season where companies are going up against easy to beat Covid quarter comparisons. I will be looking at forward guidance the most to make sure earnings trajectory is not slowing. Often, it’s the forward guidance that is most important since the stock market tends to discount into the future. Be sure to be all ears on each earnings call and listen for forward looking projections.

We will cover tech earnings in depth on the livestreams as they roll out over the month of October.

As always, keep an eye on that U.S. 10 Year Treasury Yield that now sits at 1.612%. Low yields are generally positive for growth stocks due to the fact investors are willing to pay more for their future earnings. Should yields rise, tech company’s earnings are now worth less today. A stable 10 Year Treasury yield is stock market positive. The Fed has been buying bonds to help stimulate the economy and keep equities markets propped up.

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%

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

Current Distribution Count: Market in correction

Leaders up in volume: $TW, $APA

Leaders down in volume: $INFY, $JCOM

Crude oil is the life blood of this market. I agree with the major investment banks that we will see a $100 price target on crude oil in the very near future. This is also stock market positive over the long run. However, crude could use a pullback being that it has closed positive seven weeks in a row. A pull back in crude coupled with earnings season could mean increased volatility in October.

Bitcoin and Ethereum remain in an uptrend. I am long both Bitcoin and Ethereum and will continue to add to positions on any pull back. I believe we will see a second wave of inflation that will rock consumers yet again. When prices go up, corporations’ tend to pass those price increases onto the consumer. They do this to ensure stability and growth in their earnings. The market is suggesting that Bitcoin and Ethereum should act as a digit form of Gold and Silver. The trend remains up.

Has $BABA bottomed? As we have talked about on the stream China names have been getting absolutely hammered due to the CCP rules and regulatory oversight. We may be near a bottom here when it comes to China, but I wouldn’t try to catch a falling knife. Look for two weeks of strong price action coupled with higher-than-normal volume. Last week looked good.

Have a happy and productive week ahead and Happy Thanksgiving to all our Canadian friends! I will see you right back here next week for the fourth 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)