YOUR WEEKLY ROADMAP

There’s an old adage on Wall St. to sell Rosh Hashanah and buy Yom Kippur. The 10 day stretch occurs during the seasonally weak month of September. Last Friday was Rosh Hashanah and the S&P 500 lived up to the old adage as it fell by -1.2%.

Thanks to the Stock Trader's Almanac we know that since 1971 this period has seen 22 rallies and 31 sell-offs. The average return over this time is -2.1%. We are currently riding a four year losing streak during this time period.

Let’s see how we fare over this stretch when we hit Yom Kippur which is Monday, September 25th.

We could throw out more cool stats for this seasonal period, but let’s focus on the real news that traders will be glued to this week. It's all about the FOMC meeting on Wednesday.

Other stories that should make headlines and move markets are the continued climb of crude, economic fallout from a prolonged auto workers strike and a possible Disney restructure.

FOMC Decision. All eyes will be on Jerome Powell as the Fed announces its rate decision on Wednesday at 2:00. The street overwhelmingly expects a pause in rate hikes.

The Fed Chair has stated that they will remain data dependent when deciding rate hikes from meeting to meeting. The reports they received over the last two weeks in PCE, CPI and PPI were not alarming and the consensus is they will not need to raise rates at this time.

The market has another pause factored in. What the market wants to know is what’s next. What will the tone of the Fed be concerning the rest of 2023? As always, watch the 2:30 press conference closely. Upon completion of his comments watch the direction of the market into the closing bell. That tends to be the report card for how the market believes the Fed performed at this meeting.

Lastly, we will get a new dot plot which shows the target rate direction that each Fed governor believes we should be heading. The “dots” will be examined by market participants very closely and could give us a good idea if we are close to peak rate hikes.

It's a gusher! The price of oil continues to climb to its highest levels since June of 2022. It is now up over 15% since August 24th and over $90 a barrel. The push is the reason why the Energy Sector (XLE) is the leading sector over the last three months with a 15% gain.

What’s worse is that this trend will have a deep economic impact on all of us. The chart below shows the trend of an average gallon of gas continuing to tick higher. While not even near the $5 peak in 2022, it is trending back towards $4.

If you are curious how your state stacks up nationally, you can check that out below as well. Congrats to our readers in the Southeast! You continue to be the envy of every commuter. As for our readers on the West coast, public transportation has never looked so good.

And for those of us in New Jersey, at least we get special service and don’t have to pump our own gas.

Disney (DIS) Rumors. Keep an eye out on shares of the House of Mouse. Shares of DIS bucked the market trend and rallied on Friday to finish the week up 1.3%. It was its first weekly gain in five weeks as the stock bounced off its lowest levels since 2020.

Stories about Disney divesting ABC and possibly other parts of its media conglomeration continue to gain momentum as names like media mogul Byron Allen and Nexstar Media have shown interest. Could someone else emerge as a potential suitor for some of their assets? Disney tries to reinvent itself, streamline its business and add value to a stock that is down over 58% from its all-time highs.

United Auto Workers went on strike Friday to pressure the three major US auto-makers to raise benefits and wages. The simultaneous strike at General Motors (GM), Ford (F) and Jeep and Chrysler owner Stellantis (STLA) has been limited to one plant at each of the three, but has potential to grow if not resolved quickly.

According to Bloomberg and data they compiled from the Anderson Economic Group, a prolonged and expanded strike of up to 10 days could have a ripple effect across the economy. Currently the amount of workers on strike equates to roughly 10% of the UAW’s 143,000 workers, but if it expands it could have implications on GDP as well as the three stocks themselves.

Oddly enough, the price of shares were not affected by news of the strike on Friday. Shares of GM rose 0.86%, STLA popped 2.18%, and F was flat as it fell by a penny. Let’s see how they fare if things prolong.

Earnings.

Stocks in Focus…

FedEx (FDX) has been trending higher all year as the stock is up 47% year-to-date. Yet the stock has been stuck in neutral since early July. The shipping giant hopes to snap back into drive when they report after the close on Wednesday. FDX has traded higher after 5 of its last eight reports and has an implied move of +/-5%

Technically the stock has been chopping in a neutral trend - essentially $250 to $270 - since its last earnings release. It's almost identical to what it did the earnings cycle before that. The big difference this time is that the stock is trading at the lower end of the range and would need a real big push to breakout to new highs.

KB Homes (KBH) reports earnings on Wednesday and hopes to fare better than peer Lennar (LEN) which beat earnings yet traded lower by -3.5%. KBH shares have traded higher after 5 of its last 6 reports and has an implied one day move of +/- 4.5%.

Technically the chart looks like a classic head and shoulder topping pattern. It has had a great run - up 50% year-to-date - has well defined support at the $47.50 level and is in danger of breaking that level.

Two key momentum indicators are confirming the potential top as well. The RSI continues to trend lower despite the stock making new highs in August. It has yet to hit a new high, but consistently makes lower highs. Then the MACD just experienced a negative crossover which tends to be a good sell signal.

Given the pattern set-up, a breakdown of the $47.50 level would give the stock a downside target of roughly $7 and a test with its 200-day moving average around $42.

General Mills (GIS)

Let’s be honest, the infamous cereal maker known for iconic brands such as Cheerios, Lucky Charms and my personal favorite, Golden Grahams, isn't the most exciting stock to watch on a daily basis.

Last year it was a shining star in a bear market as it gained 25%. This year it has acted like a bowl of Rice Chex that's sat out too long. It started off strong by making all-time highs in May at $90.89 and is now just a sloppy mess trading lower by -21% YTD.

