Ever try to accelerate onto an interstate, or around a slower vehicle, only to realize that what you're driving can sometimes skip a gear if you are not careful. Faulty transmission. Faulty driver. Same outcome. Do not try to pass if you see headlights coming the other way.
In a sense, this is what happened to equity markets on Tuesday. The final score might look "okay", with the "big three", the Dow Industrials, the S&P 500, and the Nasdaq Composite all closing in the green even if just by a smidge. The final score might appear quite healthy with nine of 11 S&P sector select SPDR ETFs closing above sea level as well. Interestingly, ex-Energy (XLE) , defensive type sectors dominated the daily performance table. One must realize that all of the small to mid-cap stock indices closed in the red. One must be cognizant that both the S&P 500 and the Nasdaq Composite peaked in the first 90 minutes of trading, and then spent five hours toggling back and forth, gasping for air.
Lastly, one must be mindful that aggregate trading volumes, at least for the Nasdaq, weren't just elevated they were enormous. Remember, it was the Nasdaq Composite, not the S&P 500 that put an end to the recent correction, so this could matter. The Nasdaq Composite has closed higher in eight of the past 10 sessions. For the S&P 500, it's nine of 10. Take a look at Nasdaq Composite subordinate trading volume...
I want readers to notice a couple of items visible on this daily chart of the Nasdaq Composite. First, note the solid black (as opposed to hollow) candlestick for Tuesday. This signals that even though the index closed up for the day, it closed lower than where it opened. Now, note that algorithmic resistance made its impact felt as the index came within a few points of the early September high. Yes, we do have a swing traders' mini-golden cross (21 day EMA crossover of the 50 day SMA), but we also have very heavy trading volume (lower right) for the session.
What this confirms to me is that there was a significant increase in professional selling/institutional profit-taking triggered by the Nasdaq Composite's move toward that all-time high. Many refer to this kind of action as "stalling"... and it can, but does not necessarily signal a coming change. Think of it simply... as a flare. What happens when someone pops a flare? You drop to the ground, cover one eye to preserve your natural night vision, and what else? Right... you see the field. You see where resistance is. Same here.
Now you know that the Nasdaq Composite, perhaps the other large cap indices as well, is potentially in the process of developing a base. Could the index benefit from some consolidation? Of course. Investors need to recognize that October has now tested the high of September as well as the low of July. This index may already be consolidating. What will be telling will be if the index moves toward the middle of the range this week, or makes another run at that high.
My gut instinct - term for an unqualified opinion - is that after some wiggle, another attempt is made. But there are key obstacles to the market's immediate front. The headlines change every day in regards to potential fiscal policy. Oh, and lest we forget, the Fed (almost certainly) announces its tapering of monthly asset purchases one week from today. That may not unnerve investors. Then again, most investors probably do not understand that they themselves are now nothing more than passive robots under the leadership of keyword reading algorithms. How are keyword reading algorithms with no memory, and no common sense, just a relentless drive to force technical overshoot... going to react to those headlines? Hmmm.
As the Biden administration's "social spending and climate change" budgetary framework has been whittled down from the originally proposed $3.5 trillion to probably less than $2 trillion, it has not become any easier to pay for. The original plan, as we have discussed here, was for an increase in the base corporate tax rate from the current 21% to at least 25%, and as much as 27% or 28%. We have spoken of moderate Senator Kyrsten Sinema (D-AZ) and her staunch opposition to increasing this tax rate, and how much that matters as the Senate is split 50/50, and the Republican side is more unified than is the Democratic caucus.
A new plan has been hatched this week by Democratic party leaders in the Senate. Not the proposed taxing of unrealized capital gains for billionaires. That one must have been thought up by a six year old, or at least a cognitive suit wearing "zero" with absolutely no aptitude for economics. Unless one's plan in the first place is to force a massive withdrawal from public markets by large businesses.
No, this new plan has a chance. I now speak to the proposal of a 15% minimum tax rate for large corporations that report net income of $1 billion or greater for three consecutive years. Currently, a rule like this would impact roughly 200 American firms. Democratic lawmakers estimate that in constant terms (unlikely), this plan would raise between $300 billion and $400 billion over a decade. The difference here is that it appears that Senator Sinema might just be on board with this idea, as it does not crush small to mid-cap companies still just getting back on their feet post-pandemic in a much tougher environment for input costs, including labor.
Pleasantly surprising on Tuesday was the October read for the Conference Board's Consumer Confidence that printed at 113.8, well above consensus expectations, and up from a revised 109.8 for September. Hooray. Apparently, Americans now see light at the end of the COVID-19 Delta variant tunnel, and that counts for more than does inflation, which they are still concerned by.
