Banks unofficially kick off the third-quarter earnings season this week.

One company’s report should set the tone, according to Piper Sandler chief market technician Craig Johnson.  

“We’re keeping our eye on JPMorgan. I think that’s going to be the bellwether that we’re really going to want to watch here in earnings,” Johnson told CNBC’s “Trading Nation” on Friday. “We’ve been making this kind of nice symmetrical sort of setup in the price action here recently, and that really suggests that perhaps a lot of the bad news might be priced in.”

JPMorgan, which reports earnings on Tuesday morning, is also turning higher compared with broader markets, Johnson said, a welcome change given banks have underperformed this year.

“We’re at an inflection point in terms of the relative strength line, and sort of turning up in here is another positive sign that the banks are starting to outperform sort of the broader S&P at this point, ‘ he said. “I think the trade is to be buying heading into the quarter.”

JPMorgan has fallen 27% this year, while the KBE bank ETF has dropped more than 30%. Options markets anticipate a 4% move in either direction for JPMorgan after earnings, added Johnson. If to the upside, it would take JPMorgan above $105, a level Johnson said should pave the way for the next leg higher toward $120. Shares closed Friday at $101.20.

Michael Binger, president of Gradient Investments, is measuring the banks’ success by several key metrics: net interest income, loan growth, and strength in mortgage and refinancing businesses. He sees two names as potential winners.

“I like Morgan Stanley a lot right here,” Binger said during the same “Trading Nation” segment. “I love the acquisitions they’ve been making in the trading platforms and the asset management space. I think that’ll

This column assumes that ETFs are the primary investment tool for the reader.

Please see my weekly market summation for a review of the macro-economic environment and general macro-level market trends.

Investment thesis: the macro-averages are now in a bullish posture; it’s a good time to take a new position. But be careful; defensive sectors are starting to rise, indicating traders are a bit more cautious.

Let’s start by looking at last week’s market activity, beginning with the treasury market:

TLT 5-day

The treasury market moved lower on Monday and then traded sideways for the rest of the week. Volatility was higher on late Tuesday and Wednesday as the market digested the whipsaw activity regarding additional fiscal measures. Also note the sharp sell-off and subsequent rally on Friday, likely due to additional fiscal talk.

SPY 5-day

SPY trended higher for the entire week as shown by the central tendency line in blue. t took the index an entire day to recover from Tuesday’s sell-off, but it did recover.

IWM 5-minute

I noted in my weekly round-up that smaller-caps led the market higher this week. Notice that IWM had a very strong move higher earlier in the week. This explains why small caps did so well last week.

Let’s pull the lens back to the 2-week time frame:

IEF 2-week

During the last two weeks, the treasury market has clearly trended lower, as shown by the 200-minute EMA (in magenta). The ETF has gapped lower twice and then consolidated sideways.

QQQ 2-week

While larger caps are higher, their respective charts are messier. QQQ – which has led the markets higher for most of the post-lockdown rally – is struggling. It’s also been prone to sharper, higher-volume sell-offs.

IJH 2-week

In contrast, smaller caps have stronger charts. Mid-caps have a solid uptrend

There are two obvious reasons for doing this, and one that’s a bit more subtle.

First, Vitol has long been looking to shift into areas other than its core business of trading petroleum and its products. Even in the days before industry executives were warning about peak crude demand, diversifying into a wider array of goods has simply seemed prudent management in a business as low-margin as commodity trading.

Vitol set up a grains desk seven years ago and trades metals, power, emissions and coal. It has a fund investing in renewable power that will soon have about a gigawatt of generating plants, roughly the same as a decent-sized power station. It’s even producing biogas from cow manure in Idaho.

A second reason is that used cars are a commodity much like any other — and in Turkey, at least, the market is looking hot. Import tariffs are some of the highest in the world, and with the lira losing about a quarter of its value over the past year amid soaring inflation, vehicles are a relatively solid store of value. The recovery in spending as Covid-related lockdowns have receded, accompanied by cuts in domestic auto-loan rates and relatively idle domestic car plants, has further pushed up prices.

The car markets in Turkey and Pakistan are large, volatile, and difficult to trade. Those are all things that would put off many investors, but commodity traders thrive by putting their information advantages to work in precisely the locations that other businesses shun. 

Those are strictly short-term issues, though. The best reason for Vitol to be selling used cars is longer term, with crucial importance to its core business: oil.

A central determinant of the path of crude demand over the coming decades will be how quickly energy-efficient vehicles replace models currently

Onetime high flyer Lululemon has run into trouble over the past month.

The stock has fallen 17% from a Sept. 2 high with losses accelerating even after an earnings report that topped analysts’ estimates. The stock remains more than 40% higher for the year.

Todd Gordon, founder of TradingAnalysis.com, says strong demand should help Lululemon recapture upside momentum.

“Lulu is well positioned to benefit from the work-from-home, stay-at-home environment. Comfort clothes are really, I think, second to none … But I also think they’ll benefit if and when the work-from-home, stay-at-home environment ends, because gyms and yoga classes will open back up and the demand will stay strong,” Gordon told CNBC’s “Trading Nation” on Thursday.

He sees strength on three fronts: e-commerce, international expansion and its acquisition of Mirror, a augmented reality interactive fitness company.

“They’re looking to grow at a compound rate of 40% per year in China and … their e-commerce is also a big focus, their margins are a lot better on the e-commerce side compared to their in-store sales,” said Gordon.

Lululemon reported a 157% increase in online sales for its quarter ended Aug. 2. In-store sales fell 51%. As for Mirror, Gordon anticipates the offering could help boost sales for its workout clothes.

Lululemon gapped down below $300 in mid-September. Gordon now expects the stock to close that gap to move back toward $360. To capture that move, he is buying a 340 call with Nov. 6 expiration and selling the 360 call. At the time of filming Thursday, that $20 call spread cost $7.80, or $780, with maximum profit of $2,000 — giving a maximum potential gain of roughly $1,200.

Disclaimer

Source Article