Weekly Trader's Outlook

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Stocks have turned lower late in today's session after attempting to rebound from yesterday's sell-off earlier this morning. The SPX is on track for a ~2.8% weekly loss, which was largely driven by a "higher for longer" message from the Federal Reserve and rising bond yields. Higher yields were also accompanied by a higher U.S. Dollar and oil prices, both of which are net negative for stocks. Yields are "consolidating" today but closed at fresh cycle highs yesterday, as investors reassess their Fed expectations. With technicals turning bearish this week, we'll likely be in for some more near-term volatility until we potentially get some bullish optimism heading into Q3 earnings season in a couple weeks.

Enterprise Products Partners LP. (EPD + $0.42 to $27.67)

Horizon Therapeutics Inc. (HZNP + $0.14 to $115.64)

Huron Consulting Inc. (HURN - $1.16 to $104.86)

Marathon Petroleum Corp. (MPC + $0.51 to $155.28)

Murphy USA Inc. (MUSA + $1.43 to $341.07)

PBF Energy Inc. (PBF + $0.20 to $54.16)

Reata Pharmaceuticals Inc. (RETA + $0.13 to $172.30)

Ryder Systems Inc. (R + $0.37 to $104.27)

Splunk Inc. (SPLK + $0.57 to $145.00)

Valero Energy Corp. (VLO + $0.71 to $147.01)

Vista Outdoor Inc. (VSTO + $0.19 to $31.95)

Agree Realty Corp. (ADC + $0.21 to $57.35)

Albemarle Corp. (ALB + $1.45 to $170.39)

Crown Castle Inc. (CCI - $0.14 to $92.76)

Dutch Bros Inc. (BROS - $0.04 to $23.97)

Estee Lauder Companies Inc. (EL + $0.77 to $146.87)

FMC Corp. (FMC - $1.07 to $68.72)

Northern Trust Corp. (NTRS - $0.40 to $69.14)

Pfizer Inc. (PFE - $0.10 to $32.74)

Roblox Corp. (RBLX + $0.20 to $25.51)

Southwest Airlines Co. (LUV - $0.04 to $28.35)

Target Corp. (TGT - $2.74 to $114.58)

Ubiquiti Networks Inc. (UI - $1.03 to $144.84)

Q3 earnings season isn't getting underway for a couple more weeks but we have heard from eight out of the S&P 500^® companies. Out of those eight, three beat on the top line and six beat on the bottom line. Here's some of the higher-profile names that will be reporting next week:

Monday (25th): THO

Tuesday (26th): CTAS, UNFI, COST

Wednesday (27th): PAYX, MU, JEF

Thursday (28th): ACN, JBL, NKE, MTN

Friday (29th): CCL

The Cboe Volatility Index (VIX - 1.36 to 16.18) is pulling back today but that's following yesterday's ~15% jump, which was driven by the ~1.6% sell-off in the SPX. Over the last five months the "fear index" appears to top out around 20 and bottom around 13, so we are essentially abiding in the middle of that range today. For reference, a VIX around 16 translates into a ~1% daily change (or 43-point move either higher or lower) in the S&P 500.

Freyr Battery Inc. (FREY + $0.18 to $5.18): Calls are outpacing puts ~14:1 on this maker of lithium-based battery cells as option traders primarily target the January 2024 6.00 call. Volume on this contract is 8,338 versus open interest of 452, so we know that the volume primarily represents fresh positioning. The bulk of the transactions on this contract consisted of various-sized blocks that were being bought around the same time at the ask price of $0.50 each, which suggests bullish intent.

Itron Inc. (ITRI + $0.96 to $60.65): Puts are outpacing calls ~100:1 on this provider of solutions to help manage energy, water, and smart city space operations, which is primarily being driven by a 995 contract block that was bought on the May 2024 50.00 put for $2.86 when the bid/ask spread was $2.30 x $3.10 (open interest is 0). We know that this block is a new position based on the open interest figure and we can assume that the intent is bearish in nature since the trade took place above the midpoint of the bid/ask spread.

Q2 Holdings Inc. (QTWO + $0.71 to $32.04): Option volume is running at ~18x the daily average on this provider of cloud-based digital solutions to the financial industry which is primarily being driven by activity on the October 20th 35.00 call. Volume on this contract is 1,552 versus open interest of 41, so we know that the volume primarily represents fresh positioning. The bulk of the transactions on this contract consisted of various-sized blocks that were being bought around the same time at the ask price of $0.35 each, which suggests bullish intent.

