The Market Loves When a Problem is Resolved… or Postponed

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The rebound rally that started yesterday afternoon continued on Thursday, as Congress agreed to a short-term debt ceiling extension. The major indices rose for a third straight session today and are now all in the green for the week as we get ready for the main event.
The deal doesn’t solve the problem, of course, but it does delay the deadline to early December. Congress now has a lot more breathing room to get something done, compared to the October 18th deadline set by Treasury Secretary Janet Yellen. And investors can relax… about this issue at least.
The NASDAQ rose 1.05% (or about 152 points) to 14,654.02. The index started this week with a more than 2% plunge on Monday as tech was getting shellacked, but it’s now up for the week heading into Friday. It’s all set for a nice reversal from last week’s stiff decline of more than 3%.
The Dow rose 0.98% (or around 337 points) on Thursday to 34,754.94, while the S&P advanced 0.83% to 4399.76.
“The bulls continued to buy into the relief rally as the debt ceiling issue is all but gone now. To follow up what I said yesterday, we are kicking the can down the road, but time is a negotiators friend,” said Jeremy Mullin in today’s Counterstrike. “I don’t think we go straight back to highs as there is too much supply chain risk for upcoming earnings.”
Tomorrow is the main event of the week when the Government Employment Situation is released. The number could go a far way in helping the Fed decide when to start tapering asset purchases, which Chair Jerome Powell said “may soon be warranted” in late September.
Last month’s report was surprisingly soft with only 235K jobs added, compared to expectations of more than 700K. The market sees about 500,000 jobs added in September. We’ve already received some positive jobs data recently, including today’s jobless claims number of 326,000 for last week. The result was better than expectations of 345K and an improvement on the previous week’s 364K. Furthermore, yesterday’s ADP employment report beat forecasts as well.
Of course, these other reports are not necessarily harbingers of the big number tomorrow. So let’s see what happens…
Today’s Portfolio Highlights:
Commodity Innovators: A surge in fertilizer prices really turned things around for CF Industries (CF), which was almost stopped out not too long ago. But today Jeremy sold the stock for 21.2% in two months and considers it a “lucky win”. The new buy is American staple Deere & Company (DE), which you already know is the largest producer of agricultural equipment and manufacturing agricultural machinery. This Zacks Rank #1 (Strong Buy) reported a positive surprise of more than 18% in its last quarterly report, but shares are down about 15% from highs. That gives the editor a great entry point. He considers this a long-term hold and will collect a dividend of 1.25%. See the complete write-up for more on today’s action.
Home Run Investor: This portfolio sold five positions earlier this week, so it’s got some space to fill. On Thursday, Brian picked up Timken Steel Corp. (TMST), which he considers “a little defensive in nature but also has good growth numbers”. This Zacks Rank #1 (Strong Buy) easily beat earnings estimates for three straight quarters, amassing an average surprise of 30% over the past four quarters. The editor also thinks that TMST has a great valuation, especially for a company that posted topline growth of 112% in its most recent report. Make sure to read the complete commentary for more on this new pick.  
Counterstrike: Surging natural gas prices made a lot of money for Jeremy in his Commodity Traders portfolio… and now he plans to profit from the decline. The editor thinks that natural gas prices have topped out, so he bought a 5% position in ProShares UltraShort Bloomberg Natural Gas (KOLD) on Thursday. This inverse ETF moves opposite the commodity’s price. Jeremy warns that this move will be extremely volatile, but it will be a big winner if prices fall back under $5 (which he thinks will happen). By the way, the service also doubled its position in Roku (ROKU) by adding another 4%. The $300 level held and the editor believes it could get to $350 rather quickly. Read the full write-up for more on today’s moves.
Options Trader: “But it all leads up to tomorrow morning’s Employment Situation Report by the Bureau of Labor Statistics. While last month’s miss, and persistent worker shortages, has generated some anxiety over this month’s report, the improvement that other labor force reports have shown this week bodes well for this one.
“Tomorrow morning’s report is expected to show 475,000 new jobs were created last month (445K for the private sector and 30,000 for the public), while the unemployment rate is expected to have ticked down from 5.2% to 5.1%. But after Wednesday’s ADP report, many are going into the BLS report expecting a similar upside surprise. We shall see.
“After the jobs report, the focus will shift to Q3 earnings, which is expected to show another robust quarter of corporate profits.” — Kevin Matras
See You Friday,
Jim Giaquinto

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