Good Friday evening to all of you here on r/stocks! I hope everyone on this sub made out pretty nicely in the market this past week, and are ready for the new trading week ahead. 🙂
Here is everything you need to know to get you ready for the trading week beginning November 28th, 2022.
The Dow Jones Industrial Average rose Friday, notching a gain during the holiday-shortened trading week.
The Dow rose 152.97 points, or 0.45% to 34,347.03, marking the third consecutive session of gains. The S&P 500 fell 0.03% to end the day at 4,026.12. The Nasdaq Composite slipped 0.52% to 11,226.36, weighed down by shares of Activision Blizzard, which fell 4% on news that the FTC could block Microsoft from taking over the gaming company.
All three indexes ended the week higher. The Dow is up 1.78%, and the S&P 500 is up 1.53% during the short week. The tech-heavy Nasdaq is lagging the other two indexes but is still up 0.72% in the same timeframe.
Stocks were muted at the start of the week as traders waited for minutes from the Federal Reserve’s November meeting. The minutes showed that the central bank anticipates slowing the pace of interest rate hikes going forward, which gave stocks a boost into the end of the week even amid choppy sessions due to low trading volumes.
“A substantial majority of participants judged that a slowing in the pace of increase would likely soon be appropriate,” the minutes stated.
A slew of solid retail earnings reports signaling some consumer strength even amid worries of economic weakness also lifted stocks.
Worries about continued lockdowns in China kept markets in check. The country is ramping up Covid restrictions after seeing climbing case counts in recent days. Earlier in the week, China reported its first Covid deaths since May.
Next week, investors will be watching for more earnings reports from companies such as Kroger and Ulta Beauty on deck. On the economic front, traders will be watching further comments from Fed officials, as well as the release of the personal consumption expenditure report on Thursday — the central bank’s preferred inflation indicator. The November jobs print is due Friday.
This past week saw the following moves in the S&P:
S&P Sectors for this past week:
Major Indices for this past week:
Major Futures Markets as of Friday’s close:
Economic Calendar for the Week Ahead:
Percentage Changes for the Major Indices, WTD, MTD, QTD, YTD as of Friday’s close:
S&P Sectors for the Past Week:
Major Indices Pullback/Correction Levels as of Friday’s close:
Major Indices Rally Levels as of Friday’s close:
Most Anticipated Earnings Releases for this week:
(CLICK HERE FOR THE CHART!)
(T.B.A. THIS WEEKEND.)
Here are the upcoming IPO’s for this week:
Friday’s Stock Analyst Upgrades & Downgrades:
Tempered Yearend Gains When S&P Down YTD Thanksgiving
Last year at this time on the Tuesday before Thanksgiving S&P 500 was up 24.9% year-to-date. November 2021 gave back a fractional loss, but December and the Santa Claus Rally delivered solid gains.
But then the stuff hit the fan. Inflation became non-transitory, the Fed began tapering asset purchases and telegraphing imminent rate hikes, Russia invaded Ukraine and the bear came out of hibernation.
This year on the Tuesday before Thanksgiving the market is in an entirely different situation with S&P down -16.0% YTD. The table here shows how the market claws its way back in most years with fewer but sizable losses bringing the averages down.
The fact that November 2022 is up so far is supportive for continued upside. What stands out to us in this table is the rather solid performance for the Tuesday before Thanksgiving-Santa Claus Rally trade as well as solid gains for the Santa Claus Rally itself.
We wish everyone a happy and festive Thanksgiving and hope that you all enjoy the time with friends and family!
Continuing Claims Flash Recessionary Warning
Due to tomorrow’s holiday, this week’s jobless claims data was released a day early and were not exactly a release to be thankful for. The latest readings were bad all around with both initial and continuing claims rising more than expected. For initial claims, last week’s level was revised up by 1K to 222K, and this week’s reading rose by 18K to 240K. That is the highest level of claims since the week of August 18th, and the sequential increase was the largest since the end of September. Whereas recent readings on jobless claims have been healthy in the sense that they have remained within the range of low readings from the few years prior to the pandemic, this new high would have been at the high end of the 2008 to 2019 pre-pandemic range.
On a non-seasonally adjusted basis, the current week of the year typically sees claims move higher with a week-over-week increase 82% of the time. However, this week’s increase was around 10K larger than what the comparable week of the year has historically averaged. In other words, from a seasonal perspective, the rise in claims is perfectly normal in terms of direction but less so in terms of size. Now at 248K, claims are in line with levels for the comparable weeks in 2021 and 2019.
