Seasonal MACD – On Hold & Stock Portfolio Updates: CPI Misses By: Christopher Mistal | October 10, 2024 | Email | Print

 

As of today’s close, our Seasonal MACD Buy Signal is still on Hold. Faster moving 8-17-9 MACD indicators applied to DJIA and S&P 500 are negative. NASDAQ’s MACD has turned positive by the smallest of margins.

 

 

As a reminder, the criteria to issue our Seasonal MACD Buy Signal is:

 

1. A new buy signal crossover using our 8-17-9 MACD indicator AND

2. The crossover must occur on or after the first trading day of October AND

3. DJIA, S&P 500 and NASDAQ MACD indicators must all agree.

 

Item's #1 and #3 have not been fulfilled and thus our Seasonal MACD Buy Signal remains on Hold. Currently it would take single-day gains of 214.31 DJIA points (0.50%) and 6.34 S&P 500 points (0.11%) to turn all three MACD indicators positive. If NASDAQ were to decline 62.86 points (–0.34%) its MACD indicator would turn back to negative. Continue to hold defensive, “Worst Months” positions. When all of the above criteria have been met, we will send a special Issue via email.

 

 

Today’s Consumer Price Index (CPI) report from the Bureau of Labor statistics did little to quell the market’s concerns about the Fed’s pace of rate cuts. Largely due to the decline in energy prices, headline CPI came in at 2.4% year-over-year and 0.2% month-over-month. Core inflation, which excludes food and energy, was 3.3% year-over-year and 0.3% month-over-month. Both metrics exceeded expectations and put renewed pressure on the 10-year Treasury bond yield. Combined with last week’s stronger than expected employment report, it does appear the Fed may have been unnecessarily aggressive with its first interest rate cut.

 

 

After stalling out above 3%, the 12-month % Change of CPI has been trending lower since earlier this year but remains stubbornly above the Fed’s 2% target. Based upon a few simple assumptions, it also appears that CPI is not likely to fall below and stay under 2% within the next 12 months. Since CPI peaked at 9% in June 2022, the average monthly change of CPI has been 0.24%. Projecting this average out 12 months puts CPI somewhere between 2.4% and 3.7%. Anything above 2.4% would represent accelerating inflation and would pose a new challenge for the Fed and potentially the market if it persisted.

 

 

Beyond the impact of the Fed’s interest rate policy, potentially more concerning is the pressure on the 10-year Treasury bond yield. Since mid-September, when the Fed cut rates, the 10-year Treasury yield has risen rather briskly from just over 3.60% to nearly 4.10% today. Outside of the usual interest rate sensitive sectors, this increase appears to have gone largely unnoticed, but at some point, if the 10-year yield continues to trend higher, the broader market may notice. From our monthly member’s webinar (slide 20), the level to watch is around 4.3%.

 

 

Over the past four weeks through yesterday’s close (October 9), S&P 500 advanced 4.3% while Russell 2000 climbed 4.6% higher. Over the same period the entire stock portfolio gained 2.0% excluding dividends, interest on cash, and any trading fees. The large cash position in the portfolio limited overall performance. As a reminder, we do not target a specific cash allocation in the portfolio. The sizable existing balance is the result of the seasonal-based approach that is incorporated into the portfolio. 

 

With Q3 earnings season kicking off and seasonality on the verge of turning favorable, we anticipate releasing a basket, or possibly two, of new stock trade ideas in the near future. Historically, our screens have generally produced higher quality stock ideas when current earnings data and estimates are available.

 

Each market cap segment in the portfolio contributed to the gains of the last four weeks. On average, Large caps were the best, advancing 8.4%. Mid caps were second best climbing 7.1% while Small caps contributed a 4.9% advance. Emcor Group Inc (EME) was the star of the Large-cap portfolio as it broke out to new 52-week and all-time highs in September. Per standard trading guidelines, half of the original position in EME was sold on the double when it traded above $422.36 on September 19. After surging higher in September, shares have paused and appear to be consolidating the gains. EME is on Hold.

 

Leonardo DRS (DRS) also deserves a notable mention for its solid performance over the last four weeks, prior to today’s retreat. At its close yesterday (October 9), DRS had climbed over 14% since the last update and had also traded at a new 52-week high. Today’s retreat appears to be driven by profit taking and broader weakness in the aerospace & defense sector. DRS is on Hold.

 

On October 1, Super Micro Computer (SMCI) completed its previously announced 10-for-1 share split. Due to this split, the original purchase price in the portfolio has been updated. However, the split did not quell share volatility as SMCI continues to experience sizable daily moves on news headlines. Bullishly, the net result of all the choppy trading over the past four weeks was a modest gain in the portfolio. Shares are still well below their all-time high reached earlier this year in March. SMCI is on Hold. Earnings expectations remain high and any miss during their next report could provide a better entry point.

 

Grand Canyon Ed (LOPE) is the only position in the red in the portfolio. Its next earnings report is scheduled for November 6. Looking back, LOPE has surpassed expectations the last three times, suggesting it has at least a fair chance of continuing that trend. If it does not, we may consider cutting it loose, until then LOPE is on Hold. 

 

All remaining positions not mentioned above are on Hold. Please see the table below for updated stop losses.