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Tuesday, October 19, 2021
Trash.
That’s my word of the morning for you all.
My golf game was in trash-like form on Sunday afternoon while catching a quick 18 holes with Yahoo Finance senior columnist Rick Newman (whose play was not trash). I doff my cap to you, Sir Rick.
Trash was in my thoughts on the golf course (that led to trash play). I wasn’t thinking about the next shot or how amazing I looked in the new outfit I picked up before the round. Nope not my always intense self, I spent four hours or so pondering internally why the stock market is suddenly back in rally mode. Is it a fake rally? Did the bears deserve to have been chopped to pieces last week? Just giving you a peek inside my head to kick off the week.
Of course I didn’t let Sir Rick know any of these internal debates were happening, definitely would have been against bro etiquette on the golf course (says my former long-time caddy self). Gotta live in the moment, right?
Here are a couple of reasons I cooked up for why stocks are making power moves higher again:
Momentum: Upside momentum has begun to return to the markets and in the process, the technical damage done to stocks from early September through early October is being repaired. Traders love seeing this type of action as it often becomes self-fulfilling. NYSE senior market strategist Michael Reinking best explains what’s unfolding in market internals at the moment. “Early in the week the S&P filled last Thursday’s gap and retested the 100-day moving average. Wednesday was important as markets put in intraday short-term reversal patterns (hammer/RDR) and made a higher low. There was follow through Friday confirming those patterns and the index broke above the 20-day moving average and cleared the short-term down trend line. The S&P 500 closed above its 50-day moving average for the first time in two weeks and is trading right where the late September bounce attempt failed.” A tip of the cap to you as well, Sir Michael.
Fundamentals: Make no mistake, I remain seriously concerned about how this earnings season will end up (and by extension, the markets) given the major inflationary and supply chain pressures on the income statements of corporate America. But investors are ignoring these pressures, and reasoning that solid bank earnings are a tell all on how reporting season will go. “At this point in time, more S&P 500 companies are beating EPS estimates for the third quarter than average, and beating EPS estimates by a wider margin than average. Due to these positive surprises, the index is reporting higher earnings for the third quarter today relative to the end of last week and relative to the end of the quarter. The index is now reporting the third-highest…
Read More: Why stocks are suddenly back in rally mode: Morning Brief