Dana Holding Corp. (DAN + $0.52 to $15.06): Option volume is running at ~15x the daily average on this provider of power-conveyance and energy-management solutions which is primarily being driven by activity on the October 20th 15.00 call. Volume on this contract is 2,405 versus open interest of 6, so it's likely that nearly all of the volume represents fresh positioning. The majority of the transactions on this contract consisted of various-sized blocks that were being bought around the same time at the ask price of $0.65 each, which suggests bullish intent.   

S&P 500 Index ($SPX + 19 to 4,349): The SPX is on track to register a greater than 2% loss on the week, and the index appears to be hovering around a key support level at the time of this writing. Buyers stepped in around the 4,330 level in both mid-June and mid-August and that's exactly where the SPX closed on Thursday. Additionally, the chart formation over the summer looks like a potential head-and-shoulders top, with the neckline coinciding with that 4,330 support level. If the SPX continues to move lower next week the next level of support would be roughly 4,200, which lines up with the 200-day Simple Moving Average (SMA).

Nasdaq 100 Index ($NDX + 148 to 14,842): The technicals on the Nasdaq 100 look similar to the S&P 500 as the NDX tested support around 14,700 this week:

10-Year Yields (TNX - 0.044 to 4.436%): The Fed conveyed a "higher for longer" message to the markets during this week's Federal Open Market Committee (FOMC) meeting and yields on the 10-year responded appropriately. Yields on the TNX closed at a 16-year high of 4.48% yesterday, which suggests that the bond market is responding, or reassessing expectations around Fed policy, rather than the Fed catering to market expectations. While there doesn't appear to be a lot of potential upside to 10-year yields from here, the question remains how long will yields remain elevated?  

We received a decent amount of economic data this week, but the primary focus was the FOMC meeting. One important note is this week's Initial Jobless Claims of 201K, which is the lowest number since January. Here's a recap of the individual reports that came out this week: 

Better Than Estimates:

• Building Permits: 1543K vs. 1435K est
• Initial Jobless Claims: 201K vs. 230K est
• Leading Indicators: -0.4% vs. -0.5% est
• S&P Global US Manufacturing PMI (Preliminary): 48.9 (up from 47.9 in Aug)
• S&P Global US Services PMI: 50.2 (down from 50.50 in Aug)

Worse Than Estimates:

• NAHB Housing Market Index: 45 vs. 49 est
• Housing Starts: 1283K vs. 1430K est
• Current Account Balance: -212.1B vs. -223.5B est
• Existing Home Sales: 4.04M vs. 4.08M est
• Philadelphia Fed Index: -13.5 vs. -4.0 est

Here's a Look at Next Week's Lineup: 

• Monday (25th): None
• Tuesday (26th): Consumer Confidence, FHFA Housing Price Index, New Home Sales, S&P Case-Shiller Home Price Index
• Wednesday (27th): Durable Goods, Durable Goods ex-transportation, EIA Crude Oil Inventories, MBA Mortgage Applications Index  
• Thursday 28th): Continuing Claims, EIA Natural Gas Inventories, GDP – Third Estimate, GDP Deflator – Third Estimate, Initial Jobless Claims, Pending Home Sales
• Friday (29th): Advanced International Goods, Advanced Retail Inventories, Advanced Wholesale Inventories, Chicago PMI, PCE Prices, PCE Prices – Core, Personal Income, Personal Spending, University of Michigan Consumer Sentiment - Final

We'll get another solid dose of economic data points next week, and the report with the most "market-moving potential" is likely Friday's PCE Prices Index, which is the Fed's preferred inflation gauge.  

Stocks have a rough week and there may be room for additional downside next week.  

Stocks have mostly turned lower (DJI - 71, SPX - 5, NDX + 2) with roughly an hour and a half left in today's trading session. Yields are modestly lower today which provided some bullish ammunition earlier in the day, but the late-day price action looks tentative. With the SPX looking like it will close below technical support at 4,430, we may be in for some more downside "price discovery" next week. Therefore, my outlook for next week is "Bearish" with the potential for elevated volatility.