Continuing claims continue to be the more interesting story around jobless claims. Delayed one week to the initial claims number, continuing claims as of the week of November 11th rose for a sixth week in a row. As we noted last week, such a streak of consistent increases in continuing claims has been rare, especially in the years following the Global Financial Crisis. In fact, the rise during the onset of the pandemic in 2020—which lasted for 10 consecutive weeks—was the only other notably lengthy streak post-2009. Prior to that, there have only been a handful of other times in which continuing claims have risen for 10 weeks or more.
As for the current rise in claims, the latest increase leaves the reading at 1.551 million which is the highest level since the first week of March. From a historical perspective, though, that remains an impressively low reading and well below the pre-pandemic range even if it is rapidly deteriorating.
As for just how bad of a stretch it has been for continuing claims, the 187K increase, or 13.7% jump, during the past six weeks would be by far the largest in over a decade outside of the start of the pandemic. Additionally, such a large increase in the span of six weeks is consistent with increases from all prior recessions. In fact, as claims have made their way off of historic lows, the current increase is nearly the same size as the early 1990s recession and is even larger than those in the early 1980s and early 2000s.
Speculators Smelting Shorts
As we do each Monday, in last night’s Closer we recapped the latest Commitments of Traders data from the CFTC. This data set provides a look at how speculators have positioned themselves (long or short) in various futures. We show those readings as a net percentage of open interest. In other words, higher positive values indicate a much larger share of open interest is positioned long and vice versa for negative readings.
In the commodities space, after longs backed out in a big way earlier this year, readings have risen rapidly in gold, silver, copper, and palladium futures. As for how sharp of turnarounds they have been, the increase over the past two weeks rank in the top decile of all periods in data going back to the mid 1980s for each of the previously mentioned metals.
For the most widely followed of these metals (gold, silver, and copper), this is only the 14th time on record each of their two week changes ranked in the 90th percentile or above in the same week without another occurrence in the prior three months. The most recent occurrence of such a large broad increase in major metals positioning was in July of 2014.
Although these readings indicate that speculators are increasingly placing long bets on these futures, such data actually can be a bit of a messy indicator for forward performance. Although these readings indicate bullish sentiment, forward performance is the opposite in the near term with dramatic underperformance relative to the norm one week later (which we have seen play out so far). One month and three month performance tends to see further declines in these commodities as well which is not exactly unheard of for precious metals while it is dramatically weaker for the industrial metals. Six month performance is generally more in line with historical norms while the bullishness in positioning only seems to come through to price action one year out. One year average returns for gold, silver, and copper are much stronger than the norm, although positivity rates are still just barely above 50/50. (Past performance is no guarantee of future results.).
The “Most Obvious” Bear Market Rally Ever?
“ The stock market is never obvious. It is designed to fool most of the people, most of the time.” Jesse Livermore
I’ve noticed a trend the past few weeks and that is since the mid-October lows most commentators say we are obviously experiencing a bear market rally in stocks. But is it really so obvious? Remember, as one of the greatest traders ever said, the market’s job is to fool the masses most of the time. Wouldn’t it be something if this was actually the start of a new bullish phase and not just another bear market bounce?
What’s a Bear Market?
First things first, what is a bear market rally? To me, it is when stocks bounce (potentially significantly), only to eventually move back to new lows. Think about the 17% rally the S&P 500 saw over the summer, only to roll back over and make new lows in October. That’s a bear market rally, which is what most think is happening now.
Calling This a Bear Market Rally Is Popular
Here’s the catch, most stocks actually bottomed back in June. That’s right, more 52-week lows took place in June than in October, so you could say we’ve been in a new bull market for five full months now. Not a popular take I’m aware, but one that could be happening. Not to mention small caps didn’t break their June lows back in October. Remember, there are a lot more small caps than there are large caps, again suggesting the real lows took place in June, not October.
Here’s a very quick Google search of ‘bear market rally’ and you can get a taste for what I mean about most thinking this is nothing more than a bear market rally.
I do a lot of social media, specifically Twitter, and I must say that the amount of anger when stocks go higher is about as high as I can ever remember. Bullish tweets or stats are simply crushed by an angry mob. Given this is a family website, I can’t share some of the comments, but let’s just say being remotely bullish is frowned upon by most investors and traders right now. Again, this is likely because some people believe it is so ‘obvious’ to everyone this is only a bear market rally, and new lows are a near certain but maybe it isn’t so obvious.
More Signs the Crowd Isn’t In a Good Mood
The great Stoic philosopher, Seneca the Younger said, “We suffer more often in imagination than in reality.” One might interpret that as we all worry too much and things really aren’t as bad as they seem. And this could be what is happening right now. We keep hearing how bad the economy is, yet as Sonu noted last week, the consumer is quite strong. In fact, the fourth quarter is expected to see GDP growth of more than 3% according to the Atlanta Fed. Speaking of Seneca the Younger, do you know who his father was? Seneca the Elder. I’m serious, that was his name. Gotta love Ancient Rome and its philosophers!