The proportion of respondents planning to purchase homes, autos, or major appliances increased this month, as nearly half of all respondents stated the intention to take a vacation at some point in the next six months. This is the first time since March of 2020 that so many folks responding to this monthly survey were planning to go on vacation. Wouldn't that be nice?
"Wouldn't it be nice if we could wake up
In the morning when the day is new?
And after having spent the day together
Hold each other close the whole night through"
- From Wouldn't It Be Nice (Wilson, Asher. Love), The Beach Boys (1966)
Answering Your Trading Questions
My incoming email had a theme on Tuesday. I mean besides the 95% junk mail. Either folks wanted to thank me for the United Parcel Service (UPS) call, which has been a home run, or they wanted to very politely ask me what was up with my Lockheed Martin (LMT) call, which has turned into the opposite of a home run. There was also a Nvidia (NVDA) question.
One... United Parcel Service. I told you guys that Carol Tome had this. Some looked at the FedEx (FDX) numbers and worried about UPS. Big gap between Carol and what they have over there. Now, UPS will lift FDX as both benefit from what is and will be clear power over pricing despite increased fuel costs. Through nine months of 2021, UPS has generated more operating profit than in any full year in company history. No way? Yes way, dude.
Readers will see that UPS took out the $219 pivot on Tuesday. This allows us to move the target price up to $260, and the panic point up to $191. Potential problem? The late July gap has finally been filled... by another unfilled gap. I would expect that before we can truly consider this pivot to be "taken and held '' that there will be at least some attempt this week to fill the $205/$213 gap created overnight Monday into Tuesday.
Two... Lockheed Martin. It's hard for me to express how disappointed I am by this name. I can almost handle the revenue miss. It becomes more difficult when one realizes that Missile and Fire Command, Aeronautics, and Rotary & Mission Systems all missed their marks. The firm, however, did beat expectations for the bottom line. Looking forward, the firm guided revenues lower for the full year, but profits higher. It's the expected decline in net sales for FY 2022, that I find unacceptable. Not unacceptable for the company, but unacceptable for LMT to keep its spot on my pad for now. I have decided to work my way out of the position.
I am currently long 300% of what I consider to be a full position (10% is where I was 24 hours ago), which is not how I would suggest everyone go about exiting a damaged long position, but as you can see the shares did close well above their lows, and still leave an upside unfilled gap that will likely be addressed at some point. How long will I stay in the name? Until I take back what's mine. Not versus net basis... but versus Monday. Already wiped out two-thirds of that 12% hit. Tag, you're it.
Three... Nvidia. Yes, Facebook's (FB) expectation to spend heavily in building out the Metaverse is Nvidia's gain. Nobody is on Nvidia's level when it comes to high end GPUs, and perhaps only Lisa Su's Advanced Micro Devices (AMD) can even compete. Btw, AMD reported last night.
Another breakout past pivot, another unfilled gap left in the stock's wake. However, the actual breakout occurred on Monday, possibly strengthening the probability of support at pivot. My new target price for NVDA is $276, my new panic point is $212.
Tuesday Night Earnings
Sarge faves AMD and Microsoft (MSFT) both reported abso-freakin'-lutely awesome third quarters. Ooh-stinking-rah. Alphabet (GOOGL) also reported an incredible quarter with a couple of warts, but that one wasn't my call, and I am not long the name. Not enough space nor time left to go into great detail here. I will have to come back with another piece for Real Money and Real Money Pro shortly. Till then, we march on. Oh, push-ups. Begin.
Economics (All Times Eastern)
08:30 - Durable Goods Orders (Sep): Expecting -1.0% m/m, Last 1.8% m/m.
08:30 - ex-Transportation (Sep): Expecting 0.4% m/m, Last 0.2% m/m.
08:30 - ex-Defense (Sep): Expecting 0.4% m/m, Last 2.4% m/m.
08:30 - Core Capital Goods (Sep): Expecting 0.4% m/m, Last 0.5% m/m.
08:30 - Wholesale Inventories (Sep-adv): Expecting 0.8% m/m, Last 1.2% m/m.
08:30 - Goods Trade Balance (Sep): Last $-87.6B.
10:30 - Oil Inventories (Weekly): Last -431K.
10:30 - Gasoline Stocks (Weekly): Last -5.368M.
The Fed (All Times Eastern)
Fed Blackout Period.
Today's Earnings Highlights (Consensus EPS Expectations)