Pre-Market Plan [10/4]: Bulls get their NFP Report + Opportunities in the H-Shares Market
Good Morning -
A special strat update even though it’s Friday (capital preservation day). This morning we got exactly what Bulls needed, which was a strong NFP Jobs figure (+250K reported vs 150K expected) that further conveys that recession risks are a tail risk in the future rather than an imminent problem. I’m using round numbers because that’s the big picture.
There will be of course data revisions, but for today’s context and leading into next week, the market very much needed a strong jobs report to prevent a breakdown from materializing and it got it.
For the market to be flat this week, I consider that to be a huge bullish victory. As discussed in my pre-market at the beginning of the week, I viewed this week to be the window for Bears to take advantage of high equity valuations and the heightened macro risks for this week’s economic calendar.
I’ve discussed with Members that the healthiest setup for October is one that is Flat so that there is significant fuel for seasonality to work its course in November/December.
Defending against selloffs is in itself an accomplishment at a time when valuations are at records.
Can we breakdown after markets open? Yes anything is possible, but any major dip after strong economic data has a better case of being bought. I would be much more fearful of a huge rally that happens on the back of weak jobs data on the anticipation of more Fed cuts.
A rally based on weak economic data is not sustainable.
My DCF model work conclusions point to growth assumptions and profit margin forecasts being Far more (capital F) important than rate cuts. Today’s strong jobs report may reduce the odds of big further rate cuts, but is good news and not bad news.
From a bigger picture standpoint, although we’re seeing a pre-market rally, the market has gone nowhere this week. However, This week’s flat market hasn’t prevented us from finding rotational stock-selection opportunity.
See here:
On Oil: We found a very nice bullish sequence on XOP Oil ETF. From 130 to 140/share, a +10/share rally. This is happening when SPX/NQ is flat this week.
On Semis (reloading for higher): After the selloff we saw earlier this week, I believed it was an opportunity to reload for higher in the Semis sector.
On China: Found a window to issue a bullish opinion on FUTU and HKEX (HK-0388). Both shares up +3% since our post. Previous ideas EDU and PDD from 60 and 115 respectively continue to run hot.
With China’s market now heating up, I will also discuss the opportunity set within H-Shares (Hang Seng stocks) with my Community when appropriate. This allows me to add more distinguished commentary on top of my our opinions on U.S. markets.
Very few analysts discuss the opportunity within H-Shares but our familiarity with China ADRs can be paralleled into this market.
Bottom line: We’ve been very proactive on China strategy and now, Members can expect more China strat now that the sector is….back.
I include a brief section on China in every update on top of U.S. market strategy.
My published work is very conclusion-oriented as can be seen in the blurbs above. I do the research in the background. I spend many hours throughout the day researching active setups and macro developments, and when sequences are ready, share with you the conclusion I come to.
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If you are a public reader and would like to give us a little support to help us continue to provide high-quality analysis for all, please visit IBKR (good execution, good research, advanced capabilities).
Disclaimer on H-Shares:
A note of caution for H-Shares (or China ADRs). They are extremely, extremely volatile during macro policy changes, and as a sector, exhibit the highest forms of volatility compared to other sectors I’ve studied. Holding H-Shares or China ADRs is only one notch below holding Crypto/AltCoins in terms of volatility. Only folks with the highest risk tolerance and highest ability to manage volatility should look at H-Shares. H-Shares can swing 20-30% in the span of days on the upside or downside. It can make Nasdaq-100 stocks (my core coverage) look slow.
As an example, Meituan which was a left for dead stock was trading at $60HKD just a few months ago. Shares have nearly tripled to around $180HKD, with the bulk of the advance coming from the past few weeks.
My DCF Model approach, which members know have powerful degree of forecasting power in my core coverage because of my familiarity with the companies, is NOT going to work as well on H-Shares. Any commentary that I give on H-Shares relies much more on macro observation and technical analysis, which may or may not be a full picture of a company’s fair value. For this reason, there is a speculative type of element when it comes to H-Shares. Investing in H-Shares is completely different from investing in U.S. stocks.