With the start of earnings season officially here, big tech giants have unveiled their financial reports this week and all eyes in the financial world are turning to the upcoming Federal Open Market Committee (FOMC) meeting. Amidst this anticipation, I recently found myself engaged in a captivating book club discussion centered around Daniel Kahneman's "Thinking, Fast and Slow” which once again had me seeing strong connections to the financial world. The intriguing "Endowment Effect.” As we explored this cognitive phenomenon, it became increasingly clear how it influences our financial decisions, particularly in the ever-volatile world of trading. Let's dive into this fascinating connection to uncover the valuable insights that can enhance our financial decision-making in the market.
Kahneman's "Endowment Effect" is a simple yet powerful idea: we tend to overvalue items we've owned for a significant period over items we’ve held for shorter periods. Sound familiar? Think about any type of memorabilia you may hold, old baseball cards, for example, collecting dust in your drawer. Over time, it's easy to convince yourself it's worth a small fortune, even if it's just a piece of cardboard from your childhood. You become emotionally attached to it and ascribe it to a higher worth than it truly holds. However, as Kahneman wisely pointed out, in reality, it's the marketplace, not your emotional bond, that determines the actual value of that baseball card.
Now, let's translate this notion to the realm of trading. Consider a stock you've held for an extended period. Amidst market fluctuations, you may start to believe it's more valuable than its actual worth. Your emotional attachment clouds your judgment, leading to decisions based on sentiment rather than rational analysis. You're essentially "married" to your stock, much like the cherished baseball card.
To break free from this psychological web, understanding your decision-making process and risk aversion is paramount. Kahneman's two-system model, comprising System 1 (emotional and rapid) and System 2 (analytical and slower), becomes highly relevant here. System 1 often dominates our choices, but it can lead us astray. To counter this, consider maintaining a trading journal, analyzing various inputs into your decisions, and assigning weights to them. Additionally, use positive and negative visualizations to guide your choices.
Now, let's delve deeper into the financial lesson. Before you even step into a trade, it's essential to establish a well-defined stop-loss and target-gain strategy. This simple step can make all the difference in your financial well-being. When it comes to risk, always stick to risking the same amount on every trade. This consistency ensures that a losing trade doesn't morph into a long-term investment.
In essence, the connection to finance is crystal clear: breaking free from emotional bonds and unwarranted attachments is a cornerstone of sound financial decision-making. Base your choices on careful analysis and prudent risk management, and you'll be better equipped to navigate the unpredictable waters of the trading world. Remember, in the financial realm, it's the marketplace that ultimately determines value, not your sentimental attachment.
Recent Trade Review
This week, we had a standout moment as we ventured into the world of shorting the stock market, specifically the QQQ, Invesco’s Nasdaq QQQ ETF, a trust that includes some of the big players in tech. Sourced from our powerful Dynamic Power Trader (DPT) services, we dived into this trade with confidence during our live trading room sessions this week.
The DPT model, renowned for its precision in identifying trading opportunities, brought our attention to shorting the QQQ, a decision that would ultimately yield fruitful results. I found this opportunity so compelling that I initiated not just one, but two short positions on QQQ within the same week!
What's the key differentiator when you're part of our paid services? It's the privilege of receiving timely SMS alerts that tell you precisely when to enter and exit the trade. This feature can be the game-changer between a successful trade and a missed opportunity.
For those who were there with us, whether watching our live trading room recording or subscribing to our SMS alerts, it was a rewarding experience. Our community not only observed these profitable trades but actively participated in them, turning the insights and strategies discussed in the live trading room into tangible results.
The link to the live trading room recordings is your gateway to a treasure trove of wisdom, where we dissect trades, explore market movements, and share insights that can guide your trading journey. For those eager to see the recent QQQ trades in action, check out our live trading room recordings here.
CURRENT TRADING LANDSCAPE
After a week of turbulence, U.S. stocks found some solace, largely powered by strong tech earnings. On Friday, the stock market saw positive momentum, driven by solid earnings reports from Amazon.com and Intel. Still, the S&P 500 and Nasdaq Composite closed the week in the red.
