Why You Need to Pay Attention to ‘42’
“Forty-two,” said Deep Thought, with infinite majesty and calm.
- The Hitchhiker’s Guide to the Galaxy by Douglas Adams.
After pondering for 7.5 million years, the number “42” was given by Deep Thought as the “The Ultimate Answer of Life, the Universe, and Everything.”
Lunkwill and Fook built the supercomputer. But it was their descendants, Loonquawl and Phouchg, who stood before Deep Thought on Answer Day, crying in anticipation. But the “answer” - 42 - left them distraught and now in search of the “Ultimate Question.”
Now, I’ll admit it is interesting that if you take today’s - 2/17/23 – and add the numbers together you get 42. (2+17+23 = 42)
But the reality is, 42 is a number I’ve been pondering for several weeks, not merely today or millions of years.
You see, since February 2, I’ve watched the S&P 500 try and reach its own Magrathea in a sense. But blocking its path forward has been this ultimate of resistance levels. And it just so happens this resistance level is 42 … multiplied by 100.
The index has staged repeated attempts to break through 4,200.
But each advance has been swatted away. The momentum thwarted by “negative news,” which so often is actually good news.
And because of this, there is suddenly a new number standing in the way of the S&P breaching 4,200.
“50.”
With all the good news we’ve had in recent weeks on the economic front - blockbuster jobs report, less-than-expected jobless claims, retail sales increasing more than expected, etc. - combined with another flare-up of rising inflation, market expectations have shifted. And there’s a growing fear that the next Federal Reserve rate hike will be 50 basis points, not 25.
Personally, I don’t think that’s likely.
But this expectation could keep us range bound for the next week or so.
Keep an eye on 4,030 on the S&P. That’s essentially our intraday low on February 1. If we punch below that, there could be more pain ahead, possibly all the way down to 3,900.
At the same time, strap on the head gear for every time we approach that 4,200 ceiling. Being unable to break through this level isn’t as dangerous as Vogon poetry … at least not yet. But it’s no Pan Galactic Gargle Blaster either.
Enjoy your holiday weekend!
Matt
What to Watch:
More than 1,000 companies reported earnings this week. It’s impossible to attempt to take a position in all. But each day I picked four reports to watch with trend-based projected and expected moves on earnings. Here’s the wrap-up of yesterday’s stocks to watch as well as our recap for the week.
Morning Movers
HubSpot (HUBS) – Shares are up nearly 12.5% on better than expected earnings. I outlined yesterday that the expected move on earnings was +/-7.5%. But that shares have risen an average of 9.16% on its last two fiscal year second quarter earnings releases. So, this move higher is precisely on trend and slightly better than expected.
DraftKings (DKNG) – Shares are up more than 14%. I outlined yesterday that the expected move on earnings was +/-9.3%. And I pointed out shares have fallen an average of 7.6% on the last two fourth quarter reports. So, this move to the upside breaks DKNG’s near-term trend of falling on fourth quarter earnings, but the overall move was slightly better than expected.
Deere & Company (DE) – Shares are up nearly 6% on a beat and raise. I outlined yesterday that the expected move on earnings was +/-3.6%. And that shares have risen an average of 3.46% on its last two fourth quarter earnings releases. So, this move is bang in line with the trend and expectations.
AutoNation (AN) – Shares are up nearly 10% on an earnings beat. I outlined yesterday that the expected move on earnings was +/-5.1%. But that shares have fallen an average of 2.44% on the last two fourth quarter earnings releases. So, the move to the upside breaks that near-term trend of falling on fourth quarter earnings, though the move in shares is right in line with expectations.
It was a solid week of forecasting moves on earnings for the First Bar.
The earnings reports where our trend-based forecast was correct:
· A gain of more than 8.5% on Airbnb (ABNB) … Shares jumped 13.4%.
· A drop of more than 8.25% on Akamai Technology (AKAM) … Shares dropped 10.5%.
· A drop of more than 9.68% on Shopify (SHOP) … shares dropped 15.88%.
· A gain of more than 2.3% on Cisco (CSCO) … shares jumped 5.24%.
· A gain of more than 9.16% on HubSpot (HUBS) … shares jumped more than 12.5%.
· A gain of more than 3.46% on Deere & Company (DE) … shares jumped 4.5%.
The earnings reports where the expected move was correct:
· An expected move of +/-10.9% on Trade Desk (TTD) … Shares gained 32.8%.
· An expected move of +/-8.7% on Datadog (DDOG) … Shares fell 7%.
· An expected move of +/-4.5% on Cisco (CSCO) … Shares gained 5.24%.
· An expected move of +/-9.3% on DraftKings (DKNG) … Shares are up more than 14%.
· An expected move of +/-5.1% on AutoNation (AN) … Shares are up nearly 10%.
The moves the trend-based forecast missed:
· A gain of 5.23% on Kraft-Heinz (KHC) … Shares gained 0.62%.
· A drop of 5.45% on Crocs (CROX) … Shares gained 4.4%.
· A drop of 7.6% on DraftKings (DKNG) … Shares jumped more than 14%.
· A drop of 2.44% on AutoNation (AN) … Shares are up nearly 10%.
© 2023 Matthew Carr
All rights reserved.
This market commentary is opinion and for entertainment purposes only. The views and insights shared by the author are based on his many years of experience covering the markets. But nothing in this email should be considered personalized investment advice. Investments should be made after consulting your financial advisor and after reviewing the financial statements of the company or companies in question.