(WHICH NOISE IS THE MARKET LISTENING TO: WARS IN EUROPE & THE MIDDLE EAST OR THE RECESSION DRUMS?)
November 13, 2023
Hello everyone,
Welcome to Monday.
It’s another earnings week, but this time much of the focus will be on retail.
Among the companies scheduled to post their earnings are Target, Walmart, and Home Depot.
The third-quarter earnings season has mostly exceeded expectations. More than 90% of S&P companies have already reported. Of those names, 80% have posted better-than-forecast results.
The earnings/economic agenda for this week:
Monday, November 13, 2023
Australia Consumer Confidence chg.
Previous: 2.9%
Time: 6:30 pm ET
Tuesday, November 14, 2023
Home Depot
Time: before the open
Nu Holdings
US Core Inflation Rate
Previous: 4.1%
Time: 8:30 am ET
Wednesday November 15, 2023
Target
Time: premarket
Palo Alto Networks
Time: after the close
UK Inflation Rate
Previous: 6.7%
Thursday November 16, 2023
US Export Prices
Previous: 0.7%
Time: 8:30 am ET
Walmart
Time: premarket
Friday, November 17, 2023
UK Retail Sales
Previous: -0.9%
Time: 2:00 am ET
Trade Idea: Palo Alto Networks (PANW) $253.51
(Stand aside if you don’t wish to trade during earnings.)
You can choose to trade the short-term trade or the long-term trade or skip the trade completely.
Last quarter: PANW posted earnings that exceeded analyst expectations, sending the stock higher.
This quarter: FactSet data shows analysts expect the network company’s earnings to have jumped 40% year over year. The company has surged 81% this year. History shows that PANW beats earnings estimates 93% of the time, per Bespoke data. The stock also does well on earnings days, averaging a 2.1% gain.
Palo Alto Networks (PANW)
The company has been rapidly introducing new products – 74 in fiscal 2023.
PANW has an 11.22% upside potential based on the analysts’ average price target.
Consensus rating of Strong Buy which is based on 33 buy ratings.
The company has grown sales at an incredible rate over the last 10 years and is expected to maintain strong continued growth.
Trade Idea – PANW $253.51
1/
Buy 1 Dec 15, 2023, PANW 250 call.
Sell 1 Dec 15, 2023, PANW 260 call.
Net Debit: $5.00
Max Profit: $500
Don’t pay more than $5.15.
2/
(Aggressive – 2024 out of the money position)
Buy 1 June 21, 2024, PANW 260 out of the money call.
Sell 1 June 21, 2024, PANW 270 out of the money call.
Net debit @ $4.60.
Max Profit: $540
Max Loss: 460
Don’t pay any more than $4.80.
Keep in mind that these figures may have moved a lot by the time you receive this trade idea. Do your trade research and make sure the risk/reward is in your favor. Also remember if the market pulls back, you may get a better price/entry point.
Update on the market:
S&P 500
The market has rallied nicely. From an Elliott Wave perspective after undergoing a Wave 4 correction, the market is undergoing a climatic 5th Wave advance onto the 4,700’s over coming weeks. The recent rally from the October 27th low of 4,104 is now overbought and any break of 4,350 area would likely trigger a corrective reaction back toward the mid-200’s, before the uptrend resumes.
Gold
Gold’s daily chart shows a developing 5-month inverse head and shoulders continuation pattern. Support lies at around $1910 ($1890 max) for a rally toward key $2,009 resistance (Oct. 27 high). Sustained break above $2,009 will yield an upside target of around $2,200 over the coming weeks/months.
Brent Crude Oil
Resistance is in focus. Unless Brent can clear $84.00 resistance, greater emphasis will be placed on Crude’s classical charting structure, which shows a completed 3-month head and shoulders reversal pattern, with a downside target of around $70.00.
Bitcoin
For all the crypto fans out there, here are my ideas about Bitcoin.
Bitcoin is in a bullish wave structure and could target $40,000/$43,000 over the coming weeks. Support lies around $36,000. My advice would be to take all or some profits as we get toward the 40k handle. After that target has been reached Bitcoin could slide down into the mid-teens – around $16,000.
What’s going on with Oil?
Oil has taken a pounding in the last few weeks. Brent crude was down 3.7% last week and WTI futures lost nearly 4%. These moves come during a shift in focus from immediate fears of the broader Middle East war to worries that the global economy is on the verge of a slowdown. (The stock market obviously didn’t get that memo and has cut through all the noise to rally strongly.) Mixed Chinese data and a rising dollar also gave bears more ammunition to pounce on the crude oil bulls. Additionally, the labor market is slowing, and consumer spending is declining as savings become sparse.
The problem is also one of supply and demand. Saudi Arabia, Russia, and other oil-producing nations have opted to extend their coordinated cuts, but that’s been offset by greater supply elsewhere, particularly in the U.S., where crude oil production hit a record 13.2 million barrels a day in October, according to the Department of Energy data. Higher domestic production weakens the impact of supply disruptions halfway around the world.
We could see $70 in Brent Crude before the selling pressure eases.
On the other side of the coin, some analysts argue that the selling pressure is overdone.
Phil Flynn, an energy market analyst at Price Futures Group said virtually everyone in the market right now is short oil futures. He added that “we’re probably the most oversold in a year in the market.”
Flynn points out that there is still a real risk of disruption from the war. Iranian Foreign Minister Hossein Amir-Abdollahian told Qatar’s Sheikh Mohammed bin Abdulrahman Al Thani last Thursday that an expansion of the war in Gaza is “inevitable,” according to Iran’s Press TV.
It’s clear to see, Flynn remarks, that the market has taken out all the risk of any supply disruption so if something does happen, we could see a sharp reversal of prices.
Citi analyst, Maximilian Layton said prices will likely consolidate at current levels for now but noted that there are upside risks on the horizon. OPEC+ meets in two weeks and could take action to defend prices while there’s still a low risk of regional war. There is still a risk of conflict spreading to other parts of the region, notably the risk of Israel-Iran attacks, or the US being drawn into the conflict, and/or imposing tighter sanctions on Iran again.
Speculators might well be behind the swings in oil. Fears of supply interruptions typically spur the oil trade to buy “just in case”. When no supply disruption takes place, the market gets hit with liquidations of these positions, which, without the war, wouldn’t have been bought in the first place.
Analysts point out that the outlook for oil stocks and the commodity itself is for higher prices next year. According to a BCA Research Report from Robert P. Ryan, chief commodity and energy strategist, and Ashwin Shyam, associate editor for commodity and energy strategy, it can be argued that based on supply-demand fundamentals, Brent Crude – the international benchmark – should average $118 a barrel in 2024, up from $80 currently.
Stronger global demand should underpin the market in 2024. UBS’ Global Wealth Management also sees Brent moving higher to the $90 to $100 a barrel range. OPEC expects an increase of two million barrels daily in 2024, while the International Energy Agency forecasts an 800,000 daily move.
BCA Research notes that if the war expands to include Iran and its proxies and drives crude prices above $120, Saudi Arabia and the U.A.E could release up to 2.5 million barrels a day, keeping oil roughly in that range.
BCA advises investors to take positions in the SPDR S&P Oil & Gas Production exchange-traded fund (ticker: XOP).
Cheers,
Jacquie
