A Rough Week For The Bulls

It’s been a rough week for the bulls.

Stocks ran into trouble again yesterday as the AI-unwind took a bite out of the major averages. The Nasdaq Composite was hit the hardest, dropping 1.9% as several tech mega-caps hit the skids. 

The Nasdaq is now down more than 2.8% on the week – and it’s not exactly looking peppy today as stocks remain stuck in the red. 

Crypto is also struggling this week. Bitcoin is closing in on $100K. Ethereum is up a bit. Both continue to trail the S&P this year by a wide margin. 

Another round of companies fell into the earnings spotlight yesterday evening: SoundHound AI, Inc. (SOUN), NuScale Power Corp. (SMR), IREN Ltd. (IREN), Archer Aviation, Inc. (ACHR), Opendoor Technologies, Inc. (OPEN), Affirm Holdings, Inc. (AFRM), MP Materials Corp. (MP), Block, Inc. (XYZ)

The results were a mixed bag. But only two of these eight names exceeded EPS and revenue estimates, while only one is trading higher today — AFRM.

Red blankets the rest with XYZ and OPEN falling the hardest.

A handful of energy companies reported numbers earlier this morning.

The clean energy source, Constellation Energy Corp. (CEG), fell short of EPS estimates and is trading lower. 

Duke Energy Corp. (DUK), with a heavy hand in natural gas, is flat after beating the street’s expectations.

And following a double-miss, the Canadian oil and gas company Enbridge, Inc. (ENB) is down slightly.

International equities are slipping into the weekend.

Hong Kong, Shanghai, and Tokyo shares see red, as do the FTSE 100, German DAX, and Euro STOXX 50. 

The Nikkei 225 posted its largest weekly loss since March. At the same time, it’s now trading just below record levels after an impressive 3-month rally. Japanese stocks are ripe for a correction, and this week’s action could mark the beginning. 

The Shanghai Composite, on the other hand, printed its highest weekly close in over a decade and shows no signs of slowing down.

Across the pond, the FTSE 100 notched a new all-time high this week, while the German DAX drifted toward its June lows, and the STOXX 50 threw back to retest its March highs.

On the home front, U.S. stocks are attempting to dig in their heels without much success. The S&P 500 is hugging a six-month trendline, but buyers are timid. We could witness the U.S. benchmark slide 100 points on a breakdown below 690.

So far, global weakness is making its way back to the U.S.

A few notes about this week’s drawdown. 

First, it feels worse than it really is. That’s for a couple reasons…

All the big winners started getting hit in early October. The more speculative names are down a lot more than the averages and have been steadily dropping for four weeks. 

Next, remember that this market has not posted a meaningful drawdown/pullback since the April tariff debacle. Smooth sailing shifts expectations – folks are used to stocks only going up. When they finally stop working, the pain is more intense. 

Ultimately, I think it’s too early to change our market outlook for the rest of the year. We should continue to expect stocks to eventually catch and rally into the holidays. Until something material changes and bigger trends begin to break, our plan should be to watch and wait for a bounce to emerge and play it accordingly. 

That being said, sitting on our hands this week turned out to be a decent move. We didn’t blindly buy into a weak market. Yes, our older open trades are getting smacked around. But we’re not throwing good money after bad. If and when we do get a bounce off this reset, it should be a prime opportunity to take some strong bullish trades into January.

Commodities are mostly green here.

Precious metals are finding support at logical levels. Soybeans and soybean meal continue to rip (as cattle prices bite the dust). And coffee percolates just below a shelf of former all-time highs. Even crude oil and its distillates are finding a bid.

Inflation remains sticky, and interest rates remain in a structural uptrend — worldwide.

Perhaps gold, silver, palladium, and platinum are carving out tradeable lows and will rocket higher from here. Regardless, we anticipate more commodities and commodity-related stocks will join the rally as the market environment continues to favor raw materials.

Today’s Trading Action…

No new trade today. 

Our best move in this environment is to "hurry up and wait" -- there's no need to overtrade while most stocks are struggling here. 

Hopefully, this flush will set us up for the beginnings of a bounce next week or the week after. I'll continue to track the averages and the more speculative tech baskets into the afternoon to see if anything interesting stands out. 

For now, let's keep our minds in the game. There's no need to panic -- despite how the herd is acting. Lots of people are freaking out right now just because the market is off its highs. This type of sentiment washout can help set up the next bounce -- we simply have to be patient. 

I'm going to film a quick video going over some important charts for Truth & Trends that will hit your inbox this afternoon. Hopefully, this will calm your nerves and give you some ideas to think about over the weekend. 

Hang in there! We'll regroup early Monday morning and see where this market takes us...