The Monday Morning Playbook: Week of October 7, 2024

Good morning,

Paul Tudor Jones said “Price turns and the narrative follows” and sure enough, the narrative is following right along again.

Just a week ago, the prevailing narrative on TV and Twitter was that the jobs market was rapidly deteriorating and the Fed was behind the curve despite a 50 basis point cut in September.

But going chart by chart through the S&P 500, I couldn’t help but notice the plethora of highly cyclical industrial and consumer discretionary names that were breaking out to 52-week highs.

That led me to title our Stock Trends report two weeks ago, “Are you sure the economy is slowing?” 👇

Stock Trends

And sure enough, Friday’s jobs report delivered a beat far above the most optimistic expectations (though if you’re asking what the number was, you’ve got the wrong guy).

The point, as always, is to focus on the charts and the dominant trend, not the narrative and the little zigs and zags along the way.

For stocks, the trend remains up. For bond yields, the trend remains down, even if we’re “zigging” a little bit up right now.

If there are two areas where things are showing signs of a change, it’s the dollar and energy markets.

The dollar posted its best week in over two years last week, and the spike higher came right at major support. The dominant trend is still down but we need to respect the potential for more gains and the headwind that would represent to international stocks and precious metals.

As for oil and energy, I’ve been saying to fade the rally in energy stocks and this is another example of where ignoring the narrative can save you some headaches.

Both are up over the past two weeks on “increased Middle East tensions” and if there was ever an evergreen headline I think we’ve found it. But as we explored two weeks ago, the real reason oil is higher is positioning was offsides. Whenever that happens, the trend is going to be vulnerable.

With energy stocks, it makes sense that they wouldn’t fall off a cliff with the other 10 S&P sectors in a strong bull market. I’m still highly skeptical of their ability to “lead” for an extended period of time but if XLE can get and stay above $94, it doesn’t make sense to be outright bearish on the group.

Finally, two groups that look attractive for traders and aggressive investors willing to use stops: semiconductors and small-caps. The charts are messy, but there is well-defined risk/reward covered in today’s report.

This week we will review:

• The setup for banks ahead of earnings

• The market’s reaction to the jobs data

• Technicals for major indexes and sectors

• Relative strength ratios making 52-week highs

• Crypto markets

• and more!