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It’s a holiday shortened week on Wall St. as we celebrate Thanksgiving. The markets are closed Thursday with a half-day session to end the week on Friday.

This could be a good week for the market to digest some of its recent gains. Overall, economic news is light as we got a heavy dose of it last week before this shortened week. Earnings season is all but over save a few stragglers. However, one of those late to report is arguably the stock of the year - Nvidia.

Nvidia (NVDA) has been far and away the best performing stock of 2023. It is up a resounding 237% for the year. It has accounted for over 100 S&P points on its own and over 15.5% over the index’s YTD gains. Given its importance it could single-handedly be the next catalyst to move the market.

Just a few weeks ago we were talking about a potential reversal due to the formation of a head and shoulders top. For that formation to complete and breakdown the stock needed to experience a close below $400. It briefly breached that level on an intraday basis, but never closed below that threshold and then reversal was on.

It is coming into earnings hot. It has rallied from an intraday low 392.30 on Halloween to a recent peak of $499.60, which also included a remarkable 10-day winning streak.

The question now becomes, is any further upward move possible or has it already been baked into the stock?

The company has exceeded lofty earnings expectations the last three quarters. It has experienced gains of 14%, 24% and 0.1% over that time. Ironically, it was the last earnings cycle that exceeded expectations the most, but the stock failed to continue higher.

They report Tuesday after the close. Expect extreme volatility after hours when they announce. The key is to see if those after hours moves can continue during Wednesday’s primary trading session.

To the upside, watch the $502 level. The bulls want to see a gap above this level and a close above the recent $400-$500 range. This would be the perfect set-up for the next leg higher which will push the S&P 500 higher into year end.

To the downside, there are clear levels of support at $475 (October highs), $444 (50-day moving average) and the largest area at $400. A level that the stock was trading around just two weeks ago.

Small Caps Continue to Rally. The Russell 2000 gained a remarkable 5.4% last week as chances of any future rate hikes seemed squashed for now. This was the broadening of the market that many have been waiting to see.

Now the question is, can it continue? We believe it can as we close out the end of 2023. The index held key support levels and now is back at the mid-point of its neutral trading range between roughly 160 and 197. Given seasonal strength, lower yields and a rotation into many of the laggards, a rally to the upper range, a 10% move from current levels would not be a stretch.

Speaking of those seasonal trends, thanks to my friend Jeff Hirsch of Stock Trader's Almanac for sharing his work via Twitter. The Russell is now entering its strongest seasonal time as we end one year and begin the next. Going back to 1979, on average the index tends to bottom at the end of October and rally over the next three months. We will discuss more about the “January Effect” in coming weeks. For now we think this pattern should continue and is just kicking into gear.

Earnings. Four more retailers in Kohl’s (KSS), Lowe’s (LOW), Best Buy (BBY) and Dick’s (DKS) report on Tuesday. Otherwise, the light selection allows traders to get out of town early and enjoy the holidays.

Stocks in Focus…

Zoom Video (ZM) recently traded at all time lows in October and is hoping to show its first signs of life since its 2020 peak. Shares are 90% below its Covid highs and have traded lower after 10 of its last 12 quarterly earnings releases. They’ll try to turn it around when they report Monday after the close.

The stock sure has a lot to reverse and the slide downward has slowed as seen in its chart since its IPO above. We need to see price break that downtrend before thinking that the worst is over. Both the 50-day (blue line) and 200-day (red line) moving averages have been major resistance levels for the better part of three years.

One positive, Citi upgraded ZM to neutral from sell on Friday. The analyst says that Zoom still "faces significant risks, some arguably existential", including looming competition from Microsoft (MSFT).

Deere (DE), the agricultural machinery giant and industrial staple reports Wednesday morning. Shares are lower by 11% year-to date but have shown some signs of life over the last two weeks. The company has beaten EPS estimates over 15 of the last 16 quarters, yet has only traded higher exactly half of the time. The implied one day move after earnings is +/- 4.7%.

The stock is currently trading right where it was back in March of 2021. Over that time shares have traded between $300 and $450. Price action is starting to show some life. The stock made a higher low on its last sell-off and recently broke its intermediate term downtrend. It is sitting below key 50 and 200-day moving averages.

Economic Calendar

Monday - Philadelphia Eagles at Kansas City Chiefs 8:20PM

Tuesday - Existing Home Sales 10:00, Fed Minutes 2:00

Wednesday - Jobless Claims 8:30; Consumer Sentiment 10:00

Thursday - Happy Thanksgiving!!

Friday - Market Closes at 1:00PM

THE WEEK THAT WAS

The rally continued on Wall St as a jam-packed week of earnings, economic data and geopolitical news kept traders on their toes.

The CPI. Tuesday’s cooler than anticipated CPI number was met with cheers as both the headline and core number came in slightly lower than expected. The headline which includes energy and food came in at 3.2% below the anticipated 3.3%. The core dropped to 4.0% which was lower than an expected 4.1%.

As a result stocks pushed even higher. The S&P 500 jumped from the 4400 level to 4500 on the news. The biggest winner were the small caps as the Russell 2000 jumped 5.4% on Tuesday alone.