On Wednesday they report quarterly results and may be in a spot to finally rally. Given a minor rebound in Consumer Staples and its current technical levels, the risk-reward set-up for shares looks intriguing.

The stock is coiling in a tight range between its current downtrend and support zone. It is holding $65 which happens to be the lows from which it began its 2022 climb. It is over 28% off its May peak so it has something to reverse. Lastly, if you're bearish this may be a safe haven. If you’re bullish, a fourth quarter rally should lift most stocks and this has a lot to reverse as it’s 29% off its May peak.

Economic Calendar

Tuesday - Housing Starts, Building Permits 8:30

Wednesday - FOMC Rate Decision 2:00, Jermone Powell press conference 2:30

Thursday - Jobless Claims 8:30, Existing Home Sales 10

THE WEEK THAT WAS

The markets struggled for direction all week. When the final bell rang on Friday the major indexes were all marginally lower with a slight exception in the Dow which eked out a minor gain over the 5 day stretch.

Despite any decisive move in the markets there was plenty of news that kept traders' attention and made for a busy week.

ARM Holdings (ARM) made its anticipated public debut at the Nasdaq on Thursday. Shares of the semiconductor company priced at $51 which was the high end of its range. The stock opened at $56.10 and climbed as high as 66.28 before settling in and finishing the week at $60.75. It was the biggest IPO to hit the market since Rivian (RIVN) made its debut in November 2021.

Investors' appetite for new issues was clearly on display as over 130 million shares exchanged hands and the stock closed up 19% from its initial pricing.

Economic Data. Both key economic data points in the PPI and CPI came in slightly hotter than analysts expected. The focus on these numbers remained on the overall trend of the core number (chart below), which excludes volatile energy (gas) and food numbers. Those numbers continue to trend lower and should keep the Fed in a more neutral stance for the time being.

Deals. There were two small deals on Wall St. worth mentioning last week. Why mention them? Good question. Between a resurgence of the IPO market and a rise in deals it demonstrates that conditions are much more promising than many of the bears believe.

Smurfit Kappa (SKG LN), the Dublin based packaging company, announced it would merge with Westrock (WRK). The combination with the Atlanta based packager and its 50,000 employees creates a global cotainer-board giant and should be finalized in the first quarter of 2024.

Shares of Smurfit traded down -3.7% on the news. While shares of Westrock jumped 5.7%.

Smucker’s (SJM) agreed to terms to acquire Hostess (TWNK) in a deal valued at $5.6 billion. TWNK, which came back to the public markets via SPAC in late 2015, had its shares gobbled up at all-time highs as it will join the Smucker’s family and its great line of products.

Shares of SJM finished the week -10.4%. While shares of TWNK closed up 18.6% to close at $33.35.

Heat Map. Utilities and the banks led in what was a very mixed week. Technology as seen in the heat map struggled mightily as software and semiconductors lagged.

Heat Map. Utilities and the banks led in what was a very mixed week. Technology as seen in the heat map struggled mightily as software and semiconductors lagged.

The biggest winner was Tesla (up 10.4%) thanks to a major upgrade on Monday by Morgan Stanley. They upped their price target from $250 to $400 which is an upside of 45% from current levels.

STOCKS IN THE NEWS

Oracle (ORCL) suffered its worst day in over two decades as they missed earnings on weaker than expected revenue. The company also guided lower causing the stock to drop -13.5%.

Adobe (ADBE) beat on sales and earnings. It also raised its forward guidance, so clearly shares fell over 4% on the news 🙄. This is yet another example of a pattern we have been monitoring closely here on the weekly newsletter.

The pattern involves a hot stock with AI exposure, that is trading at 52-week highs and has a solid quarterly result. Those stocks have included Microsoft, Broadcom and most notably Nvidia. They all failed to keep their upward momentum going despite great fundamental news.

Price continues to lead despite the positive news. Shares of the Van Eck Semiconductor Index (SMH) are now 9.3% off the July 31st peak. Shares of ADBE sold off -4.2% to close at $528.89.

MARKET STATS

The biggest market cap stocks known as the “Magnificent 7” all traded lower on Friday and took the major averages along for the ride. As a result, the Nasdaq 100 gave back early week gains to finish lower by -0.5%. The more diverse indexes in the S&P 500 and Russell 2000 did lose ground, but the losses were minimal at roughly -0.2% each.

The Dow Jones Industrial Average was able to eke out a small gain as shares of Goldman Sachs (GS), Honeywell (HON) and Disney (DIS) all gained 5%. Those gains offset losses of -4,5% in Salesforce (CRM) and a -4.9% in MMM.

SECTOR WATCH

The market took on a very defensive posture as Utilities (XLU) was the big winner of the week. Shares of XLU gained 2.8%. Consumer Discretionary (XLY) was next as Tesla (TSLA), which comprises 20% of the ETF, rallied 10.4% on the week after a strong upgrade from Morgan Stanley.

Overall, four of 11 sectors finished lower on the week. It was Technology (XLK) that led all indexes and much of the market lower. Weakness in Apple (AAPL), down -1.8%, and the semiconductor sector caused the XLK to drop -2.3% on the week.

IPO ACTIVITY

Instacart (CART) has moved up and boosted its price range following the strong reception to Arm Holdings (ARM) last week. They are now scheduled to price Monday night for a Tuesday debut on the Nasdaq.

The new range is between $28 to $30 a share up from $26 to $28. They hope to raise as much as $600 million at a valuation of just under $10 billion. This is a far cry from its peak valuation of $39 billion during the IPO peak in late 2021.

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