News and analysis

Of course, many larger things are happening in global markets right now. Fresh dips of August are still far from possible ultimate lows, as I wrote about the other day. Volatile moves make short-term technical patterns very changeable, the S&P 500 has a realistic chance to test the levels below 5,000 points, and so there is still a lack of solid foundations even for modest bullish exercises in trading strategies. Techs are still sliding down, as most AI-related stocks do not feel the floor beneath their feet. Corporate earnings recede into the background to some extent, yet I decided to make some notches on the trees nearby which could help me, and maybe you too, to come out of this jungle a little faster than others when needed.

Caterpillar distinguished itself as a potential better-than-the-market issuer after it reported a record adjusted EPS (equity per share) on higher operating profit margin, despite a 4% decrease in quarterly revenue YoY. The company's own estimates for 2024 sales were slightly lower, but with profit margin being expected above the top end of the consensus target range. Stable and even growing demand for its large excavators and other construction machines, when high infrastructure spending is going on in the United States took Caterpillar's share price up in the midweek, from fresh 7-month lows at $307 before the quarterly numbers to above $335, or 9% higher, at the peaking point on Wednesday. The industrial giant partially pared these gains to end yesterday's regular session well off the highs at $325.80. Fragile move well below $300 still looks as an option, if the rest of the market would go south once again, yet there are already fundamentals to resurface quickly when the Wall Street horror show comes to the end.

Prices are still inside the disputed watershed territory, ranging from $320 to $335, which is clearly and repeatedly visible on charts. The way how the crowd will go out of this area may give a clue to the further direction for Caterpillar, but maybe for some Wall Street segments as well, as this giant company is one of usual bellwethers for economic temperature on a global scale. Caterpillar reported Q2 2024 results a week later than anticipated to provide one of the crucial slices of industrial reality. Three months ago Caterpillar CEOs warned the company's business was cooling as many dealers seemingly preferred to tighten up on equipment inventories in the footsteps of the previous boom. Services growth may grow in the second half of the year, they said in August.

There is a contradictory environment as bearish risks include softening demand for rental fleet and customer purchase delays, a forecasted construction industries sales decrease by 7%, resource industries sales drop by as much as 10%, according to them. However, expected bullish highlights are energy and transportation segment's sales rise by 2%, financial products' revenues' potential growth by 9%, as well as stronger demand for reciprocating engines and solar turbines, particularly for data centres’ power generation. The company added it may partially focus on testing battery-electric large mining trucks and hydrogen-capable gas generator sets. Very soon we will see what will prevail, pro or con factors.

This always happens. At some arbitrary point of every uptrend the rally reveals its vital, profit-seeking and greedy nature in the form of normal profit-taking, which comes as a mighty and mesmerizing price fall. This kind of a big drop becomes known as a Black Monday, or Black Friday, a specific day of the week doesn't matter. Margin trading effects may increase the bearish momentum. Yet, on the next stage of the correction move, this sharp step down is followed by dip buying splashes to rebound on speculative short covering. These bullish hopes and bearish fears for recovery are usually less coordinated or rather badly synchronized in time compared to the initial sell-off.

The whole process of the stock market's round trip there and back needs days or weeks, but ultimately a sequence of up and down price moves is forming a technical pattern, which usually allows smart investors to identify the moment when the current type of market correction confirms it is mostly exhausted. Sometimes a reversed head-in-shoulders price model on smaller time frames plays the role of a sign to stop selling and start buying. But most commonly, price attacks to major support areas are simply running out of steam, without reaching new dips, to form a slightly ascending series of intraday lows, day after day. And so, this is approximately what most analysts from large financial institutions and experienced private traders are waiting for on the charts to start massive buying again.

Exceptions are possible but rare, like it once happened in August 2015 when one week led the S&P 500 index down on China-related worries but already the next week cured the market from all its worries producing a very fast comeback. This kind of instant push-ups cannot be ruled out, and so some moderate volumes of adding to buy positions in giant techs of AI-related stocks are reasonable. However, no particular pattern to reverse the uncertainty to confidence is on the charts, including bellwethers like NVIDIA, Apple or Microsoft or broad market barometers of Wall Street like the S&P 500 and the Nasdaq Composite futures.

