In this post, I’ll focus on setups that I’m monitoring for both long and short positions. With a chart and short write-up, this is a quick way to scan and plan potential trades.
These ideas are the end result of my process to identify stocks offering the right combination of growth fundamentals along with a proper chart setup. Live alerts are sent to Traders Hub members only.
Stock Market Update
While investors expect the Federal Reserve to hold rates steady at its next meeting later this month, a growing inflation problem will keep favoring tighter monetary policy. The Consumer Price Index (CPI) for the month of September was reported at 3.7% year-over-year versus expectations for an increase of 3.6%. The Producer Price Index (PPI) was especially worrisome, with a headline increase of 6.3% compared to estimates for 5.3%. The core PPI that strips out food and energy prices jumped by 5.0% compared to last year. The chart below overlays headline CPI and PPI, where you can see that PPI has accelerated to the highest level since 2022 (blue line) and keeps the acceleration in producer inflation intact. You can also see that the PPI tends to lead CPI historically.
The reaction from the bond market was unexpected. A recent reversal lower in longer-term interest rates continued pulling back despite worse than expected inflation. The 10-year Treasury yield sits at 5.09% compared to 5.31% at the start of October (chart below). At the same time, the AI trade remains under pressure ever since OpenAI announced lower than expected annualized revenue at $50 billion. While the miss is being blamed on an accounting discrepancy, investors are second guessing the potential return on trillions being plowed into AI infrastructure spending. Chip stocks have been a huge beneficiary of AI spending, and are collectively pulling back toward the summer lows as evidenced by the VanEck Semiconductor ETF (SMH).
The AI trade is being pressured by the outlook for returns on investment along with rising rates and accelerating inflation that also threatens the cost of capital. Given the role of AI capex spending in contributing to economic growth, any deterioration in the outlook could be a factor in driving the recent decline in bond yields. But if recession fears were on the rise, then I would anticipate a broader pullback in equities. Instead, the recent price action has been a rotation out of AI and related growth stocks and back into value. Since October 6, large-cap growth stocks are down 6% while large-cap value is up nearly 2%.
The price action remains volatile with quick rotations over the past several months now. That makes breakouts hard to come by, but tracking relative strength across stocks and sectors remains key to finding the next round of position trading opportunities. Keep reading to see:
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Chart analysis for new trade ideas.
