Market Radar 7. November 2022


Sustainable trend reversal is unlikely

Friday was a good day for China stocks, gold, silver and copper mines, and steel. Shares from the semiconductor sector were also among the winners. However, as long as steel producers show more relative strength than semiconductor producers, a coming rally in the stock market is unlikely to be sustainable. Only when we see significantly more accumulation among semiconductor producers than among steel producers should we focus on a sustainable trend reversal.

We therefore classify the seasonal rally as a bear market rally.Historically, the midterm elections are usually followed by a strong rally until the end of the year. The year 2018 was an extreme anomaly for this pattern. Anomalies don’t actually arise to recur.
Whether the rally expected in the stock market will end shortly after the midterm elections (as in 2018) or only in December or even January, nobody can really predict at the moment.

Basically, the bulls were able to assert themselves well against the bears on Friday. The IWM has now even been upgraded to “buy or top-up”. In order to be able to receive this daily stamp in the next trading days, stocks from the small and midcap sector must rise today and tomorrow in total.

IPO stocks with new monthly low

On Friday, the IPO ETF also fell below the low of mid-October at the closing price. This makes the IPO ETF the only one of all the ETFs I observe that closed a new monthly low on Friday. This also clearly indicates that we are far from a sustainable turnaround towards a bull market.

Is there finally a turnaround in gold?

The GDX (ETF for the gold mines) was able to rise above 10% on Friday. That’s a long time since this ETF rose by double digits. Although the GDX only receives the daily stamp “bottoming or sideways”, it is not one of the actually “buyable” – these would be industries that could be traded trend-following. Nevertheless, I continue to observe accumulation in mining stocks. According to risk-on/risk-off logic, the fact that mining stocks rise more strongly than the price of gold, silver or copper also suggests that an incipient and possibly sustainable upward trend is emerging here.

To act according to trends now seems possible in some cases

In addition to oil and gas, sectors or industries that could already be traded according to trends would now also be health (healthcare and biotechnology), finance (brokers, insurance companies, banks and regional banks), industry (including steel), aerospace (including defense).

Three sectors were upgraded to “buy or top-up” on Friday: consumer staples, airlines and water. These laggards in the trend-following candidates should perhaps be hedged a little more closely with stops than those mentioned before.

E-learning stocks performed well on Friday, but not dynamic

In the e-learning sector, Strategic Education (STRA) reached a new 52-week high at the closing price on Friday in the wake of new quarterly figures (daily increase: just over 2.5%). Adtalem Education (ATGE) reacted volatilely to the quarterly figures and fluctuated between $40 and $44; the stock closed the day at $42.27 (up about 1% for the day). That was enough for a new 52-week high on a closing price basis. The quarterly figures for both companies were significantly above expectations, especially the profit was convincing. But I had hoped for more momentum in the price movement after such figures.

On Monday, Perdoceo Education (PRDO) will follow up with quarterly figures from the e-learning sector before the IPO.

For me, the e-learning industry remains one of the favorites for the current fourth quarter.

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