Based on a balanced approach, we are not expecting an immediate burst of purchase activity in the U.S. or in Europe, letting each detail of price charts to speak for itself, one by one, before making conclusions that a sell-off has passed at last. This means a range trading on the S&P 500, with possible lower margins now at nearly 5,100 (but easily could be extended to below 5,000 for a while) and 5,300-5,350 to cap from above, is a basic trading technique for the time being until proven otherwise. Buying some fresh dips in popular stocks do not contradict this stories, when keeping transaction volumes restricted and under strict money management control, yet hedging strategies like short-term selling in the S&P 500 futures could also become a strategic decision, unless the S&P 500 finishes drawing some clear upside reverse pattern on charts to remove all doubts. Two days without new falls passed by but probably nothing is over, according to our baseline scenario.

Some large investment houses are following a similar rule. JPMorgan said it believes the liquidation of recent carry trade longs in the Japanese Yen's territory is just nearly half completed. "We have not done yet", they wrote in a client's note, which is still valid even though the Bank of Japan's deputy governor, Shinichi Uchida, partially soothed the markets by saying that his colleagues are not going to hike borrowing costs once again when markets are unstable. Another example is Citigroup, which emphasized that its checklist of bearish market signs gave 8.5 out of 18 red flags when back dropping from recent all-time highs on U.S. stocks. Therefore, Citi analysts shared two conclusions. One of them suggests buying into market weakness could be an actual practice soon. But the second thought was they prefer to "wait for evidence of a more complete positioning unwind and a potential stabilization in earnings momentum before doing so".

Maker (MKR) has dropped by 13.2% to $1,904.10 this week, recovering partially from an earlier loss of 22.2% on August 5. In comparison, Bitcoin (BTC) experienced a similar decline of 16.2% when it plunged to $49,035 on the same day but managed to recover most of its losses. While some altcoins have bounced back into the positive zone after the significant drop, MKR continues to struggle.

The reasons for this discrepancy are not entirely clear. Generally, investors are motivated by projects with high growth potential. MKR falling below the critical support level of $2,000 per token is a bearish signal from a technical analysis standpoint. However, this is unlikely to trigger a major sell-off as investors are still evaluating the current market conditions.

If MKR can rebound and sustain levels above $2,000, it may regain investor confidence. On the other hand, any further decline could spell serious trouble for the project.

Airbnb stock now ranks among the most underestimated equities of the budget-conscious segment. This week's low at $122.06 per share may end drawing a local bottom pattern, as it was only 7.7% above the dips of October 2023, also looking like a re-test of a strong technical support area of the covid era and of a major technical resistance in 2022, partially in 2023 as well. However, the company, which occupies nearly 30% in online-booking worldwide, already started its future meteoric share price rebound on August 6 by adding nearly 4% to its market value in the first two hours of the regular session on Wall Street to reach the levels around $130 per share. Being targeted on regular travellers and families looking for unique experiences but having a tight budget, such assets are typically not affected too much by recession fears. Unlike many techs, consumer stocks rarely need international carry trade schemes to finance investment. Thus, the two weakest links of today's market environment are not essential drivers for Airbnb's share price, which is a good thing for traders seeking a kind of refuge from all recent mess and leapfrogs, better combined with potential income in troubled periods of market corrections. Looking ahead to Q2 earnings (scheduled on late August 6, soon after the market's close), investors are buying fresh dips in Airbnb stocks, as most of them may feel that the summer season favours the further sales growth. At the same time, even if some quarterly business indicators or annual projections by Airbnb CEOs may disappoint the crowd and analyst polls amid uncertain overall market sentiment, the current share price discount (of nearly 17% against its early July peaks above $155 and almost 25% vs this spring's record highs) looks really great and promising. Buying Airbnb on expectations sounds like a smart strategy, compared to a continued wait-and-see tactics, which may with a high and growing probability simply lead to missing an opportunity.

Consensus estimates suppose that Airbnb sales may come out at $2.74 bln from April till June, vs $2.14 bln in Q1, $2.2 bln in the Christmas quarter and $2.5 bln in the same quarter of 2023, while Q2 2024 profit may rise to $0.90 per share vs $0.41 in Q1 2024, yet marking some compression from $0.98 YoY due to increased costs. Lower numbers in today's release could make the stock dive again for a while, but prices are unlikely to remain in the vicinity of multi-year dips for any considerable time.