Trade Alerts

MGNI(NASDAQ), YELP(NYSE), AZO(NYSE), PANW(NASDAQ), XRT(ARCA)

Dec 19, 2024

Hello Rationale members,

In this Trade Alerts report, I’d like to highlight some potential pullback opportunities following the market correction after the Fed meeting. I prefer to wait for signs of strength after a pullback rather than jumping in immediately. Just be cautious! Additionally, the Rationale watchlist has been updated. Some candidates from the "Not Acted Yet" list have been removed as their formations are no longer valid, so please adjust your watchlist accordingly.

Before diving into the Trade Alerts report, I’d like to share my thoughts on yesterday’s Fed meeting.

You can also find this week's market update video, where I share my perspective on the USD and related trade ideas. Please note that the video was recorded before the Fed meeting. 😊

Federal Reserve's Rate Cut and Market Implications

The Federal Reserve announced its third rate cut since September, reducing rates to 4.25%-4.5%. However, the key takeaway was the Fed's revised projections for 2025, signaling a slower pace of rate reductions. The Fed now anticipates only two 25bps cuts in 2025, down from the previously forecasted four.

Market reactions were swift:

S&P 500: Fell nearly 3%.
Treasury Yields: Rose to 4.5%.
US Dollar: Strengthened by 1.2%.

The Fed cited strong economic growth, low unemployment, and persistent inflation as reasons for its cautious approach.

What Should We Expect?

The Fed is approaching the "neutral" policy rate, where interest rates neither stimulate nor slow the economy. Key takeaways:

Further rate cuts depend on clear signs of moderating inflation or economic slowdown.
Strong economic growth and labor market conditions may provide FED room to not cut rates as fast as expected.
Upcoming inflation and labor market data will heavily influence future Fed actions.

Inflation Drivers to Watch:

Labor Market: Risks of a wage-price spiral. Seems under control.
Lagged Impacts: For example disinflation in shelter is improving but still not good enough. It is not considered as the biggest problem for now.
Trump Impact: Potential fiscal spending under Trump’s proposed policies, which could increase bond supply, lower bond prices, and push yields higher. The newest major risk on the inflation.

What to Buy?

Equities:

Use market dips to increase exposure to US equities via structured strategies.
Focus on sectors like technology and AI that benefit from resilient growth and earnings expansion.

Fixed-Income:

Allocate to high-quality bonds for income and diversification.

Precious Metals:

Allocating a portion to precious metals makes sense, as interest rates are likely to decline regardless of other factors. Additionally, uncertain market conditions are expected, especially after Trump takes office again on January 20th. The order of his pledges remains unclear, which could lead to increased market volatility. In this environment, precious metals could serve as a valuable hedge.

Magnite, Inc.-(MGNI/NASDAQ)-Long Idea

You can click the MGNI ticker above to access the first report explaining the details and rationale behind the trade idea.

Yelp Inc.-(YELP/NYSE)-Long Idea

You can click the YELP ticker above to access the first report explaining the details and rationale behind the trade idea.

AutoZone, Inc.-(AZO/NYSE)-Long Idea

You can click the AZO ticker above to access the first report explaining the details and rationale behind the trade idea.

Palo Alto Networks, Inc.-(PANW/NASDAQ)-Long Idea

You can click the PANW ticker above to access the first report explaining the details and rationale behind the trade idea.
The stock has had a stock split since the trade idea was first given, so the price shown in this chart will differ from the original trade idea.