One of the biggest reasons for the decline was shelter. Shelter can be a lagging indicator but it is the largest component of headline (33%) and core (41%). Shelter dropped from +7.1% to +6.8% and has finally turned downward significantly. This turnaround has a lot to reverse and gave the doves a very optimistic view that the Fed’s rate hikes are working and that inflation will continue to ease.

Debt Ceiling. Newly elected House Speaker Mike Johnson was able to craft a bill that averted a government shutdown. He was able to gain bi-partisan approval in both the House and Senate avoiding the shutdown for now.

The continuing resolution did not include any drastic spending cuts or controversial policy provisions which helped gain approval and keep funding of the federal government going until early 2024.

While this is good news for now, we will quickly revisit this debate in January as Speaker Johnson’s plan is staggered in its structure. Roughly 20% of the government funding is financed through January 19th and the rest through February 2nd. So essentially, they kicked the can down the road yet again. Just this time in a slightly more creative way.

Small Caps Rebound. The biggest winner of the week was the most beaten down group of 2023 in the small caps. The Russell 2000 jumped 5.4% thanks to a drop in the 10-year rate below 4.5%, a cooler than anticipated CPI report and the thought that the Fed’s rate hiking cycle is finally over.

The small caps still lag the overall indexes by a wide margin, but were able to avoid a major breakdown in October. As a result the bargain hunters came circling and caused an emphatic snapback rally.

Retail Results. Home Depot (HD) kicked things off on Tuesday with mixed results. Like many of the beaten down retailers they were able to rally as results weren’t as negative as they had been over previous quarters. The company did narrow its full-year outlook and was still able to gain 5.4%. Shares are now only down -2.7% year-to-date.

Target (TGT) had been the most beaten down of the big retailers. Despite a slip in sales, thanks to shrinking inventories and a slight beat the stock was finally able to reverse course and jumped 21% for the week. Even with that big jump, shares are still down -12.9% for the year.

Ironically Walmart (WMT), which has been far and away the leader of the group, beat its numbers but issued guidance that was lighter than analysts expectations. Shares slumped -6.5% but remain up 9.6% year-to-date.

Other retailers saw their stocks rebound on positive reports after struggling most of the year. Macy’s (M) gained 31.6%, Kohl’s (KSS) popped 17.5% on their coattails ahead of this week’s earnings and made back all of its 2023 decline, while Gap Stores (GPS) had its best day since its IPO back in 1980 with a 30.6% gain after reporting a huge beat.

Heat Map. Another strong week across the board as financials, materials and industrials led. The big winner was retail despite a -6.5% pullback in industry leader Walmart (WMT).

The megacaps managed to all finish green with one standout in Tesla (TSLA). The EV maker had failed to keep up with the rest of the “Magnificent 7” but got a much needed rebound last week as it tried to rebound from its recent weak quarterly earnings report.

STOCKS IN THE NEWS

Cisco (CSCO) shares dropped 13% after cutting their revenue forecast for the fiscal year. The networking giant and Dow component also lowered its earnings per share from an expected range of $4.01 to $4.08 to $3.87 to $3.93.

Shares suffered their largest daily drop in over 18 months as concerns of slowing sales will take a further toll on future growth. For the week shares closed lower by -9.2% to finish at $47.76. For 2023, shares are basically flat and significantly trailing most of the other tech giants in the industry.

Boeing (BA) was the beneficiary of the Asia-Pacific Economic Cooperation summit between Chinese President Xi and President Biden. China announced they were ending its freeze on the airline manufacturer and committed to purchase their 737 Max aircraft.

They also received great news out of Dubai this week. They received 295 aircraft orders which far outpaced their biggest rival in Airbus which received only 86.

For the week shares of BA soared by 5.8% to close at $208.06. The stock is now up 9.2% year-to-date.

Alibaba (BABA) shares sank -6.2% last week as they reported slower than expected sales due to the slowing Chinese economy. But the big news that shocked BABA investors was the plan to scrap its planned spinoff of its cloud based unit, Freshippo. Shares have retraced the entire upwards move since that announcement was made in May.

Shares of the Chinese e-commerce giant gave back all of its yearly gains as a result and now are lower by -11.5% for 2023.

MARKET STATS

Who said all great things must come to an end? The major indexes climbed for the third consecutive week led by the small caps in the Russell (RTY). The RTY is now up 8.2% for the month and is positive for the year. The Dow also went positive for the year this month with a gain of 5.7% so far in November.

The big winner continues to be the Nasdaq 100 (NDX). After another 2% gain it is up close to an astonishing 45% for 2023. If Nvidia breaks out this week, then a push to that 50% mark may not be out of the question.

SECTOR WATCH

It was another stellar week on Wall St. as all 11 sectors finished the week with gains. The biggest leaders continue to be some of the year’s biggest laggards in Real Estate (XLRE), Utilities (XLU) and Financials (XLF), which gained 4.6%, 3.3% and 3.2% respectively.

The one sector that continues to struggle is Energy (XLE). Crude oil fell as low as $72.16 - its lowest level since early July, before rebounding Friday afternoon to close back over $75.50. As a result, the sector managed a small gain of 0.8%, but was still the worst performing index for the fourth consecutive week.

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