Market Forces Put Green On The Screen

According to Newton’s First Law of Motion, sometimes referred to as the law of inertia, an object at rest stays at rest, and an object in motion stays in motion with the same speed and in the same direction unless acted upon by an external force.

In the market, the forces that stop and reverse motions are hard to discern because, like gravity, they can largely be invisible. In the case of trading this week, emotions sent stocks in one direction, and clear heads and fewer emotions (external force) turned it completely around.

I guess when it’s all said and done, we have seen stocks whipped around with sound and fury, and yet the same questions that have lingered for weeks are largely unresolved

Most of my Wall Street friends are saying bond yields will roar higher at some point this year. So, they are sticking to their guns on an approach that starts with ignoring the bond market right now, and assuming a sharp reversal.

I do not see how that can happen as supply chains are repaired, demand is curbed, and initial shocks from reopening the economy wear off. I get that there is inertia built into prices and consumer expectations, but at some point, the pace of increases will slow, and the whole thing will grind to a halt.

There are wildcards from Fed policy to the Delta variant and Congress rams through more spending.

Green on the Screen

The big names showed up, but the reopening trades got a second wind after being written-off on Monday. The top-ten movers included:

• American Airlines (AAL)
• Norwegian Cruise Line (NLCH)
• Royal Caribbean Cruises (RCL)
• Carnival Cruise Line (CCL)

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Market Breadth

It was a nice turnaround, but it has a long way to go. There are still more 52-week lows than highs on the NASDAQ Composite.

Ideal Earnings Release
Chipotle Mexican Grill (CMG) CEO Brian Niccol CNBC interview says that he’s not seeing any consumer behavior change due to the Delta variant. Meanwhile, the company has raised wages and prices.
 

Mr. Niccol states the following:

• He is not seeing any consumer behavior change due to the Delta variant.
• The company has increased wages and pricing on menus.
• Dining room traffic has recovered 70%.
• Positive trends in business give them confidence in guidance going forward.

It will be a long slough as each company will have to convince investors they can hike prices and not suffer decreased volume.

Streaming Wars

Netflix (NFLX) laid an egg, initially sending shares lower, but better guidance turned the shares slightly higher.

Netflix has been what many investors call “dead money” for the past year, but over the past year, the stock is still higher than Apple (AAPL) and dwarfs the return for Disney (DIS).

It might be time for management to make acquisitions to spark growth.  

NFLX/AAPL/DIS

Passing Grade

The Russell 2000 was in trouble, hovering right above a key resistance point and not only held but rallied more than 3% for the best performance of all major equity indices. The S&P 500 brilliantly bounced off its trendline and 50-day moving average. Impressive.

Helping Vets

Make sure you tune in today to my special: “Proud American, From the Military to the Marketplace.”

Portfolio Approach

We added to Technology yesterday in our Hotline Model Portfolio.

Today’s Session

Upside momentum continues but the pre-opening action is not convincing, and Nasdaq is in the red. There are still a lot of questions and now all the major indices are facing new resistance points (record high prints). 

Still looking for that earnings spark, which hasn't happened (consumer cyclicals reacting the best from beats, see PEP last week and KO this morning), but this sector is not going to lead the broad market higher.