Coiled Spring Capital Mid-week Report 9/25/24

We entered the week with cautious optimism, as our signal methodology flashed warning signs while the indexes maintained a bullish structure. This presents a bit of a conundrum, which is why we always prioritize price confirmation over relying on signals in isolation. Our approach weighs multiple factors, but price action remains the ultimate guide.

So far, the week has unfolded much as we anticipated—choppy and directionless. While this could still evolve into a more pronounced move, it's common for markets to correct through time rather than price, allowing indicators to reset.

Performance has been mixed, with the biggest winner being the Mag 7 index, while the Russell Small Cap Index (RTY) has lagged behind.

In our 9/11 report, "It’s Raining Hammers," we emphasized the Mag 7 Index and some of its more actionable components as key reasons for a bullish outlook on the stock market. When the largest stocks in the index are poised to break out, adopting a bearish stance is simply out of tune with the market's rhythm. If you were bearish on the indexes back then, it's clear you missed the signals the market was sending. The Mag 7 stocks are the conductors of this market symphony, and they were unmistakably playing a bullish melody.

Here’s are two excerpts from that report:

We also spotlighted NVDA, AAPL, TSLA, MSFT, and AMZN as stocks primed for upside potential.

Here’s how they’ve performed since that report:

The Mag 7 Index has risen 6.3%, with TSLA leading the pack, surging 12.6%.

A weakening yen was one of our theses for a revival in the Mag 7 stocks.

Here is the excerpt from the 9/11 report, which was penned on the day of the Yen’s high.

Since our weekend report, we’ve seen a significant macro development out of China, with the PBOC unleashing a "bazooka-style" stimulus to counter their weakening economy. As we've discussed multiple times over the past year, while the exact timing was hard to predict, the outcome was expected. Without diving into all the specifics, when the world’s second-largest economy injects excess liquidity to stimulate growth, it's typically bullish for global economic activity. This bodes well for U.S. markets in the near term.

However, the potential for this to reignite inflation concerns down the line—perhaps in 2025—is a risk that Powell and the Fed will need to watch closely.

As we near the end of the week, quarter-end positioning and the release of the Fed’s preferred inflation gauge (PCE) on Friday are likely to add volatility. Expect some erratic swings as these factors play out.

We don’t expect the upcoming PCE report to carry the same significance as previous inflation releases, given that the Fed has already signaled its intention to cut rates. It’s likely too soon for any concerns about re-accelerating inflation to surface. The report should simply confirm the ongoing trend of slowing inflation toward the Fed’s 2% target. Unless there’s an unexpected surprise, it will likely be a non-event for the markets.

Our rates for this new letter will be increasing at the end of the weekend. Whether you are an active trader or a passive investor, our newsletter is designed to help you maximize your returns for a very reasonable price. As evidenced above, adding some of the Mag 7 exposure on our suggestion two weeks ago would have covered the cost of this newsletter for many years. FYI: we make calls like that all the time.

Don’t procrastinate. Lock in your low rate for life before it’s too late. 

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