The latest round of earnings reports showcased the resilience of tech giants and revealed the challenges facing the automotive industry. Amazon.com, a tech and e-commerce behemoth, delivered an impressive third-quarter performance. The company reported earnings of 94 cents per share, significantly surpassing the 58 cents consensus among analysts. Sales for Amazon rose by 13% from the previous year, reaching an impressive $143.1 billion. Of note, Amazon Web Services, a crucial component of the company's business, reported a 12% revenue increase.
Looking ahead, Amazon anticipates a positive fourth quarter, largely in line with analysts' forecasts - these strong results translated into an 8.4% surge in Amazon's share price, reflecting investor confidence in the company's continued growth and profitability.
In the semiconductor industry, chip maker Intel also released a robust set of earnings results for the third quarter. Their adjusted earnings exceeded expectations, and the company provided an optimistic profit outlook for the fourth quarter. Additionally, the announcement that Intel has been attracting more customers for its chip manufacturing services had a significant impact, resulting in a remarkable 9.4% increase in the company's stock price.
In contrast, the automotive industry faced challenges, as exemplified by Ford Motor's third-quarter earnings report. The company's earnings came in weaker than expected, largely due to a labor agreement with the United Auto Workers that was recently reached. Notably, Ford's electric-vehicle division reported a loss of $1.3 billion; shares of the automaker declined by 8.5%, signaling concerns about the competitive and financial hurdles that automakers are grappling with in the evolving landscape of electric vehicles and shifting consumer preferences.
Capital One Financial, a major player in the banking industry, provided a bright spot with their third-quarter earnings exceeding estimates. The bank experienced a notable 11% rise in its stock price. One of the key drivers of this positive performance was an increase in interest income, indicating a strong financial position for the bank. Chevron reported lower-than-expected earnings, while Exxon Mobil's profit declined from the previous year.
Apart from earnings, this week’s key economic report shed light on inflation. In September, U.S. inflation stood at 3.7%, a decline from the previous year, according to the Federal Reserve's preferred price-growth measure. This declaration has significant implications for future interest rate decisions.
The core personal consumption expenditures index, excluding volatile food and energy expenses, met economists' expectations at 3.7%. While this stability is reassuring, the monthly data revealed an uptick, with a 0.3% increase in September, up from 0.1% in August.
The overall PCE inflation rate, accounting for food and energy, remained steady at 3.4% year over year in September. Monthly headline inflation mirrored August's pace at 0.4%. Notably, energy prices rose 1.7% month-to-month but fell 0.1% from a year ago, while food prices increased by 0.3% month-over-month and 2.7% from the previous year.
These inflation trends varied across sectors. Services saw a 4.7% increase year-over-year, reflecting strong demand, while goods expenses rose by 0.9%.
The data also highlighted robust consumer spending in September, up by $138.7 billion or 0.7%. Services, including international travel, flights, and healthcare spending, played a significant role.
While inflation cools relative to the previous year, strong consumer spending introduces complexity to the Federal Reserve's mission and policy decisions. The balance between curbing inflation and supporting economic growth remains a central concern for both policymakers and investors.
U.S. markets faced a challenging week with concerns about increased market volatility. The 10-year Treasury yield briefly surpassed 5%, causing initial market jitters. The Israel-Hamas conflict and global economic trends, including slowing global demand and interest rate uncertainties, contributed to market fluctuations.
Earlier in the week, amidst the turbulence, some positive economic data emerged, including strong U.S. economic growth and better-than-expected earnings from Meta Platforms. However, concerns about advertising demand in the fourth quarter led to a setback in Meta Platforms' stock.
Interest rates and Treasury yields were a hot topic, with longer-dated treasuries experiencing a significant rally and reaching levels not seen since the Global Financial Crisis. The impact of these developments on equity valuations remains a subject of discussion.
As for the market outlook, there’s a prevailing belief that the SPY rally may be capped at levels between $450 and $470, with short-term support in the range of $400 to $430. The markets appear to be on a downward trajectory, and a break of August lows is already in progress. For reference, the SPY Seasonal Chart is shown below:
As the week concluded, investors remained focused on earnings reports, anticipating their impact on the market's trajectory and looking ahead to the upcoming Federal Open Market Committee meeting and policy update.
