Tuesday Market Outlook: September 26, 2023

[Image] Tuesday Market Outlook: September 26, 2023 Good morning, traders! I’ve had Monday to gather my thoughts, so now it’s time for my Tuesday Market Outlook. Let’s break it down… When I look back at last week, the market sentiment was clear after the FOMC meeting. Sure, the reaction was bearish, with the SPDR S&P 500 ETF Trust (NYSEARCA: SPY) shedding 2.5% in the past five days… SPY YTD daily chart — courtesy of [StocksToTrade.com]( But now, with a new trading week upon us, we need to look forward… And this week, I'm actually forecasting more downside. Why? While we may see moments where the market seems to be bouncing back (often referred to as “relief rallies”), I have a hunch that bigger investment funds will use any short bounces as opportunities to reduce their risk. What makes me think this? That’s simple. I understand institutional traders because I was an institutional trader. Now, I’m able to “think like the smart money,” so to speak. With that in mind, keep reading to see my full market outlook for the week… The Market’s Twin Challenges This week, I see two prominent factors causing ripples in the stock market: Rising Oil Prices Fluctuations in oil prices can affect our day-to-day lives more than we realize. From the fuel in our cars to heating our homes during winter, oil's significance is undeniable. A steady hike in oil prices can lead to a cascade of changes – for instance, your next vacation or road trip might cost you a tad more. In turn, this financial stress often causes consumers to slow down spending and investing … leading to a near-term decline in stock prices. This is why I’ve been telling you to pay close attention to commodities in this market, particularly oil. But also, notice the differences between the commodity and its related stocks. For example, oil stocks have been lagging behind the moves in the underlying commodity, WTI crude. For example: West Texas Intermediate (WTI crude) is up 12% in the past month while Exxon Mobil Corp. (NYSE: XOM) is up only 7.5% in the same period. By identifying these discrepancies, you can potentially identify solid trading opportunities as one group catches up to the other. Surging Treasury Yields Aside from oil stocks, it’s all about treasury yields right now… Think of these yields as the ‘interest’ the government owes on its borrowed money. A rise in these rates can set off a chain of bearish, risk-off economic events. For instance, as these yields climb, businesses might find borrowing money more costly, possibly slowing down expansion or hiring. (On Monday, 10-year treasury yields rose an additional 10 basis points to 4.538%...) Additionally, stocks are valued based on expectations of future earnings. When interest rates rise, the present value of those future earnings is discounted more heavily, which can result in lower stock valuations. This means that the same future dollar of earnings is worth less today, causing stock prices to adjust downwards. It’s crucial to keep these factors in perspective because we haven’t seen interest rates this high in several decades … and they could go even higher. IMPORTANT NOTE: Watch for Next Week’s Jobs Number I don’t see many big macro catalysts this week. However, all eyes will be set on the release of the Jobs number next week. The Jobs number offers a window into the health of our job market by indicating how many jobs were created or lost. It’s a vital signpost of economic health and a major factor in the Fed’s decision-making. This is why it’s a significant event on many traders’ calendars (and why it should be marked on your own). 2 Simple Suggestions for Trading This Week What are my specific ideas for trading this week? I may sound like a bit of a broken record with this piece of advice, but here it is: consider going long oil stocks. As mentioned earlier, even as oil's price (the commodity) has surged, the stocks of companies dealing with oil haven't kept pace. This discrepancy could lead to some juicy trading opportunities. Additionally, I’m keeping a close eye on Tesla Inc. (NASDAQ: TSLA) as it has been leading the NASDAQ. In other words, the moves TSLA is making have been foreshadowing the future moves in its benchmark index. Therefore, by watching how TSLA trades this week, you can potentially gauge the direction in which the NASDAQ might move. Closing Thoughts Don’t rush into any setups this week. Be flexible. Watch oil stocks and TSLA while paying close attention to how commodity prices and interest rates are affecting the stock you’re trading. And keep some powder dry for next week, as the Jobs number could present some even more interesting setups. Stay Street Smart, Jeff Zananiri P.S. 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