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October 21, 2022

After sinking to new bear lows last Friday, the indexes have bounced back some this week (up 2% to 3%), though we’ve seen some selling on the early-week pop after a Fedhead implied at least a couple more big rate hikes are likely before year end (markets now see two more 0.75% hikes). Even so, nothing has changed with the primary evidence—the intermediate- and longer-term trends are down for the indexes and most stocks are still buried (80% of names below their 50-day and 200-day lines). Thus, we remain defensive.

After sinking to new bear lows last Friday, the indexes have bounced back some this week (up 2% to 3%), though we’ve seen some selling on the early-week pop after a Fedhead implied at least a couple more big rate hikes are likely before year end (markets now see two more 0.75% hikes). Even so, nothing has changed with the primary evidence—the intermediate- and longer-term trends are down for the indexes and most stocks are still buried (80% of names below their 50-day and 200-day lines). Thus, we remain defensive.

That said, at least in the near-term, it’s worth keeping your eyes open. While the indexes certainly haven’t been strong, they have generally stopped going down (net-net) since late September. Meanwhile, we still have a positive divergence in the number of new lows in effect (the peak was September 23 vs. index lows on October 14). And, impressively, this has occurred while interest rates have been soaring—the 10-year Treasury is up about 70 basis points (0.7%) in the past two and a half weeks!

For our intermediate-term trend model, a move above ~3,800 late next week in the S&P 500 (maybe around 11,250 in the Nasdaq) could actually produce a green light. Of course, we never anticipate signals, but it’s something to watch in the days ahead.

Otherwise, there’s not much new to report—there remains lots of dry tinder out there, with the reasons for the bear market extremely obvious, so we continue to think that if something, anything, can go right in the world, the market (after 11 months of down for the Nasdaq) can surprise on the upside.

For now, though, it’s still a time to practice patience but to also stay flexible while we mostly hone our shopping list of potential leaders—we look forward to highlighting any intriguing earnings winners we see over the next few weeks. All in all, our Market Monitor remains at a level 3.

SUGGESTED BUYS
Interactive Brokers (IBKR) has gone bananas, shooting higher after a very solid Q3 report. We wouldn’t be chasing strength in this environment, but a dip into the lower 70s would be interesting, with a stop around 67.

Schlumberger (SLB), a recent recommendation, has taken off on the upside as well, including this morning’s earnings gap.

Xometry (XMTR) has pulled in of late, which isn’t a surprise after the big run into the middle of September—but it hasn’t done much wrong (still hanging near its 50-day line) and shares are likely building a reasonable launching pad. A move back above 58 in the days ahead would be intriguing, with a loose stop in the 49 area.

SUGGESTED SELLS
Penumbra (PEN) – tripped stop

No others for now … but we’ll likely have some further pruning come Monday.

SUGGESTED STOPS
Academy Sports (ASO) near 40
Cal-Maine Foods (CALM) near 56
Chesapeake Energy (CHK) near 93
Chord Energy (CHRD) near 135
Consol Energy (CEIX) near 61
Dick’s Sporting Goods (DKS) near 102
HealthEquity (HQY) near 67
Interactive Brokers (IBKR) near 67
Iveric Bio (ISEE) near 18
Las Vegas Sands (LVS) near 34.9
LPL Financial (LPLA) near 222
Regeneron (REGN) near 680
Revance Therapeutics (RVNC) near 22