Look Out Below

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Markets Fail Test

The indexes saw volatility last week and traded sideways with the S&P 500 failing to clear an important resistance level at around 4150. As predicted here, the narrative seems to have shifted from the belief the Fed will cut rates in 2023 to the realization the Fed is playing the long game and will keep rates higher for longer.

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The expected interest rates projections got updated, and that caused investors to recalibrate the likelihood of a recession and the impact of higher rates on stock prices. This was largely in response to higher than expected inflation readings for January, and higher than expected wholesale prices reported.

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Federal officials and various market influencers also weighed in to say the inflation fight is far from over - strap in for the main event because this ride is about to get bumpier.  

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Choking on Debt

The government also reported sobering news that the U.S. is choking on debt.

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Total household debt rose by 2.4 percent to $16.90 trillion in the fourth quarter of 2022, according to the latest Quarterly Report on Household Debt and Credit.

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Credit card balances increased by $61 billion to reach $986 billion, surpassing the pre-pandemic high of $927 billion. The share of current debt transitioning into delinquency increased for nearly all debt types.

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The higher costs for things are being paid for by debt. More defaults come next.

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Balloon Boys Exact Revenge

China retaliated for the U.S. shooting down its spy balloons by sanctioning Lockheed Martin and Raytheon from doing business via their military sales to Taiwan.

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Lockheed makes the planes that shot down the balloons and Raytheon makes the missiles.

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The sanctions prevent investments and doing business with these companies but is largely political theatre.

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KNOWLEDGE CORNER: MIND THE EARNINGS

We've setup the scenarios to find event catalysts. But it's important to know there are other events happening that could get in the way of the stock price moving in the expected direction - the most frequent being earnings announcements.

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Companies sometimes announce a bad earnings quarter at the same time as they announce a positive event, like a big dividend increase. An earnings announcement that fails to meet the expected amount can take the share price down, so it's important to keep an eye on whether the stock is reporting earnings the same day.  

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This is why we add the next earnings date in the event alert - so you can be aware of the confounding event. We also have the earnings dates on the application in the calendar section.

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For bullish scenarios, the win rate is typically affected by the earnings announcements and sometimes by the guidance the CEO provides for how they think the company is going to perform in the coming quarters. Keeping on eye out for these negative factors will leave you with a much higher group of winning trades.  

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The flip side here is that many times, the reaction to a slight earnings miss is overdone. The traders, not the investors, are controlling the price action and they dump the stock at the first sight of the words "missed earnings estimates."

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For companies operating with positive cash flow, growing revenue, increasing earnings, and other positive event catalysts, this overreaction can mark a great entry point for a swing trade or longer term hold.

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CASE STUDY: BLMN DIVIDEND INCREASE

Bloomin Brands (pictured above) announced a monster dividend increase last week - a 71% increase. Shares popped in response to the restaurant stock's announcement which came at 7am, February 16th.  We sent an event alert soon afterwards.

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As is usually the case, volume was low premarket and jumped at the open following a short downturn in price.

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The stock opened at 25.63 per share and rose from there to a day high of 27.94 per share at 1pm ET. The gain from the opening price was 8%. The gain from the alert was +5.4%.  And the 1-Day Impact, calculated as the closing price prior to the event to the closing price after the event was +8%.

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It's important to note the company reported earnings that slightly beat estimates as well. However, perhaps more important to note is the fact there are multiple entry and exit points throughout the day here as well as a variety of different trade setups.

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The second day of trading also shows an interesting pattern, with the stock losing most of its gains by afterhours on Day 1, then rebounding on Day 2 +4%.

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Why does this happen? Sometimes the stock gets oversold following a big move, as investors look to sell of profits. This creates a new entry point.

News outlets also cover stocks at different intervals. Often the same event will get coverage for up to a week after the event. Each mention can continue driving share price movement as those who aren't LevelFields users read the dated news.

Note the date on this Yahoo Finance article, written and published 3 days after the event as though it just happened. The web is riddled with older news stories of events. If you received our alerts, you knew about the event not just hours before the bulk of the market, but days before many others heard about.

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Key takeaway: just because you heard about the event and the company announced it doesn't mean others have learned about it yet. Most of the market's investors aren't able to move quickly enough or read through news fast enough to keep up with AI, or you now.

They are feeding their kids breakfast. They are sitting in their cars in traffic. They are in meetings. They are doing work. They are surfing for concert tickets. They are asking ChatGPT creepy questions. They are doing a lot of things besides monitoring 6300 stocks for news as our system does for you for 63 cents a day. Yes, that is the daily cost of LevelFields' AI (and these news analyses).

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Key Earnings Announcements This Week

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February 20

• The market is Closed in observance of Presidents Day

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February 21

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• Home Depot (HD)
• With demand for home improvement staying strong through 2022, investors will be looking for an outlook for 2023 as interest rates are rising and the sentiment for the housing market becomes increasingly dim.

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• Walmart (WMT)
• As the consumer becomes more distressed, WMT earnings could reveal strong revenue.

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• Coinbase Global (COIN)
  
• The crypto market has faced mounting pressure due to heightened regulatory scrutiny.

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• Other Notable Earnings:
• Diamondback Energy (FANG)
• Public Storage (PSA)

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February 22

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Nvidia (NVDA)

• Factors to watch: Outlook on spending, performance in their data centers, gaming software, and supply chain issues.

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Lucid Group (LCID)

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Other Notable Earnings:

• Extra Space Storage (EXR)
• PDC Energy (PDCE)

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February 23

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Alibaba (BABA)

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Other Notable Earnings:

• Domino's Pizza (DPZ)
• Cars.com (CARS)
• Cheniere Energy (LNG)

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February 24

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Notable Earnings:

• Carter's (CRI)
• Cinemark (CNK

See More in the Earnings Calendar

Economic Reports:

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2/23

• US GDP
• Initial Jobless Claims

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2/24

• PCE Index
• Core PCE
• New Home Sales
• Consumer Sentiment

The LevelFields Team