Pre-Market Plan [9/30]: Upside Breakout or Deja Vu?
Good Morning,
I last left our readers last week with the comment that Micron (MU) was undervalued based on our DCF valuation model. We took a patient approach with MU because we knew that probability favored upside given that it was trading at our DCF Bear Case. After earnings, optimism prevailed and shares rallied +15-20% the day after.
Last week, upon seeing China’s stimulus beginning on Tuesday, I shared the following update with our private Members - that Pinduoduo (then 110) and New Oriental (then 60) had the best fundamental case for upside upon a further sector rally.
Fiscal stimulus from China on Wednesday propped up these names to 135 and 75, respectively, by the end of the week.
I’m going to comment a few sentences for October.
In the title of this [9/30] pre-market plan, I ask the question Breakout or Deja Vu?
September’s violent first week selloff started with PMI Manufacturing on the first Tuesday of the month. And came to a violent end with Nonfarm Payrolls at the end of that week on Friday. That week alone shed -4% off the S&P 500 and -6% on the Nasdaq.
Tomorrow Tuesday October 1st is again PMI Manufacturing. And this Friday is again Nonfarm Payrolls. In between, there’s Jobs Openings (JOLTS), the Private ADP jobs report, and weekly Unemployment Claims.
In our opinion, this week holds the biggest event macro risks from an economic calendar perspective for the entire month of October.
We think that if there is no big selloff this week, the rest of month will have fewer negative macro catalysts to re-engineer the bearish environment we saw in the first week of September.
If Deja Vu does happen though…our DCF Models will pick up on which companies are worth looking at if a selloff occurs.
More nuanced commentary in our notes for Members later today.
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