(Justin Vaughn, Editor, Options Trading Report)
Stocks were mixed all week as stronger retail numbers by industry leaders were robust, surprising analysts and economists. As the week wore on more earnings emerged with less ‘gloss’ and the markets reacted with some ‘whipsawing.’ Blue Chip stocks were in the limelight off and on the first three days as no direction defined itself. Both the S&P 500 and the Dow Jones Industrial Average showed some positiveness, while the Nasdaq Composite stuttered. Consumers showed ‘some confidence’ as buying patterns exhibited promise, and spending was vigorous and ‘more normal.’ “Every time we’re seeing a dip, the buyers show up, and I think that’s more a reflection of the fact that for too many managers were way under-weight equities for the reality and now they’re chasing momentum,” said Derek Amey, partner and co-chief investment officer of StrategicPoint Investment Advisors. Interestingly many traders and investors we’re equities-shocked in the downturn and over-reacted to the effects of inflation on the markets. Now that current ‘pointers’ predict inflation is turning downward, confidence is gradually returning, with interest in the Blue Chips. Oil prices have remained soft, slipping 2.9% to $92.34 a barrel, with gasoline following suit, presently hovering in the $3.60 to $3.95 range. As oil inched downward the bond markets inched upward, with the benchmark 10-year note edging up to 2.894, and the two-year note climbed to 3.293%, (Yields rise when bond prices decline). “The bond market is not sold on this idea that some Fed pivot is imminent,” Chris Verrone said, a partner at research firm Strategas. He added, “higher yields are a reason to doubt the stock-market rally’s endurance.”
King Cotton Drys Up…weather in the southwest is dry, and the cotton crop is parched. Farmers are forced to leave millions of acres of cotton rotting in their fields. As oil prices soared upward, cotton followed hitting record highs in May of $1.50 a pound. And then as oil prices dropped, cotton dropped also, now hovering at $1.16 to $1.18 a pound. The severe lack of rain has stunted cotton growth throughout Texas, the biggest producer of cotton in the U.S. Many cotton farmers are harvesting just a fraction of their plantings. “As dry as it is, unless you’ve got some irrigation, it’s fruitless,” says Val Stephens, a cotton grower of 1,500 acres south of Lubbock, Texas. Mr. Stephens, like a majority of cotton growers’ has had to collect insurance on his disastrous crop loss of 90%.
Theaters are filling up…with several ‘super-hits; “Top Gun: Maverick,” Minions: The rise of Gru” and “Jurassic World Dominion” have drawn rave audiences, filling theaters for the first time in over two and a half years. Consumers are getting out, going out to movies, renewing movie traditions. Sales of tickets are nearing pre-pandemic levels with over $3.03 billion sold up to August 7, this year, still short $600 million, but gaining fast. Many ‘movie-houses’ have closed and many employees have been laid off, but that trend is now reversing. Predictions for 2022 box office receipts will be almost two-thirds of pre-pandemic sales. “What the audience is clearly telling us is they love the big-screen experience, but not for every movie,” Mr. Goldstein of Warner Brothers said.
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RUMBLINGS ON THE STREET
Keith Parker, head of equity strategy research at UBS, Barron’s “We’re in the danger zone side of the cycle,” he explains. “We can get some pretty steep rallies and some pretty steep selloffs, but the risk/reward is tilted down.”
Robert Shimer, University of Chicago economist, Barron’s “Unemployment rises almost entirely because jobs become harder to find. Recessions involve little increase in the flow of workers out of jobs. We are seeing a slight uptick in initial jobless claims but no pass through to continuing claims, and layoffs remain near record-low levels.”
Julia Pollak, writer of Other Voices, for Barron’s “It is easy to imagine the labor market going from white hot in 2021 to red hot in 2022’s first half, and reaching a more sustainable temperature in the second half. It’s hard to imagine the labor market entering a deep freeze anytime soon. The question, of course, is how much more cold water the Federal Reserve will have to throw its way.”
Richard Bernstein, CEO of Richard Bernstein Advisors, Barron’s “The last thing they want to do is take the foot off the brake and have inflation come ripping back. The more you think tech is going to run, the more you have to think the Fed is going to have to tighten.”