In our Sector Spotlight this week, we're turning our attention to an industry that has been quietly positioning itself for growth amidst the recent market volatility. The latest batch of earnings and the upcoming Fed decision are positioning this sector for an easy path higher in the coming weeks. Let's delve into a promising sector that presents an intriguing opportunity.
The iShares U.S. Telecommunications ETF (IYZ) offers investors exposure to a diversified portfolio of U.S. telecommunications companies. This exchange-traded fund tracks an index of domestic telecom firms, providing a convenient way to invest in this sector as a whole. Among its top holdings are well-known industry giants like Verizon Communications, AT&T, and T-Mobile.
Considering the current market landscape, investing in IYZ appears to be a prudent move. The sector it represents has shown resilience, even during times of economic turbulence. As highlighted in our recent article, the tech and telecommunications sectors have displayed robust earnings, contributing to the overall stability of the market. Furthermore, with the ever-increasing demand for connectivity, especially in an increasingly digital world, the telecom sector is well-positioned for continued growth.
Telecom companies often provide essential services that remain in demand, regardless of economic conditions. This inherent stability, combined with the potential for increased growth due to expanding 5G networks and the constant evolution of communication technology, makes IYZ an appealing investment choice. By allocating a portion of your portfolio to this sector, you can potentially benefit from its steadiness and growth potential in the coming months.
TRADE OF THE WEEK: $VZ - Calling for Big Payout
Now, let's move on to our Trade of the Week, featuring Verizon Communications (VZ).
Verizon Communications, one of the largest telecommunications companies in the United States, is a household name. The company offers a range of services, including wireless communication, broadband, and digital media. With a solid track record and a strong presence in the telecom industry, Verizon has consistently delivered value to its shareholders.
Given the positive sentiment surrounding the telecommunications sector, now is an opportune time to consider investing in VZ. The recent performance of tech and telecom companies, as highlighted in our article, signals growth potential in this sector. Verizon, being a key player, is well-positioned to capitalize on this trend. In addition, the increasing demand for 5G technology and connectivity services bodes well for the company's future earnings.
Additionally, the tech sector's resilience, as demonstrated by robust earnings, has created a positive ripple effect on related industries, including telecommunications. Verizon, being a prominent player in the telecom industry, benefits from the overall strength and stability of the tech sector. This means that Verizon is better positioned to weather market fluctuations, offering investors a sense of security in their investments.
The fact that tech giants like Amazon.com and Intel have reported strong earnings is indicative of the health of the broader technology ecosystem. This strength is likely to translate into increased demand for telecommunications services. As more people rely on technology for work, entertainment, and communication, companies like Verizon stand to benefit from this growing need for connectivity.
The rollout of 5G technology continues to be a significant growth driver for the telecommunications sector. Verizon is a leader in the 5G space, and the ongoing expansion of its 5G network positions it well to capitalize on this transformative technology. With the potential for faster and more reliable wireless connections, Verizon is poised to attract more customers and generate higher revenues.
The telecom sector, by its nature, is relatively stable, even in the face of economic uncertainties. The essential services it provides, such as wireless and broadband communication, are in constant demand. This inherent stability acts as a hedge against market volatility, making Verizon a compelling investment choice for risk-averse investors.
Furthermore, as we continue to navigate a market filled with uncertainties, having a portion of your portfolio in a relatively stable sector like telecommunications can serve as a prudent hedging strategy - and our A.I. agrees! Just take a look at our 10-day Predicted Data for VZ:
In summary, the confluence of a stable tech sector, solid earnings reports, the growth potential of 5G technology, and the stability offered by the telecommunications industry make it an excellent time to consider investing in Verizon Communications (VZ). This well-established company is likely to deliver both stability and growth in your investment portfolio in the current market environment.
This week, I’ll be adding $VZ to my portfolio!
And one more thing! Our track record speaks for itself from the standpoint of a Winning Trades Percentage, Average Return Per Trade, and Net Gain. Just take a look:
The consistent performance of our services is just incredible. My historical stellar performance is made possible by being right on 85.16% of all trades that I made, with an average profit of 37.65% per trade on our collective trade recommendations. To my knowledge, this trading performance is one-of-a-kind and stands alone in the marketplace for superior trading advice where our numbers and results speak for themselves.