Daily Rundown: October 6

CHRIS VERSACE: Good morning, Action Alerts Plus members. We have a special rundown for you today, as Helene Meisler is joining me for her take on the stock market, as well as some specific stocks. Now, setting the table for our conversation, so far as we know, October's pretty much continued what we've seen in the stock market during August and September, and today's stronger-than-expected jobs report, again, for September, is adding to that, as the 10-year Treasury yields simply renews its track higher. With that, let's bring in Helene. Helene, what is your take on the first week of the new quarter?

HELENE MEISLER: Ah, well, it's not been an auspicious start to the quarter. I think my big takeaway is two things this week. One is how much the mega-cap tech stocks just continue to hang in there and don't get sold. And the other is the collapse in energy. To me, those are the highlights of the week, or lowlights, if you will.

CHRIS VERSACE: So on that point about mega-cap tech, it's kind of interesting, right? Because they tend to have net-cash balance sheets or just all-cash balance sheets. They're not really going to get hit like smaller cap stocks or small cap tech stocks, where the fear is, oh, boy, rates are moving higher, and it's going to cost them even more, either to raise debt or fund their operations. So perhaps that's something that's unfolding here?

HELENE MEISLER: I'll leave the fundamental story to you.

CHRIS VERSACE: [LAUGHS] Understood.

HELENE MEISLER: But I will tell you that I am the kind of person in my work I like to look for a whoosh in the market. I like a little panic selling. And we just will not get any panic selling unless we get those stocks down. So what we've gotten is this week, so far, or in the last week and a half, we've gotten panic selling in the utilities. We've gotten panic selling in the staples. We have panic selling in the energy stocks. We're group-rotation panic selling. We're just not getting panic selling in the market as a whole.

And until the stocks that control the indexes, those mega-cap tech stocks, break, you're not getting that. And so for my part, we're oversold. I think we are trying to make some kind of bottom. I prefer a bottom that gets a whoosh. We can't seem to get the whoosh because we can't seem to get anyone to panic out of the favored few.

CHRIS VERSACE: Hmm. So is that any different than what you saw in September, or even in August? s if we trace it back, the market's been in pretty much a steady state of pain, if you will, as the 10-year Treasury has moved higher, something we saw really accelerate in the last two weeks of September. And again, it looks like that's going to happen again, as we exit this week, following that September employment report.

HELENE MEISLER: Yeah. Well, for the last two months, we've been beholden to what I call the three-legged stool, the dollar, interest rates, and energy. And this week, you've lost energy. So now you have to wait and get some kind of relief in the dollar and in interest rates.

I keep thinking we're getting closer and closer and closer, certainly on interest rates, because I feel like they are really getting out of control. But on interest rates because I follow this sentiment indicator called The Daily Sentiment Indicator. And when that gets down to single digits, you're usually just stretched too far.

Now, I will tell you in October, November last year , we got down too far, and we rallied. We came back down. And so we got twin single-digit numbers. In other words, one single-digit number didn't mark a low in the bonds. And now we've had one single digit. Maybe tonight we'll get a second one. I don't know. But to me, that just tells us we're really getting late in this move.

CHRIS VERSACE: So when you see that-- you've been talking about the market being oversold, looking for the whoosh. But when you see these type of sentiment indicators, these numbers, typically, what have you seen in the past? Has it been a quick rally back? Is there signs that we might see something like that unfold? Or is there something else, this proverbial other shoe, that we have to watch out for?

HELENE MEISLER: Well, the other shoe would give you the whoosh.

CHRIS VERSACE: OK.

HELENE MEISLER: So everything sort of goes hand in hand, right? Everything is intermarket relationships. And so I keep waiting. Like I said, I keep waiting for the whoosh. It doesn't come. That's why I know somewhere in here, there's going to be a low, but I'm not sure if we have to break-- I'll just call it-- the triple Qs, if you've got to break this 315, 355-ish area on the Qs first. But--

CHRIS VERSACE: OK.

HELENE MEISLER: That's just where I'm at. I just feel like something's got to give, but it doesn't.

CHRIS VERSACE: No. I totally understand what you're saying because it just seems like the market wants to rally, but there continues to be something in its way that is really preventing it. And you mentioned rates going higher. Our AAP poll of the week, it was, where do members see the 10-year Treasury yield going? And everybody, 65%-plus are saying 5% is what we're going to get. And maybe we will.

To me, that would suggest that there's going to be a little more pain in the market until we get there. But to me, also, we do have some big data coming out next week that could perhaps-- perhaps-- help the market find its footing. I'm referring to, of course, the September CPI and PPI numbers. But let's get moving on because I know that you have a lot to watch on the technical-- oh, go ahead, Helene.

HELENE MEISLER: But let me just interject for a second. I don't think the market has been reacting to inflation numbers for quite some time. I think the bond market has been reacting to employment data, and it's been reacting to the-- I hate to start going off technical stuff, but the-- supply-and-demand issue, in that how many bonds the Treasury needs to issue. And that's really been the story here.

So today's employment number didn't help. But I don't think we've been moving, per se, on inflation data. And I think oil coming down is going to actually-- maybe not in next week's report, but as we go forward now, that should help your inflation data.

CHRIS VERSACE: I agree with you with that. We're seeing gas prices come down. I'll just share one thing before we move on and talk about some stocks is that I am a little concerned about future wage pressures, given what we're seeing. The UAW is likely going to spur wages higher. The Teamster UPS-- we do have another round of minimum wage increases that look to be anywhere from 3% to 6% starting in 2024.