Enough Ancient Roman jokes and back to why this likely isn’t just a bear market rally, and why it could be the start to a new bullish move higher. One of my favorite surveys is the Bank of America Global Fund Manager Survey. This monthly survey asks real money managers what they expect and how they are positioned. The recent report showed cash was up 6.2% of a portfolio, near the highest level since 2001, while a net 77% of respondents expected a global recession within 12 months.
But my favorite stat was “0% were looking for a ‘goldilocks’ scenario.” Take note, this scenario would mean above-trend growth and below-trend inflation (See BofA Global Fund Manager Survey chart below). I agree it would be quite hard to expect that right here and now, but my takeaway is nearly no one is expecting good things to happen. Meaning expectations are historically low. As the chart below shows (focus on the yellow line), the last time it was this low was in late 2011, when all we heard about was the fiscal cliff drama out of Washington. Looking back, 2012, 2013, and 2014 were very solid years for both the economy and great years for the stock market. Given expectations got so low back then, good news then sparked a much better stock market and we think a similar situation could be in play again as we head into 2023.
George Orwell said, “To see what is in front of one’s nose is a constant struggle.” That is what is happening now, in my opinion. Things are getting better, yet people are focusing on the past and for some reason, angry about good news. My take is don’t be angry and embrace what could be better times and better news coming.
I hope everyone has a great Thanksgiving week and you all enjoy eating way too much food with family and friends!
Time to Feast Thanksgiving-Santa Claus Rally Trade
Market action this past week and today has set up this annual market feast. Stocks have consolidated October’s big gains in typical early-November fashion setting the market up for the perennial yearend rally.
Since 1950 S&P 500 is up 80% of the time from the Tuesday before Thanksgiving to the 2nd trading day of the year, average gain 2.7%. Russell 2000 is up 79% of the time since 1979, average gain 3.4%.
Thanksgiving kicks off a run of solid bullish seasonal patterns. November-January is the year’s best consecutive 3-month span (2023 STA p 149) and as we have been discussing all year we are at the outset of the “Sweet Spot” of the 4-Year Cycle (2023 STA p 34). Then there’s the January Effect (2023 STA pgs 112 & 114) of small caps outperforming large caps in January, which nowadays begins in mid-December.
And of course, the “Santa Claus Rally,” (2023 STA p 118) invented and named by Yale Hirsch in 1972 in the Almanac and often misunderstood, is the short, sweet rally that runs from the last 5 trading days of the year to the first two trading days of the New Year. Pop also coined the phrase: “If Santa Claus should fail to call, bears may come to Broad and Wall.”
So, we have combined these seasonal occurrences into one trade: Buy the Tuesday before Thanksgiving and hold until the 2nd trading day of the New Year. Our good friend and renowned technician and options guru Larry McMillan of the Options Strategist opened our eyes to this trade and runs it with options on iShares Russell 2000 (IWM) starting on the day before Thanksgiving.
Here are the most notable companies reporting earnings in this upcoming trading week ahead-
(CLICK HERE FOR NEXT WEEK’S MOST NOTABLE EARNINGS RELEASES!)
(T.B.A. THIS WEEKEND.)
(CLICK HERE FOR NEXT WEEK’S HIGHEST VOLATILITY EARNINGS RELEASES!)
(T.B.A. THIS WEEKEND.)
Below are some of the notable companies coming out with earnings releases this upcoming trading week ahead which includes the date/time of release & consensus estimates courtesy of Earnings Whispers:
Monday 11.28.22 Before Market Open:
Monday 11.28.22 After Market Close:
Tuesday 11.29.22 Before Market Open:
Tuesday 11.29.22 After Market Close:
Wednesday 11.30.22 Before Market Open:
Wednesday 11.30.22 After Market Close:
Thursday 12.1.22 Before Market Open:
Thursday 12.1.22 After Market Close:
Friday 12.2.22 Before Market Open:
Friday 12.2.22 After Market Close:
(CLICK HERE FOR FRIDAY’S AFTER-MARKET EARNINGS TIME & ESTIMATES!)
(NONE.)
(T.B.A. THIS WEEKEND.)
(T.B.A. THIS WEEKEND.) (T.B.A. THIS WEEKEND.).
DISCUSS!
What are you all watching for in this upcoming trading week?
I hope you all have a wonderful weekend and a great trading week ahead r/stocks. 🙂
