Hey There Income Hunter,
The stars seem aligned for the stock rally heading into the midterm elections …
In the next couple of weeks, we will get the EU (Oct. 27), Fed (Nov. 2), and Bank of England (Nov. 3) policy meetings, with each body expected to raise rates a minimum of .75 basis points.
The following week brings the midterms, which are usually bullish for stocks, especially with a split Congress the most likely outcome.
Here is the seasonal pattern for the S&P 500 heading into midterms …
We may see some volatility over the next couple of weeks, but as you can see from the chart above, seasonals heavily favor a rally …
There are many good companies trading way below fair value that could benefit in the weeks ahead.
Today we’ll take a look at some of my favorites.
Meta Platforms
I know Mark Zuckerberg is the CEO everybody loves to hate, but the bottom line is Facebook is the No. 1 social network in the world and it’s a magnet for advertising dollars …
Not only that but, they are sitting on free cash flow of $35 billion and 38% average growth for the last 3-years.
This puts their fair value price up at over $325, so you would have to say a rally on news of a split Congress that may take some pressure off big business should benefit them …
The technicals and fundamentals come together for a META rally into the year end.
Meta has also rallied coming out of the past two earnings reports, so we could see a repeat of that after its upcoming earnings announcement …
Traders should consider a call spread to Dec. expiry or possibly a calendar spread …
Emerson Electric Co. (EMR)
EMR is a technology and engineering company. The company is experiencing strong demand and is sitting on record backlog orders.
It is an industrial powerhouse that has a wide moat protecting its $120 billion automation solutions business.
EMR also pays a $2.50 dividend and has $2 billion in free cash flow. With a fair value price of $113, it has plenty of room to rip higher if we indeed get a year-end rally …
Let’s check its recent chart pattern …
You can see in the chart above EMR is on the verge of breaking out above the 50 DMA …
It rallied strong into last quarter earnings and could be making a similar move into its Nov-2 earnings announcement …
I would love to see a dip back towards 76-77 before the earnings report and will look at something like an 80/90 call spread to December.
Bring It Home
I really like the way things are lining up for a year-end relief rally.
This is definitely based on a softer Fed after the next rate hike and the midterm elections …
We may also see a bit more of a pullback into Friday’s monthly options expiration (OPEX).
Look for SPX 3600 to hold through Friday, which offers a chance to get long into early next week.
20% of the puts below the market expire on Friday and that also could provide fuel for a rally as dealers will have to cover their short stock hedges once the short put positions expire.
Timing is everything and it may be time to look ahead to what could fuel a rally so you can be ready for it.
Stay tuned for more on that and until then …
Live and Trade With passion My Friend,
Griff