Then there's that news that happened in California, where Governor Newsom signed a bill that will raise the minimum wage for fast food workers to $20 an hour from $15.50. That's going to have some big implications, I think. But like I said, all this is going to unfold in the coming days and weeks. And we can adjust our expectations accordingly.

But let's dig in and talk about some stocks in the portfolio. You mentioned a few minutes ago that energy was on your mind. And I know over at Real Money you wrote something earlier this week. So what are you seeing when it relates to energy oil, in particular, and more specifically, the club position in the XLE ETF?

HELENE MEISLER: So I've been bearish on energy for probably about a month or a month and a half now. I just thought it became a very crowded trade. It was the school of what's working now.

CHRIS VERSACE: Right.

HELENE MEISLER: They were the only stocks that were up that were working. But they had really started to run out of steam, despite everybody thinking that they were terrific. And now obviously, as you know, that energy has collapsed this week. I think energy stocks are getting oversold. That black line I've drawn in, I think, should provide some kind of a bounce.

But I think that the bounce will fail. We'll come down possibly to the green line. But more importantly, that daily sentiment indicator I just talked about regarding the bonds had gotten over 90 in the middle of September on oil. It is now sitting at 45. So I'd like you to imagine if we get a little rally, let's say that DSI goes back up to-- I don't know-- 60, and then if you come down and you break to the green line, that DSI is probably going into the 20s pretty fast.

And by then you can imagine all the chatter will be about-- I don't know-- a slowing economy. Make something up. But there'll be some reason why we don't want to own energy. And that's probably when I'd like it again.

CHRIS VERSACE: And when it falls to that level, that mid-20s, I think just said, does that correspond with being extremely oversold?

HELENE MEISLER: Usually, yes, but it is a sentiment indicator. It's just where people reside on how they're feeling about oil. And to me, the extremes are under 10 and over 90 because I've been watching the DSI for years, and I've never seen it get over 95, and I've never seen it get under 5, so just to give you an idea. So once it gets under 20, you're sort of on watch that you're getting a little push. And then obviously the single digits, you've just gone too far.

CHRIS VERSACE: Well. We'll keep our eyes on that. And kind of moving along, you and I chatted earlier this week about McDonald's, a stock that you've been negative on in the short term, being correct, one that we have a more positive outlook as we move into the end of the year. But what are you seeing now in the technicals for the shares of the golden arches?

HELENE MEISLER: Well, quite frankly, I thought it would stop at 260 or 265. So I'm wrong there. To me, in my newsletter, that's where we covered the short. And now here it is trading around 250.

And one thing that concerns me quite a bit here is do you see all that trading that took place on the left side of the chart between, let's say, December and March. That should have been support, even if you didn't stop at the top of it and you stopped at the bottom.

And we've not really stopped. It's really gone through it like a hot knife through butter. And that's pretty bearish, honestly. That's just bearish action. Oddly enough, when McDonald's was up at the highs, similar to oil, everybody loved McDonald's. And I haven't heard anybody even mention McDonald's.

It's almost like, OK, if we don't mention it, it doesn't exist. Well, that's not how it works. We sort of need people to get a little hysterical over, oh, my got, have you seen McDonald's? But that having been said.

Let's go to the next chart on McDonald's, the weekly chart. I took it back three years. And you can see there's some pretty decent support down here in this-- I'll call it-- 240, 250 area. It depends how thick your line is. As I said, the stock has really fallen a ton. It should really start to find some footing down here.

I would like to see more people come out negative on it. I don't if I will. But somewhere down here, I really feel like it should start to hold.

CHRIS VERSACE: Yeah, I think you're right. I think from a fundamental perspective, we saw the company boost its dividend 10% yesterday. But there is some news going around about the impact of these weight loss drugs. And I suspect, like we've seen from time to time, the expected impact is probably going to be far greater than what we really see. I really doubt that people are going to start-- stop, excuse me, drinking, snacking, eating fast food.

Again, [INAUDIBLE] to the extent for the weight loss drugs is probably kind of what we're seeing. And I know, Helene, you want to talk about Lockheed Martin. The shares, along with a lot of others in the market, have been under pressure, despite the company continuing to notch program wins, increasing its multi-year backlog. What are you seeing in the chart?

So here, I also took us back to a three-year chart because the one-year chart would just show lower lows, lower lows, lower lows. This one has some support down there. I'm calling it 360-ish, could really couch it to 350, 360. Again, it is collapsed. Like so many, it is collapsed. Likely-- and I hate to put a narrative on it, but likely to do with the Ukraine funding. But again, I would imagine that this stock gets pretty oversold and starts to find some footing down there.

CHRIS VERSACE: Yeah. I tend to agree with you. I think it's the Ukraine funding. It's some of the uncertainty that we're seeing come back into Washington as a result of what's going on with the speakership. Yet, like I mentioned, we continue to see renewed and growing programs, either with the Army, the Navy, or even governments outside the US, all driving that backlog higher. So we'll continue to watch those support levels.

Helene, I have to say, it is always simply fantastic to chat with you. We're going to have to leave it there for today's rundown. And thanks again, for a great conversation, not only for me, but for members as well. And with that, members, I'll be back on Monday for a comprehensive look at the week ahead. And with that, have a great weekend.